Category: Non-Compete Agreements

PA District Court Invalidates Non-Compete for Lack of Adequate Consideration and Enforces Original Agreement

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In Allied Orthopedic Assoc. v. Leonetti, Civil Action No. 18-01566, 2018 WL 4051801 (E.D. Pa. August 24, 2018), Plaintiff successfully enjoined Defendant from violating a non-compete agreement the two parties previously entered into. Plaintiff in this case is a manufacturer’s representative that sells medical equipment. Defendant was hired by Plaintiff in 2008 as a sales associate and executed a non-competition, non-solicitation and confidentiality agreement. Among other things, the non-compete stated that “[e]mployee agrees that he/she will not, directly or indirectly, at any time while employed by [Plaintiff] and within eighteen months (18) months after termination with Plaintiff, with or without cause, make any independent use of, or disclosure to any person other than an employee at [Plaintiff’s company].” In 2010, Defendant signed another series of non-competition, non-solicitation and confidentiality agreements and was “essentially promoted”. Defendant resigned in 2018 and began working for a local competitor of the Plaintiff. Plaintiff brought suit alleging breach of contract, tortious interference with contractual relations, tortious interference with business relations and violation of Pennsylvania’s Uniform Trade Secrets Act and civil conspiracy.

Defendant initially contended that the agreements entered into in 2010 controlled rather than the original non-compete signed in 2008. The Court found the 2010 non-competition agreements were “not supported by adequate consideration” and thus not valid. In Pennsylvania, in order for a non-competition covenant to be enforceable, it must related to a contract for employment, be supported by adequate consideration and be reasonably limited in both time and territory.  Since the consideration, which was the “promotion”, was not contemplated in the agreement, the 2010 agreement was not valid and the 2008 agreements controlled. As to the validity of the 2010 non-compete agreements, the Defendant did not dispute that the non-compete was incident to the employment relationship with Plaintiff or that the eighteen-month duration of the non-competition provision was excessive. Rather, Defendant attempted to argue that the territorial limit of the non-competition agreement was overreaching and unfair. The Court concluded that the recent downsize of Plaintiff’s company, which shrunk their commercial activity to Delaware, Philadelphia and the Philadelphia suburbs, limits the restrictions in the non-compete agreement to those specific areas. Therefore, since Defendant was working within the Philadelphia area, he was in breach of the non-competition agreement.

Philadelphia non-compete lawyers at Sidkoff, Pincus & Green P.C. protect employees’ right to work. For assistance in any type of employment law matter, call 215-574-0600 to schedule a consultation in our Philadelphia office, where we represent clients in Pennsylvania and New Jersey, or contact us online.

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Pennsylvania Superior Court Upholds Non-Solicitation Agreement Despite Employees Change in Employment Status

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The Pennsylvania Superior court upheld non-solicitation agreements between an employer and employees after their employment agreements expired and the employees continued to work at-will. Metalico Pittsburgh, Inc. v. Newman, 160 A.3d 205 (Pa. Sup. Ct. 2017). Appellees Douglas Newman and Ray Medred (“Employees”) were employed by scrap metal company Metalico Pittsburgh, Inc. (“Employer”) from 2011 to 2015. The Employees signed a three-year employment agreement that included a non-solicitation agreement in part barring employment with any known affiliates or suppliers of the employer. After the three-year period, the Employees remained at the company at-will with some modifications to their jobs compared to the employment agreements. The Employees stayed with the Employer for one year before leaving to work for a competitor, and the Employer filed suit against the Employees and their new employer. The lower court found in favor of the Employees by finding that there was a lack of consideration for the non-solicitation considering there were material changes to the terms of the employment agreements when the Employees started working at-will.

The Superior Court reversed and held that there was adequate consideration and thus enforced the non-solicitation agreements in favor of the Employer. Under Pennsylvania law, there is adequate consideration when a restrictive covenant, such as a non-solicitation agreement, is signed at the beginning of an employment contract. Although the Employees argued that the non-solicitation agreement had expired when they changed to at-will status, this Court found that the explicit terms of the agreements contradicted this assertion. The non-solicitation agreements applied for the full term of the employment, regardless of whether it was under the contract or at-will. Moreover, the contract specifically stated that the non-solicitation provisions survived termination of the contract. The agreements also stated that consideration for the agreements was fulfilled by the payment of compensation and benefits to the Employees. Ultimately, the Superior Court found that the lower court erred and that the non-solicitation agreements were in effect when the Employees resigned and that the agreements were supported by consideration even though the employment agreements had expired, and the Employees were at-will.

For more information, call our employment lawyers in Philadelphia at the Law Office of Sidkoff, Pincus & Green at 215-574-0600 or submit an online inquiry.

District Court of the Eastern District PA Rules in Favor of Former Employee in Non-Compete Dispute.

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The District Court of the Eastern District of Pennsylvania in Catalyst Outdoor Advertising, LLC v. Douglas denied the plaintiff’s Motion for Preliminary Injunction. 2018 BL 184866 (E.D. Pa. May 24, 2018, No. 18-1470). Jennifer Douglas (Douglas) is a former employee of Catalyst Outdoor Advertising, LLC (Catalyst) and has recently located to New York City to work for City Outdoor, LLC (Outdoor). Before being terminated by Catalyst, Douglas signed a non-compete and restrictive covenant agreement which prevented her from engaging “in the same or similar business” as Catalyst for two years. Neither agreement included a specified geographic limitation and therefore, could be applied to the entire world. Catalyst engages in outdoor advertising, mainly by acquiring and renting billboards in Pennsylvania and New Jersey. One month after Catalyst terminated Douglas, she accepted a position for Outdoor. Outdoor is located in New York City and specializes in the billboard advertising business primarily in the New York.

Catalyst brought a suit seeking preliminary injunctive relief to enjoin Douglas from continuing her employment at Outdoor. When deciding on whether preliminary injunctive relief is appropriate the Court considered four factors: 1. The likelihood that catalyst will succeed on the merits; 2. The threat of irreparable harm to Catalyst if an injunction is not granted; 3. Whether granting an injunction will result in greater harm to Douglas than Catalyst; and 4. Whether injunctive relief will be in the public interest.. The Court rejected Catalyst’s motion based on its failure to satisfy the first two factors.

Catalyst argued that Douglas should be enjoined from her employment with Outdoor because the restrictive covenant was reasonably necessary for their protection of legitimate business interests. The legitimate business interest in this matter, according to Catalysts, was the preservation of trade secrets, development plans, and pricing. Additionally, Catalyst argued that the two employers shared a common competitive market and therefore the lack of a geographic limitation should not prevent preliminary injunction because Outdoor is involved in the same market.

The Court accepted Catalyst’s argument that there was a legitimate business interest to protect but rejected the argument that Outdoor and Catalysts shared the same competitive market, and thus, denied Catalysts motion for preliminary injunctive relief. Without a specified geographic, the court determined that the two companies’ respective markets will determine if they are, in fact, “competing.” Since Catalyst primarily operated in Philadelphia while Outdoor focused in Manhattan and the Bronx, the court determined that these were, in fact, two separate markets and that these two companies were not competing. Thus, the court found that Catalyst failed to satisfy the first factor required to win a preliminary injunction.

Lastly, the Court held that Catalyst did not face the risk of any irreparable harm. The fact that Douglas did not have any confidential information and because of the entirely different markets, there was no threat of irreparable harm. Without the two companies engaging in the same competitive market, Catalyst was not able to establish a legitimate harm. Therefore, the Court rejected the motion for preliminary injunctive relief and Ms. Douglas may continue her employment until a decision is reached at trial.

For more information, call Sidkoff, Pincus & Green at 215-574-0600 or contact us online. Our non-compete lawyers represent clients in Philadelphia.

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PA Superior Court Strikes Down Non-Hire Clause

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In the recent case of Pittsburgh Logistics Systems, Inc. v. BeeMac Trucking, LLC, No. 134 WDA 2017 (Pa. Super. Ct. 2018), the Pennsylvania Superior Court voided a non-hire clause contracted between two companies. The non-hire clause stated that the contracting companies could not hire each other’s employees. The non-hire clause put the burden of employment on the employers as opposed to a traditional non-competition agreement, which is a contract between an employer and its employee.

In this case, Pittsburgh Logistics Systems contracted with BeeMac, a competitor, an agreement with the following language:

“CARRIER agrees that, during the term of this Contract and for a period of two years after the termination of this Contract, neither CARRIER nor any of its employees, agents, independent contractors or other persons performing services for or on behalf of CARRIER in connection with CARRIER’s obligations under this Contract will, directly or indirectly, hire, solicit for employment, induce or attempt to induce any employees of PLS or any of its Affiliates to leave their employment with PLS or Affiliate for any reason.”

The Court gave several reasons why the non-hire clause was unenforceable, including: (1) the companies’ employees are put under hiring restrictions they never agreed to, (2) the employees received no consideration for being part of such a non-hire clause, which is usually required by a non-compete, and (3) the scope of the non-hire clause was not reasonable and necessary to protect the legitimate business interests of the company.

For more information, call Sidkoff, Pincus & Green at 215-574-0600 or contact us online. Our Philadelphia employment lawyers represent clients in Pennsylvania and New Jersey.

District Court Issues Preliminary Injunction to Enforce a Non-Compete Clause

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The Eastern District of Pennsylvania issued a preliminary injunction to enforce a non-compete clause in a dealer agreement when Defendant was persuading the Plaintiff’s customers to cancel their agreements with Plaintiff to switch to an agreement with other alarm companies. Vector Sec., Inc. v. Stewart, 88 F. Supp. 2d 395, 402 (E.D. Pa. 2000). In Vector Sec., Plaintiff sought a preliminary injunction to enforce a non-compete clause in an agreement between Vector Security Systems and City-Wide Home Security Services. Defendant conceded that he had persuaded Vector’s subscribers to terminate their agreement with Vector and switch to an agreement with other alarm companies. Vector had bought from City-Wide ninety-seven accounts that have now been terminated.

The Court held that Vector had showed that it “has a reasonable probability of success on the issue of the covenant’s enforceability.” Vector showed that it had an interest in maintaining long-lasting relationships with its customers. Further, Vector showed that if the preliminary injunction is not issued, Vector will be “irreparably harmed” because of the loss in business. Vector depends on long-lasting relationships with its customers, referrals for new customers, and additional services to current customers. The Court reasoned that the “relative harm to interested parties” is not sufficient to deny the preliminary injunction because Defendants can still sell alarm systems and is only prohibited from seeking Vector’s customers. Therefore, preliminary injunction will be granted to enforce the non-compete clause.

For more information, call our non-compete lawyers in Philadelphia at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

Enforceability of Non-Compete Covenants in PA

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Employers often require new employees to sign agreements containing a non-compete covenant, which prevents an employee from working for or with a competitor within certain geographic bounds and for a certain amount of time after their employment with the company ends.

In Pennsylvania, such covenants are disfavored, but may still be enforceable when the restrictions imposed by the covenant are considered to be reasonably necessary for the protection of the employer, and are reasonably limited in duration and geographic reach. A non-compete covenant that is overly broad, in duration or geographic reach is considered unreasonable, and will typically be unenforceable. Unreasonableness is an affirmative defense which a defendant bears the burden of proving. See Victaulic Co. v. Tieman, 499 F.3d 227, 234 (3d Cir. 2007).

Courts must balance the employer’s legitimate business interest(s), the individual’s right to work, the public’s right to unrestrained competition, and the right to contract when determining enforceability of a non-compete covenant. See, WMI Group, Inc. v. Fox, 2015 Pa. Super. 25, 109 A.3d 740 (2015).

The determination of reasonableness, including duration and geography, depends largely on the specific facts and circumstances of each case. Generally, “legitimate business interests” include trade secrets, confidential information, good will, and unique or extraordinary skills. Victaulic, 499 F.3d at 235. A reasonable, enforceable covenant must be narrowly tailored to protect these interests so as not to favor the employer or the employee.

Philadelphia Non-Compete Lawyers of Sidkoff, Pincus & Green P.C. Advise on Drafting and Enforcing Non-Compete Agreements

Philadelphia non-compete lawyers at Sidkoff, Pincus & Green P.C. protect employees’ right to work. For assistance in any type of employment law matter, call 215-574-0600 to schedule a consultation in our Philadelphia office, where we represent clients in Pennsylvania and New Jersey, or contact us online.