The Law of Restrictive Covenants in Pennsylvania Employment Agreements

In a recent blog, I discussed the employment law issue of restrictive covenants in Pennsylvania employment agreement. More specifically, I discussed non-compete provisions in such agreements. Here, I want to discuss the law of Pennsylvania as it applies to them.
Recently, the Pennsylvania courts have affirmed that restrictive covenants are enforceable if they meet 3 basic elements:
1) they are incident to the employment relationship
2) they are reasonable and necessary to protect the employer’s interests
3) they are reasonably limited to time and geographic scope

The basic idea is that the courts will give great scrutiny to such agreements for the simple and important fact that they are attempts to restrict a person from earning a living. Let’s look at each of the 3 elements.

First, the restriction must be incident to employment. This essentially means that the agreement must be entered into at or very near the time of hire. If the employer asks the employee to agree to a post-employment restriction, such as a non-competition agreement, after they have started work, the employer may be required to provide or confer additional benefits to the employee (called “consideration”) in order to make the agreement valid. If this is not properly followed, the agreement may not be enforceable.

Second, the restriction must be necessary to protect the employer’s interests. If the restriction will not protect the employer but, instead, will only serve to impoverish the employee because he is barred from working in the same area, then the courts will likely not enforce the agreement.

Third, the restrictions against competition must be reasonable as to time and scope. For example, if an employer only does business in one county, a restriction that purports to restrict competition in the entire state, will likely not be enforced. Similarly, if the employee worked for the employer for only a few months, it is unlikely that a court would enforce an agreement that bars competition for 20 years.

If you have questions about restrictive covenants, including covenants not to compete in employment agreements in Pennsylvania, contact the employment law attorneys at Menges & McLaughlin at today.