Pennsylvania’s Non-Compete Agreement Laws: What You Need to Know

In today’s competitive business landscape, companies often seek ways to protect their trade secrets, customer relationships, and confidential information. Non-compete agreements, also known as restrictive covenants, have become a popular tool for businesses to safeguard their interests. However, these agreements are subject to state-specific laws, and Pennsylvania has its own set of rules governing non-compete agreements. At Gibson & Perkins, PC, we understand the importance of navigating these laws for both employers and employees. In this article, we will provide an overview of Pennsylvania’s non-compete agreement laws, their requirements, and their implications.

Understanding Non-Compete Agreements:

Non-compete agreements are contractual arrangements between employers and employees, where the employee agrees not to work for a competitor or start a competing business for a specified period after the termination of employment. These agreements aim to prevent employees from using their knowledge and relationships gained during employment to compete against their former employer.

Enforceability of Non-Compete Agreements in Pennsylvania:

Pennsylvania takes a cautious approach to non-compete agreements, emphasizing the protection of an individual’s ability to earn a livelihood. As a result, these agreements are scrutinized closely to ensure they are reasonable and necessary to protect the employer’s legitimate business interests.

To be enforceable in Pennsylvania, non-compete agreements must meet certain requirements:

• Consideration: There must be adequate consideration for the agreement, meaning the employee must receive something of value in exchange for signing the non-compete. This consideration could be a job offer, a promotion, additional compensation, or access to confidential information.
• Limited in Scope: The agreement must be reasonable in its geographic scope, duration, and the nature of the restriction. The restrictions should not be broader than necessary to protect the employer’s legitimate business interests.
• Legitimate Business Interest: The employer must demonstrate a legitimate business interest justifying the need for the non-compete. This could include protecting trade secrets, confidential information, customer relationships, or specialized training provided to the employee.
• Not Unduly Burdensome: The agreement should not impose an undue burden on the employee’s ability to find alternative employment or pursue a livelihood.

Factors Influencing Enforceability:

Pennsylvania courts consider several factors when determining the enforceability of a non-compete agreement:

• Geographic Scope: The restriction’s geographic scope should be limited to the area where the employer conducts business or where the employee’s influence was significant.
• Duration: The agreement’s duration should be reasonable and based on the time required to protect the employer’s legitimate interests. Typically, non-competes lasting more than one to two years may be scrutinized more closely.
• Type of Employment: The nature of the employee’s job and the specific business interests being protected will be taken into account. High-level executives may have broader restrictions compared to lower-level employees.
• Consideration: The adequacy of consideration offered to the employee in exchange for signing the agreement will be evaluated.

The Impact on Employees:

Non-compete agreements can have significant implications for employees, especially if they are considering changing jobs or starting their own businesses. The restrictions imposed by these agreements can limit their career options and potentially hinder their ability to earn a living in their chosen field. Employees need to carefully review the terms of any non-compete agreement before signing to fully understand its scope and potential impact on their future opportunities.

Negotiating Non-Compete Agreements:

It is essential for employees to remember that non-compete agreements are negotiable. Before accepting a job offer that includes such an agreement, employees can discuss the terms with their prospective employer. By engaging in open and honest communication, employees may be able to modify the agreement to make it more reasonable and less restrictive. For instance, they can request a narrower geographic scope or a shorter duration, tailored to their specific role and industry.

Employers, too, should recognize the importance of striking a balance between protecting their interests and not unduly burdening their employees. Drafting overly broad or unreasonable non-compete agreements can lead to legal challenges and damage the employer’s reputation. Seeking legal counsel during the negotiation process can help employers ensure their agreements are fair, enforceable, and aligned with Pennsylvania’s non-compete laws.

Legal Recourse for Breach of Non-Compete Agreements:

When an employee violates a non-compete agreement, employers may seek legal recourse. However, enforcing these agreements can be challenging, and the burden of proof lies with the employer. The employer must demonstrate that the agreement is reasonable, necessary to protect their legitimate business interests, and that the employee has violated its terms.

On the other hand, employees facing potential legal action for breach of a non-compete agreement should seek legal representation to understand their rights and options. In some cases, employees may have valid defenses to challenge the enforceability of the agreement, such as proving that it is overly broad or that they were terminated without cause.

Navigating Pennsylvania’s non-compete agreement laws can be complex and requires a comprehensive understanding of both the legal requirements and the specific business interests involved. At Gibson & Perkins, PC, our experienced team of employment law attorneys can assist both employers and employees in drafting, reviewing, and litigating non-compete agreements. Whether you need guidance on creating a reasonable and enforceable agreement or you believe your non-compete is overly restrictive, our skilled attorneys are here to help. Contact us today to discuss your non-compete agreement needs and protect your interests.