Non-compete agreements are restrictive covenants that employers use to prevent their staff from taking their talents to competitors, from revealing trade secrets, or from soliciting their clients. They are meant to protect business interests. They have become increasingly controversial, and though many states are taking action to prohibit or restrict their use, many employers still require key employees to sign them.
Whether a non-compete agreement is enforceable is determined by whether its terms are reasonable. In most cases, legal action is taken when restrictions on geography or duration effectively prevent a departing worker from making a living: in those cases, the courts tend to decide against the employer.
Far less common but equally concerning cases have recently been heard involving employers that have laid employees off and then still expected the restrictive terms of their non-compete agreement to apply. During the global pandemic, many companies were forced to furlough or lay off employees but still expected the terms of their non-compete to be respected by the courts. Pennsylvania courts hearing these cases now and in the past have sided with employees.
In one famous case, the court indicated that the employee’s termination “clearly suggested an implicit decision on the part of the employer that its business interests were best promoted without the employee in its service,” and that the “need to protect itself from the former employee is diminished by the fact that the employee’s worth to the corporation is presumably insignificant.” The layoff made the employer’s argument for preventing the employee from going to another employer less meaningful.
A non-compete contract can provide significant protection to a company that fears that its employees will carry trade secrets or clients to a competitor, but the courts are not likely to uphold the terms of your agreement if you have terminated the worker in the interest of your bottom line. If your employee is valuable enough – or enough of a threat – to pursue legal action to keep them from going to another employer, then they are probably too valuable to take off of your payroll in a staff reduction action.
For assistance in crafting a non-compete agreement, contact our experienced attorneys today.