How to Beat the Non-Compete under Pennsylvania Law

If you are a sales representative, an employee, an agent or in any other capacity where you were obliged to sign an agreement that contained a restrictive covenant against competition, often referred to as a “non-compete”. it is more than likely that you do not have to lose sleep about whether that non-compete can be enforced against you in court if the agreement was made in Pennsylvania, and if your trial lawyer fully understands the law governing non-compete agreements.

In addition to the need to demonstrate that the party seeking to enforce the non-compete did not include too broad a geographical limitation or too lengthy a time restriction, either of which could make the non-compete unreasonable in the eyes of the law, there is often a more subtle, but yet powerful defense your lawyer can assert: the enforcing party failed to demonstrate that it has a valid property interest in what it seeks to protect. For example, many non-competes purport to protect goodwill which often takes the form of barring you from calling on former customers and clients you dealt with while working for or with the enforcing party. However, while many lawyers simply accept goodwill as an inherent asset owned by the enforcing party, dissecting the elements of the creation of goodwill can yield the result that the enforcing party did not make a sufficient investment in the goodwill to allow it to rise to the level of being an asset worthy of protection in the non-compete.  Also, the correct framing of the issues might result in a finding by the court that you own the goodwill, a ruling that is devastating to the enforcing party, since it may allow you to prohibit the enforcing party from selling to those former customers and clients.

Although challenging whether the enforcing party actually has a property interest in goodwill is often a way to beat the enforcement of a non-compete in Pennsylvania, it is just one of many hidden defenses that your lawyer might press in a hearing or trial to enforce a non-compete against you. The word “hidden” refers to the fact that to find theses defenses , it is necessary for your lawyer to scour the numerous cases dealing with the issues of when and how a company can develop a property interest in an intangible such as intellectual property, customer lists and other things that a non-compete purports to cover. Because these legal issues are not all cataloged under the obvious research headings lawyers use when they do legal research on non-competes, many lawyers miss them. They essentially stop when the find the obvious cases, and therefore overlook valuable insights that can be gleaned from court decisions dealing with other aspects of law such as bankruptcy, divorce and shareholders’ rights. The key is that courts often are required to make searching inquiries and rulings about specific business related issues that are raised in those cases, but their rulings are not usually referenced in the cases that just concern non-competes.  The savvy lawyer in a non-compete case comprehends the interrelationship of many diverse areas of the common law (and of course, Pennsylvania law), and eschews legal research that is pigeon holed into just the law found in the non-compete cases.

The best policy would be for you to obtain competent legal advice before you even sign the non-compete to insure that there is language in it that will allow you to easily take advantage of the hidden defenses. Since many lawyers who just draft contracts are not cognizant of the rulings and law made in cases outside of the non-compete arena, there is a high probability that the lawyer for the company may not be aware of the hidden defenses.  However, even if you are being faced with having to defend against a non-compete that you signed many years ago without the advice of astute counsel, you may still have many strong defenses available to you, assuming your trial lawyer has studied the law and recognizes them.