The Pennsylvania Supreme Court has clarified rules for noncompete agreements entered into after an employee has been hired. It has concluded for the first time that the employer must offer the employee (and the employee must accept) something of value beyond just a mutual promise to make the agreement binding.
This has practical consequences for employers adopting or modifying employment agreements.
Recent case: David worked for a basement waterproofing company in Pennsylvania. During his employment, his employer presented him with a noncompete agreement in which he promised for two years not to work for a competitor in any state in which his employer did business if he was separated from employment. The parties signed the agreement with a mutual promise that it would bind them.
Two years later, David quit. He then took a job with a basement waterproofing company located in Camp Hill. Soon, his former employer told the new company about the noncompete agreement and threatened to sue.
The new company then fired David, who sued his old company, arguing that the noncompete agreement was invalid because it had been signed mid-employment and David had not received anything of value for agreeing to the terms.
The case ended up in the Pennsylvania Supreme Court, which ruled that continued employment was not enough “consideration” to seal the deal. The employee had to receive something of value like a bonus, a raise or other benefit. (Socko v. Mid-Atlantic Systems, No. J-40-2015, Pennsylvania Supreme Court, 2015)
Final note: Consult your attorney to see if your noncompete agreements will be valid under this new ruling or if you need to make modifications.