“VALUABLE CONSIDERATION” REQUIRED TO ENFORCE NON-COMPETE AGREEMENT DESPITE COMPLIANCE WITH PENNSYLVANIA UNIFORM WRITTEN OBLIGATIONS ACT

The Pennsylvania Superior Court recently examined what impact, if any, the Pennsylvania Uniform Written Obligations ACT (PUWOA) has on an employment agreement that contained a covenant not to compete entered into after the employee started working with the employer. The short answer is – no effect at all.

First a little background is in order. In order for a covenant not to compete to be enforceable against an employee, the employee must receive something valuable (consideration) from his or her employer. If this covenant is bargained for by the employer prior to the employee starting work, then the prospect of future employment with the employer satisfies the “valuable right” or “valuable consideration” needed for a court to enforce a covenant not to compete. However, if the employee is already employed by the employer, continued employment is not sufficient additional consideration; something more must be given by the employer.

The case before the appellate court involved the situation where an employer wanted to enforce a covenant not to compete that was entered into after the employee was already employed by the employer. The employer tried to avoid the requirement of providing additional consideration by relying upon the PUWOA. This act states that an agreement will not be enforceable for lack of consideration if the words “intending to be legally bound” are in the agreement. Unfortunately for the employer, the appellate court held that the language “intending to be legally bound” did not constitute sufficient additional consideration in the context of a covenant not to compete.

So what is the important take away here? Review your employment agreements and if you have a restrictive covenant, revisit what consideration was given to your employee and when it was given. Ask yourself if the employee is mission critical and whether you really want to enforce the covenant? It does just have to be money that will support a court finding sufficient additional consideration.
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If you have any questions concerning the restrictive covenants your business uses, please feel free to call us at Danziger Shapiro for a free consultation. We are more than happy to discuss how we can assist you with respect to updating your employment agreements and any other business issue you care to discuss as well.

This entry is presented for informational purposes only and is not intended to constitute legal advice.