The Martin Law Firm Blog

     A non-compete agreement is a contract between an employer and an employee whereby the employee agrees not to engage in direct competition with the employer for a specified time period after the employment relationship has ended.  Most non-compete agreements specify that the employee may not work for a director competitor of the employer, nor may the employee start his or her own business to become a director competitor of the employer.

     Non-compete agreements must be reasonable in duration and geographical scope.  Pennsylvania courts use a balancing test to determine whether the designated time period and area are reasonable in light of the nature of the employer's interest sought to be protected.  In drafting a non-compete agreement, an employer must carefully consider what restrictions will be reasonably necessary to protect the business.

     Pennsylvania courts will not enforce a non-compete agreement unless there is a legitimate interest of the employer that is protected by the covenant.  Recognized legally protectable interests include the employer's relationship with its customers, unique or extraordinary skills, trade secrets and confidential information.  See Hess v. Gebhard & Co., 570  Pa. 148, 157, 808 A.2d 912, 917 (2002).  

     In Pennsylvania, a non-compete agreement must be supported by adequate consideration.  This means that the employee must receive some identifiable benefit through execution of the agreement.  If the non-compete agreement is signed at the commencement of the employment relationship, this will usually be deemed sufficient.  If the non-compete agreement is signed at a point in time subsequent to the commencement of the employment relationship, Pennsylvania courts have held that the agreement must be supported by new consideration.  Some examples of adequate new consideration are an increase in benefits, a raise, or a promotion.  

     A Pennsylvania non-compete agreement has significant legal consequences for both the employer and the employee.  Always have an attorney review your contract before signing it.