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Frequently Asked Questions
Are Noncompete Agreements Enforceable?
Any Pittsburgh lawyer can tell you right up front: a contract is often enforceable.
Pennsylvania's Attorney General has supported the FTC's proposed ban on noncompetes, but Pa has yet to outright ban non-compete agreements. Thus, in Pa, a non-compete will be enforceable, unless the Plaintiff can show that the non-compete is (1) reasonably limited in scope, (2) necessary to protect the employer's important business interest, (3) supported by consideration, and (4) reasonable as to not impose an undue hardship on the employee.
Has Pennsylvania Banned Non-Compete Enforcement?
No. Pennsylvania has no plans of banning non-competes.
Although PA's attorney general (Democrat Michelle Henry), supports the FTC's ongoing action to ban non-compete agreements nationwide, a non-compete will remain legal, depending on the evidence, discussed below. In fact, when the ban had been proposed, there was dissent within the FTC itself, as to whether the FTC's ban of noncompetes could withstand judicial scrutiny.
Can a Court Re-Write the Agreement?
Yes. In fact, noncompetes are one of the only types of agreements that a court may re-write to make it more "fair." Here, however, a court can limit the length of the non-compete, the geographic scope, or find the entire agreement unenforceable as "unfair."
What Really Matters For Noncompete Enforcement?
A noncompete clause or agreement (or the anticipated violation of it) can create a significant problem for employers (protecting their trade secret) and also the employee (seeking to earn a living even if it means the violation of a non-compete).
Each party to a noncompete agreement will benefit from speaking with experienced commercial litigation counsel as early as possible because of the nature of how these disputes play out. There may exist a creative solution that saves the parties' time and money. The best lawyer for the job should have at least three qualities:
1. Experience - knowing the judge's track record and how the court will likely decide the matter;
2. Problem Solving Skills - the ability to craft a creative solution when one exists; and
3. Communication Skills -- the ability to convince the opposing party why he should soften or back down from his position.
This area of law (concerning non compete agreements) involves commercial litigation and is not something that general practitioners can easily handle, the way they might get involved alternatively in wills and a simple car accident case ("Was the light red or green?")
Each non-compete agreement dispute involves a detailed (but fairly simple) balancing of interests. The lawyer has to realize that, judges are people, too. Judges do not like to see any worker barred from working in his field to support a family, especially during a soft economy. At the same time, a non-compete clause can play a vital function for the survival and growth of a business. A company deserves the benefit of its trade secrets (such as proprietary procedures customer lists), but those can travel down the street and into the welcoming arms of a competitor if an important employee -- who functions at a high level for the business -- goes to work for the competition.
Zealous and experienced advocacy is needed in these matters. The attorney should be experienced with commercial litigation, first of all. Secondly, because the court is weighing factors and considering "fairness," the Pittsburgh lawyer must look closely at all the evidence and be prepared to sway the court's opinion to show that his client's position is "right" and "fair."
This is not time to focus on the law, alone. This is not a law school exam. The lawyer should have a deep familiarity with the fact and equities of the particular case, and how the judge assigned to the case has ruled in the past, so that the client can be best advised about the likely outcome.
When to Fight, or Compromise?
Each party to a noncompete should know when to fight aggressively, and when to compromise, if possible. An experienced lawyer can make recommendations. There may be room for compromise. For example, the employer seeking to hire an employee (in possible violation of a non-compete) will often pay the employee's defense costs and even offer to buyout the non-compete. But let's start at the beginning: the case evaluation.
Noncompete: The Employer Side, First
A business will likely fail in the marketplace if other businesses are permitted to poach its trade secrets and/or staff of mid-to-high level employees and decision makers. The employer has a right to prohibit certain types of employees from going to work for competitors or starting their own business to compete with the employer.
Key employees. Courts will enforce a noncompete agreement involving an officer, manager, sales person with knowledge about special relationships with particular customers (not just lists of public information), important rep, others in management, innovators, policy makers, and those with intimate knowledge about what gives a business its special edge. A court will enforce a non-compete and restrain an employee from working so long as the employer proves that:
1. The employer has a protectable interest in certain business activity;
2. The geographic restraint of competition is reasonable; for example, a trial court enforced a non-compete against an accountant, and the superior court in part but remanded given the non-compete had been enforced with an unlimited geographic area of application. See the non-precedential opinion: PFB MEMBERS'SERVICE, CORPORATION v. ECKENROAD, Pa: Superior Court 2020, No. 801 MDA 2019.
3. Time period of the restraint is reasonable; ;
4. The absence of an undue hardship on the employee;
5. The employer paid good and valuable consideration for the non-compete clause;
6. Most importantly, the court will balance or weigh the employer's protectable interest versus burden of enforcement on the employee/former employee.
Claim Against the Employer For a Noncompete
The employer must be careful to avoid acting recklessly when attempting to enforce a non-competition agreement. First, there must be a reasonable suspicion that the employee is, in fact, competing improperly. Otherwise, the employer can be liable for commencing a frivolous lawsuit as a wrongful use of civil proceedings codified at42 Pa. Cons. Stat. § 8351, i.e, Pennsylvania's "Dragonetti Act."
Employer Tort Liability For Noncompete Violation
The employer should think twice before sending a letter -- or law suit -- to the employee's new employer. This could expose the employer to a suit based on intentional interference with the employee's new employment.
Before hiring a Pittsburgh lawyer to file suit to enforce a non compete agreement, the employer should hire a private investigator or have some other credible evidence to form a belief that improper competition occurred. Plus, the employer should be careful to avoid having its investigator discover information by improper means that could be a violation of privacy at common law or by statute, such as HIPAA.
Once its burden of proof is met, the employer can obtain an "injunction" related to the noncompete. That's when a court restrains an employee from working in a certain field or industry or communicating trade secrets. A court may award the moving party money damages and attorney fees, depending on the defenses available.
Drafting the Non-Compete Clause
It is virtually impossible to quantify the damages sustained from unfair "competition." For this reason, the courts will restrain or "enjoin" an employee from improperly competing as there may exist no adequate remedy at law. That said, the employer can and should include in the non-compete agreement the right to recover attorney fees and costs of litigation. A savvy employer will build into the agreement the employer's right to recover for estimated costs that the employer has (or will) spend to train the employee. Those costs should be itemized as specifically as possible.
Avoiding Litigation. As a practical matter, prior to litigation of a non-compete (and to avoid litigation), it helps to give the employee a reward or incentive to obey the non-compete, such as making severance packages payable in stages based upon non-competition, for example.
Fighting in Court. In court, when your Pittsburgh lawyer is enforcing a non-compete, the employer should demonstrate exactly how it fully considered the interests of both the employer and employee at all times, and why it is crucial to the employer's business that the restrictive covenant be enforced.
Noncompete Agreements: The Employee Perspective
One question that employees ask is: "What should I say to the employer seeking to hire me (in violation of the non-compete)? Should I mention the non-compete?" Doing so may jeopardize the new job opportunity. However, by not disclosing the non-compete, your Pittsburgh lawyer could expose your prospective employer to liability for tortiously interfering with your contract with your previous employer and/or civil conspiracy.
Why?
The previous employer will assume that the competitor knew about the non-compete. Plus, the prospective employer may want to hire the employee more than she realizes, and offer to pay the employee's legal expenses to battle with her former employer over the non-compete.
In terms of the law, absent a non-compete agreement or breach of a confidential relationship, a worker may compete with his employer while still in its employ, and an employee is free to leave his employment and enter into competition with his former employer. Metal Lubricants Co. v. Engineered Lubricants Co., 411 F.2d 426, 429-30 (8th Cir. 1969).
A covenant not to compete is binding, though the courts will interpret it narrowly and strictly. A court will restrain an employee from working so long as the employer proves the above elements 1-6 as set forth above.
Overall, covenants in restraint of business activity are not favored, will be strictly and narrowly construed, and in the event of an ambiguity, will be construed in favor of the worker. Richardson v. Paxton Co., 203 Va. 790, 795, 127 S.E.2d 113, 117 (1962), see also, Hess v. Gebhard & Co. Inc., 808 A. 2d 912 - Pa: Supreme Court 2002. It is the employer's burden to prove that the restraint sought is no greater than necessary to protect a legitimate business interest, is not unduly harsh or oppressive in curtailing an employee's ability to earn a livelihood, and is reasonable in light of sound public policy. Roanoke Engineering Sales Co., Inc. v. Rosenbaum, 223 Va.548, 552, 290 S.E.2d 882, 884 (1982).
What are the Defenses to a Noncompete Agreement?
Consideration For a Noncompete
A non-compete is a contract; as such, it may be rendered unenforceable for lack of consideration. An employee’s acceptance of employment at-will is sufficient consideration to support a restrictive agreement by an employee. Morgan’s Home Equip. Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838, 846 n.14 (1957). On the other hand, if the non-compete is totally one sided (in favor of the employer) and not created contemporaneous with acceptance of employment, the enforceability will be questionable, and the court may not restrict competition.
In Pennsylvania, a non compete agreement signed after an employee has begun working can be sustained only if supported by promise or payment. Insulation Corporation of America v. Brobston, 446 Pa. Super. 520, 529; 667 A.2d 729, 733 (1995). Here in PA, the courts look to whether the employee enjoyed a beneficial change in status, and if so, sufficient consideration will exist to support a restrictive covenant agreed to after employment commences. See the Pennsylvania Supreme Court's decision in M.S. Jacobs & Assocs. v. Duffey, 452 Pa. 143, 303 A.2d 921, 922 (1973).
Recently, in Rullex Co. v. Tel-Stream, Inc., No. 27 EAP 2019 (Pa. 2020), the Pennsylvania Supreme Court opined:
Hence, the test for whether new consideration is required has not ordinarily centered on whether the employee physically executed the agreement precisely on (or before) the first day of employment. Rather, and as explained, restrictive covenants have been deemed enforceable absent fresh consideration in situations where the parties contemplated and intended that, incident to the employment relationship, the employee would be bound by its substantive terms — and the employee ultimately signed it shortly after the first day.
This is in contrast with circumstances where a non-compete agreement is imposed on an employee essentially as a belated addition to the employment relationship. See generally Jordan Leibman & Richard Nathan, The Enforceability of Post-Employment Noncompetition Agreements Formed After At-Will Employment Has Commenced: The "Afterthought" Agreement, 60 S. CAL. L.REV. 1465, 1472 (1987) (referring to these as "afterthought agreements"). In Maintenance Specialties, Inc. v. Gottus, 455 Pa. 327, 314 A.2d 279 (1974), for example, this Court found a non-compete clause unenforceable where it was not in the original, oral employment contract, but appeared when the contract was reduced to writing the next year and was unsupported by new consideration. See id. at 330, 314 A.2d at 281.
In making an assessment along these lines, it may not be necessary to prove an actual, subjective "meeting of the minds," as objective manifestations of assent and/or an intent to be bound by the covenant's substance can suffice. Accord Commonwealth v. Burno, 648 Pa. 228, 232, 192 A.3d 74, 76 (2018) (per curiam) (Wecht, J., concurring) (citing, inter alia, Liss & Marion, P.C. v. Recordex Acquisition Corp., 603 Pa. 198, 210, 983 A.2d 652, 659 (2009) (holding that the intention to enter into a contract may be inferred "from acts in the light of the surrounding circumstances"), and Rambo v. Greene, 906 A.2d 1232, 1236 (Pa. Super. 2006) (holding 628*628 that "objective manifestations" may establish an intent to be bound absent a formal "meeting of minds")).[7]
As we view the record, there is no evidence suggesting that, as of the commencement of the employment relationship, there was a meeting of the minds as to the NCA, or that Karnei otherwise manifested his assent to provisions of the NCA that Rullex gave him or an intent to be bound by them.
In certain other states, even though an employer fails to reference any restriction on post-employment competition, a covenant signed after the employment started provides sufficient consideration for an enforceable covenant, and the court may stop competition by that former employee. See, e.g., Herr v. Heiman, 75 F.3d 1509, 1514-15 (10th Cir.1996); Ellis v. James V. Hurson, 565 A.2d 615, 620 (D.C. 1989)(substantial period of employment following signing of covenant); Paramount Termite Control, 380 S.E.2d at 926; Marine Contractors Co. v. Hurley, 365 Mass. 280, 310 N.E. 2d 915 (1974)(subsequent covenant is ancillary to original employment contract).
Still other jurisdictions hold that a non compete agreement that is not included in the original employment contract, but added later in a contract for ongoing employment, is voidable for lack of consideration. Universal Hosp. Serv. Inc. v. Henderson, D. Minn., No. 02-951, 5/20/02 (there, the court denied an employer’s effort to restrain a former employee from working for competitor, finding non compete agreement may be invalid because not signed until five days after employment commenced); Pacific Veterinary Hosp. v. White, 72 Or.App. 533, 696 P.2d 570, 573 (1985).
Termination of Employee
Some jurisdictions deny enforcement following a termination. Either way, unless the termination relates to the theft of trade secrets or disloyalty, termination creates a tricky issue for the employer. The employer will have a difficult time explaining why its interests would be impaired by the employee going to work for a competitor, if the employer no longer has use for the employee or the employee is incompetent (allegedly).
Material Breach By Employer. In some jurisdictions, courts will not enforce a restraint included in an employment agreement if the employer materially breaches that agreement in terminating the employee. In other states, courts will refrain from enforcing restraints against employees terminated without cause.
When is Enforcement Likely?
There are at least two instances where enforcement of the non-compete (or non competition) clause will be likely in PA: (1) where trade secrets are involved, and (2) where the noncompete agreement occurs in the context of the sale of a business.
(1) Protected Information Related to the Noncompete
Covenants not to compete are enforced to prevent the misuse of employer information such as trade secrets, customer routes, client lists, and established customer relationships. See Intelus Corporation v. Barton, 7 F. Supp. 2d 635, 638 (D. Md.1998); Becker v. Bailey, 268 Md. 93, 299 A.2d 835, 838 (1973). A trade secret is a formula, practice, recipe, ingredient list, customer list, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers.
(2) Sale of a Business
Non-competes are especially enforceable in regard to the sale of a business. Even judges who have a reputation for never enforcing a non-compete against an employee may enforce a covenant not to compete entered into between businesses. This accords with common sense. A person or entity receiving payment for the sale of a business cannot then compete with a business it recently sold, business-to-business non-competes are treated differently.
Importantly, however, one business's noncompete agreement with an employee cannot be assigned to another business. The supreme court of Pennsylvania has held:
[W]e are persuaded that the better rule in deciding whether restrictive covenants are assignable is that the employment contract, of which the covenant is a part, is personal to the performance of both the employer and the employee, the touchstone of which is the trust that each has in the other. The fact that an individual may have confidence in the character and personality of one employer does not mean that the employee would be willing to suffer a restraint on his employment for the benefit of a stranger to the original undertaking. Therefore, we hold that a restrictive covenant not to compete, contained in an employment agreement, is not assignable to the purchasing business entity, in the absence of a specific assignability provision, where the covenant is included in a sale of assets. SeeHess v. Gebhard & Co. Inc., 808 A. 2d 912 (Pa. 2002).
What if There is No Written Non-Compete Clause?
In the absence of a written non-compete, can a worker be precluded from going to work for a competitor of her employer? In Pennsylvania, the answer is yes. Pennsylvania, like many other states, has something called the Inevitable Disclosure Doctrine ("the Doctrine"), which is simply: If a high level worker who is privy to trade secrets goes to work for a competitor ("Second Employer"), it is "inevitable" that said worker will disclose secrets to the second employer and thus, the courts, in certain circumstances, will restrain said worker from working for the Second Employer. Pennsylvania, however, had modified the Doctrine to not assume that disclosure is "inevitable." Rather, some courts have held that relief is justified only if it would be impossible for the employee to perform the new job without using the information, while others have applied a considerably more employer-friendly standard. To date, the Pennsylvania Supreme Court has not weighed in on any aspect of the Doctrine.
The Doctrine has evolved over the years, as a Pittsburgh lawyer can tell you. For example, a judge must consider numerous factors in applying the Doctrine, such as whether:
- The employee is a high level person
- The second employer is in direct competition with the first and offer the same products or services;
- The employee's job for the second employer is virtually identical to his first position;
- The information at issue qualifies for trade secret protection;
- The trade secrets at issue are highly valuable to both the old and the new employers; and
In leaving her employment, the employee engaged in bad faith.
Is a Non-Compete Agreement Transferrable?
The answer is yes. In Hess v. Gebhard & Co. Inc., 808 A. 2d 912 (Pa. 2002), the Supreme Court of Pennsylvania recognized that an employer could transfer a non-compete to a successor company.
Does Liability Insurance Cover the Defense of a Noncompete Action?
No.
A defendant's homeowner's insurance or renter's insurance will not cover the defense of a non-compete lawsuit, because insurance does not cover your failure to abide by a contractual clause. Click here to learn why.
How Does Litigation Proceed Regarding a Non-Compete Provision?
The plaintiff files a Complaint plus a motion to enjoin the Defendant from competing with the Plaintiff. Then, a judge -- not a jury -- decides whether the noncompete is enforceable, so the processes is streamlined, meaning, there is no jury picking, and the rules of evidence are much more relaxed, because the judge ruling on objections also hears the case (and the evidence). Make sense?
What Discovery is Allowed Relative to a Noncompete Dispute?
ANSWER - Here.
Many wonder: what will happen in a non-compete case in terms of the questions the employer can ask the employee? Thus, can the employer use the litigation to harass the outgoing employee through the burden litigation, taking secrets or clients, or other workers with him or her?
Who Pays For Attorney Fees if You Win?
In Pennsylvania, each side pays their own attorney fees, unless they have a contract indicating that one must pay the other's attorney fees, for a dispute.
This is important. Thus, before your noncompete lawyer commits you to years of litigation -- to defend a noncompete -- look the agreement. Does it say you have to pay your legal fees plus the employer's costs of suit, if he wins?
Recently, PA's Supreme Court found that an employer's legal fees incurred beyond the duration of the one year noncompete could also be recovered from the employee violating the noncompete. Vinculum, Inc. v. Goli Technologies, LLC, 310 A. 3d 231 - Pa: Supreme Court 2024.
Do All States Honor Non-Compete Agreements?
A Pittsburgh lawyer will tell you: the answer is no. Even though most U.S. states enforce non-compete agreements, a few states -- including California, Montana, North Dakota, and Oklahoma, outright ban non-compete agreements for employees, or prohibit all noncompete agreements unless in certain narrow situations.
This may prove to be important for employers and employees: what happens when the employee move to a state that bans non-competes? The answer is simple: the judge in that state need not enforce a non-compete, even if another judge in another state (that allows non-competes) ordered enforcement. This is because, the constitutional requirement for one state courts to honor the judgments of another state ("full faith and credit clause" of the US constitution) does not require a state to apply another state's law or order if it is repugnant to state policy.
Thus, quite possibly, states such as California, Montana, North Dakota, and Oklahoma could find it "repugnant" to enforce the order of a Judge in Pennsylvania finding the validity of -- a non-compete. You should to a lawyer about how each state's law might apply to a non-compete.
Status of the Federal "Ban" on Noncompetes?
Great question. A federal judge has struck down the FTC's attempt to ban non-competes, but the matter will make its way all the way up to the Supreme Court. In the interim, the law governing non-compete clause enforcement will remain in flux.
Click here for more details about the history of the FTC's attempted ban. The bottom line is, only Congress can pass new law, and so the FTC's efforts will almost certainly fail based separation of powers concept in our Constitution. Until then, the legality of a non-compete
Has Pennsylvania Banned Non-Competes?
No. While some states have outright such as California banned the enforcement of a non-compete agreement, Pennsylvania has not banned the enforcement of a covenant not to compete. That said, effective January 1, 2025, Pennsylvania will limit the scope of non-competes for certain (but not all) healthcare workers to one year, but only where the employer has quit, and was not fired for cause. This is the Fair Contracting for Health Care Practitioners Act (the “Act”).
The limits only apply to a "health care practitioner." And then, the non-compete is allowed, but a new law limits the duration of a "health care practitioner"'s noncompete. It exceed one year, and no noncompete can be enforced against a practitioner whom the employer had fired. Click here for more.
Noncompetes Apply to Doctors, But Not Lawyers?
Yes, it's true. A doctor (physician) can be bound by a non-compete, click here for more, but a lawyer cannot. Click here for why lawyers are exempt.
Who will decide the noncompete dispute?
In PA, it depends on the relief sought in the lawsuit. If the plaintiff seeks and injunction to restrain the defendant from working, or sharing secret information, etc., only a judge can decide.
If, however, Plaintiff seeks money damages, alone, the Plaintiff can seeks a jury trial, which is a right in some but not all instances. Click here for more. That said, if the parties agreed to resolve all disputes in commercial arbitration alone -- outside of the courts -- then neither a judge nor a jury will be involved.
Our Reasonable Flat Fee For Noncompete Review
We charge only a reasonable flat fee, to review your non-compete and talk to you about your options.
Our Pittsburgh firm represent both plaintiffs and defendants in these matters at every stage in the courts in Allegheny County and throughout Western PA. We also serve as local counsel for people outside of Pennsylvania who are sued in Western PA (or are looking to sue). We can help you with any non-compete agreement issue in Western PA, including Allegheny, Beaver, Butler, Washington, Greene, and Westmoreland Counties.
What's the Pennsylvania Case History On This?
Below are appellate cases in Pennsylvania over the years that a Pittsburgh lawyer handling non-compete agreements should highlight:
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- In ATS TREE SERVICES, LLC v. Federal Trade Commission, a federal court in Pennsylvania declined to strike down the attempted FTC ban on noncompetes. That said, the Ryan decision remains the law nationwide, effectively striking down the FTC ban on noncompete enforcement.
- "In this appeal we consider whether no-hire, or "no poach," provisions that are ancillary to a services contract between business entities are enforceable under the laws of this Commonwealth. For the reasons that follow, we hold the no-hire provision in this case is not enforceable, and therefore affirm the order of the Superior Court." PITTSBURGH LOGISTICS, INC. v. BEEMAC, LLC, 249 A. 3d 918 - Pa: Supreme Court 2021.
- The lower court decided against enforcing a non-compete against a board certified doctor. On appeal, the appellate court found the issue was moot, since the time period of the non-compete had expired by the time the appeal was heard. Geisinger Clinic v. Rogan, Pa: Superior Court 2021 (non-precedential opinion).
- Appeal to order sustaining preliminary objection was pre-mature, as the lower court's order was not "final." AIA AMERICAN INSURANCE ADMINISTRATORS, LLC v. BUYAKOWSKI, Pa: Superior Court 2021.
- The appellate federal court ruled that a material issue of fact existed regarding a noncompete. There, an employer had terminated an employee allegedly bound by a non-compete. The trial court had therefore erred in granting summary judgment against the Plaintiff. Binh Hoa Le v. Exeter Finance Corp., 990 F. 3d 410 - Court of Appeals, 5th Circuit 2021.
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