Many new hires are asked to sign non-compete agreements as part of the terms of their employment. As is true of every contract, non-compete contracts require an offer and consideration to be binding: The offer of a job is supported by consideration, or the price paid for the other party’s promise. For a new employee, the initial job offer and employment package itself typically serves as sufficient consideration for a non-compete agreement.  However, when an existing employee is promoted, the existing non-compete agreement needs to be reviewed, as a shift in the terms of employment may require new and additional consideration.

Generally speaking, the Pennsylvania courts assess the enforceability of non-compete contracts based on whether their terms are reasonable: They analyze whether restrictive terms are needed to protect the employer’s business interests, as well as whether the limits they impose on time and geographic scope are unduly burdensome on the employee’s ability to earn a living. When an employee receives a promotion or assumes a new position within a company, the change to their status and responsibilities may demand both revisions to their existing non-compete agreement and new consideration.

When determining whether a promotion or job shift invalidates an existing non-compete agreement, the Pennsylvania courts generally examine several factors, including the following:

– How have the employee’s responsibilities changed

– What modifications were made to their compensation

– Were they given access to new confidential information or customer relationships

– Has their geographic territory expanded

– Has the new position enhanced the employee’s bargaining power

If the court determines that material changes have occurred to any of these elements of the employee’s job, it means that the employer needs to provide new or additional consideration. This may mean any of the following:

– Monetary payment in the form of a raise or a bonus

– Additional benefits

– Specialized training

– Stock options or equity grants

An employer that significantly changes an employee’s responsibilities without establishing and documenting new employment terms is unlikely to find themselves able to enforce the employee’s original non-compete agreement.

If you need assistance in reviewing the enforceability of an existing non-compete agreement or in drafting a new agreement to reflect material changes in an employee’s status and responsibilities, we can help. Contact us today to set up a time for us to meet.