Non-compete agreements are a staple in the toolkit of many employers to protect their business interests. These agreements restrict employees from joining competing firms or starting similar businesses within a certain period and geographical area after leaving a company. However, the legal landscape governing non-compete clauses in Pennsylvania and across the nation is evolving, potentially reshaping how these agreements are drafted and enforced. The Bethlehem Employment Litigation Lawyers at Leeson & Leeson work with our clients to handle all aspects of employment litigation, including non-compete agreements.
In recent years, there has been a growing movement to limit the scope of non-compete agreements to protect employee mobility and prevent unfair restrictions. Pennsylvania, like many states, is scrutinizing these agreements more closely, focusing on their impact on employees and the competitiveness of the labor market.
A key case related to the enforcement of non-compete agreements in Pennsylvania is Rullex Co. LLC v. Tel-Stream, Inc. This case was particularly significant because it addressed the adequacy of consideration required for non-compete agreements signed after the commencement of employment. The Pennsylvania Supreme Court clarified that a non-compete agreement needs to be supported by adequate consideration beyond mere continued employment if it is signed after the employee has started working. Essentially, the court held that the timing of when a non-compete agreement is signed is crucial, and any agreement signed after the first day must come with additional benefits to the employee, such as a promotion or pay raise, to be enforceable.
The ruling underscores the importance of employers ensuring that non-compete agreements are discussed and ideally signed at the onset of the employment relationship. If the agreement is to be signed later, there must be clear, additional consideration given to the employee. This case serves as a crucial reminder for businesses to review their practices concerning the timing and consideration of non-compete agreements to ensure they align with current legal standards and are enforceable under Pennsylvania law.
On the federal level, the Federal Trade Commission (FTC) has proposed a new rule that would ban non-compete clauses nationwide, arguing that they constitute an unfair method of competition. This proposed rule, if adopted, would preempt state laws and could significantly impact how non-compete agreements are used by employers in Pennsylvania.
The Biden administration has expressed strong support for reducing barriers to job mobility, which includes limiting the use of non-compete clauses except in very specific circumstances, such as in connection with the sale of a business or dissolution of a partnership.
Given these developments, employers in Pennsylvania should consider several practical steps:
The legal environment surrounding non-compete agreements in Pennsylvania is shifting, with a clear movement toward limiting their scope and enforceability. Employers need to be proactive in understanding these changes and adapting their employment contracts to meet legal standards while still protecting their business interests. At Leeson & Leeson, our Bethlehem Employment Litigation Attorneys are committed to helping our clients navigate these complex issues and adapt to the evolving legal landscape.