Many companies use restrictive covenants such as non-compete, nondisclosure and non-solicitation agreements to protect legitimate business interests. However, courts are increasingly scrutinizing such agreements, particularly non-competes, as part of employment contracts.
A non-compete agreement, contract or clause, if enforceable, prohibits the employee from accepting employment with certain competitors for a certain period of time.
It’s important to consider that non-compete agreements can put former employees at a distinct disadvantage in the job market and may create real hardship. Courts will balance the interests being protected by the non-compete agreement with the restraint on trade and restrictions on former employees’ employment prospects.
In Pennsylvania, the courts consider non-compete agreements to be a restraint on trade, so they require employers to prove that their agreements are reasonable and geared to protect only legitimate business interests, as opposed to merely eliminating competition.
What business interests are considered legitimate?
Pennsylvania courts have recognized a number of interests as legitimate reasons for a non-compete contract:
- Protecting confidential information such as trade secrets
- Preventing competition from an employee with unique or extraordinary skills
- Protecting customer goodwill
- Investment in a specialized training program for employees
This is not an exhaustive list, but it gives a sense of what courts are willing to protect.
What do courts consider ‘reasonable’?
In addition to serving legitimate business interests, non-compete contracts must also be reasonable. Primarily, courts will look at the agreement’s reasonableness in terms of how long it is effective and its geographical scope. They will also consider any other limitations for reasonableness, balancing the employer’s business interest against the employee’s.
A non-compete agreement may not be enforceable if it is not narrowly tailored as to time and geographical reach. What is considered a reasonable time period and geographic scope depends in part on the level and responsibilities of the employee in question.
For example, it might be reasonable to prohibit a high-level executive with direct knowledge of the company’s trade secrets from taking any job with a regional competitor for five years after leaving the company. But five years would almost certainly be considered unreasonable when applied to a lower-level employee with little access to confidential information. For the lower-level employee, prohibiting him or her from taking a job with any competitor in the region might also be unreasonable, especially if the term “competitor” is defined too broadly.
If you want your non-compete contracts to be enforceable in Pennsylvania, you will need to narrowly tailor them to each class of employee and limit them as to time and geography so as not to place an undue hardship on the worker. Your employment law attorney can help you strategically draft agreements that are enforceable.