Businesses often use non-compete agreements to prevent employees from either taking a job with a competitor or from starting a competing business for some period of time after leaving employment. Non-compete agreements are allowed in Pennsylvania. Courts will uphold a non-compete agreement which is necessary to protect trade secrets; confidential information; or goodwill. Non-compete agreements may also be used by an employer or business to protect investment in specialized employee training or unique or extraordinary skills. Medical practices and clinics may use a non-compete agreement to protect a patient referral base.
Is a Non-Compete Agreement Legally Enforceable in Pennsylvania?
Pennsylvania courts will enforce non-compete agreements both in the context of employment contracts and in the context of the sale of a business.
Non-compete agreements made in the context of employment must be reasonably necessary to protect the employer’s legitimate interests. Non-compete agreements must also be reasonable in time and space.
What Can Be Protected?
In Pennsylvania, a non-compete agreement can protect trade secrets; confidential information; or goodwill. As an alternative to a non-compete agreement, a suit under the Uniform Trade Secrets Act can be used to bar an employee from working for a competitor if the court finds that beginning in the new position will likely lead to the disclosure of trade secrets.
Reasonable Uses and Objections
- Enforceable when terminated without cause? Yes, with limitations
- Employee non-solicitation agreement permitted? Yes
- Customer non-solicitation agreements permitted? Yes
- Does continuing employment equal sufficient consideration? No
- Statute of Limitations for breach of contract: 4 years
Pennsylvania Non-Compete Limitations
Time limitations
Pennsylvania requires that any time limitation must be reasonable.
Geographical limitations
Pennsylvania requires that any geographical limitation must be reasonable.
Other limitations
Pennsylvania courts will sometimes modify unenforceable provisions of a non-compete agreement under the so-called “blue pencil” doctrine to make them enforceable if the other provisions of the agreement are enforceable. Courts are less likely to modify an agreement if the employer shows bad faith in dealing with the employee. [1]
A non-compete agreement entered into after the start of employment requires additional consideration to be enforceable. Simple continuation of employment is not sufficient consideration for a non-competition agreement. In considering the issue in Rullex Co., LLC. v. Tel-Stream, Inc., 232 A3d 620 (Penn., 2020), the Pennsylvania Supreme Court ruled that a non-compete agreement understood by the parties to be a part of the overall employment contract might not necessarily be formally executed on or before the first day of work. [2] However, an employer failing to execute a non-compete agreement promptly runs the risk of having it fail for lack of consideration. The better practice is clearly to make the non-compete agreement part of the initial job offer and contract.
Pennsylvania Non-Compete Agreement Sample
This Pennsylvania non-compete agreement template will let you draft an up-to-date agreement for your business:
Non-Compete Agreement
