Breach of Non-Competition Agreements

After an employment relationship has turned sour and the employee has departed the company, business or firm, most managers and business owners want to know if the non-compete agreement has been breached. Assuming that the agreement has been breached, most employers then want to know if the agreement is effective. That is, they want to know not only whether the non-compete will hold up in court, but also whether the potential relief provided by the agreement will be adequate to protect the business’ legitimate interests and purposes.

Every employment situation, scenario that caused the employee’s departure, and actual non-compete agreement is different. These situations can only be addressed after a meticulous analysis. However there are some generally applicable concepts regarding non-competes, breaches of these agreements, and potential remedies. While this page can serve as a starting point for your inquiry, no substantive legal action should be taken without first consulting with an experienced employment lawyer. The employment attorneys of Meredith & Narine can provide clear, on-point guidance regarding an array of employment issues including the breach of a non-compete.

What is a Non-compete Agreement?

Non-compete agreements are, at their core, a restriction on free trade. Non-compete agreements can take a number of forms, but they all require an employee to give up his or her right to pursue certain types of employment or business opportunities. Employers typically, request or require employees to sign non-compete agreements for a variety of purposes but common reasons include:

  • Protection of trade secrets including business methods and processes.
  • Protection of customers and client base
  • Protection against competition in the same geographic market
  • Otherwise protecting an employer’s competitive advantage.

Non-compete agreements are typically signed before an employment relationship begins and do not come into effect until after the relationship has been terminated.

terminated employee

The general requirements to establish a non-competition agreement are that the agreement must be reasonable in time, scope, and place. Agreements that are narrowly construed are more likely to be considered reasonable than a broadly constructed non-compete. The agreement must also protect a legitimate business interest of the employer. If no interest is protected or no harm can come from the employees breach, the non-compete agreement is unlikely to be upheld. Finally, non-compete agreements must typically be supported by some type of consideration provided by the employer at the time of execution. Consideration is simply the legal term for something that has value. For non-competes that are signed before employment commences, the job itself is counted as sufficient legal consideration. However, for employers that ask employees to sign a non-compete after the employment relationship has already began, the legal status of these agreements is less settled.

Non-Compete Agreements for Existing Employees May Be Unenforceable in Pennsylvania

In Pennsylvania, non-compete agreements that are signed after the start of an employment relationship are extremely suspect. In Socko v. Mid-Atlantic Systems of CPA, Inc., a former employee was asked to sign a non-compete agreement during the course of employment. No consideration was offered or accepted.  The question before the Pennsylvania courts in the matter was whether the Pennsylvania Uniform Written Obligations Act eliminated an employer’s need to offer consideration that is, in turn, accepted by the employee. At the trial court level, summary judgment was found in favor of the employee. This judgment was upheld in the Superior Court. For employers this means that non-compete agreements executed during the employment relationship and without additional consideration will almost assuredly fail. In short, they will only provide an illusory protection against possible future actions by a former employee.

However, the Socko matter has not yet reached its conclusion. The former employee petitioned the Pennsylvania Supreme Court to hear the matter. The Pennsylvania Supreme Court has agreed to hear the matter.  The court will determine whether the non-compete agreement can stand despite the lack of proffered consideration.

Typical Non-Compete Relief

The two main forms of relief that can be awarded when a breach of a non-compete agreement has occurred are monetary damages and specific performance. Monetary damages can be awarded for real, articulable damages inflicted on your business or its operations. However generalized allegations of potential harm are insufficient to establish grounds for recovery. Additionally, there are some cases where specific performance may be ordered – typically in situations where monetary damages are insufficient. However, courts are hesitant to order parties to take certain actions or to refrain from taking certain actions in most civil matters.

Breach of a Non-Compete? Contact One of Our Contract Lawyers

If your company is facing a potential breach of a non-competition agreement or other tortious conduct by a former employee, the employment lawyers of Meredith & Narine can fight for your business. To schedule a private legal consultation call us at 215-995-2769 or contact us online today.

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