The loss of a key employee can be devastating to a business under any circumstances, but the negative effects can be compounded if that employee takes a position with a competitor or decides to open a new business to compete.
Non-compete agreements are a way to mitigate this risk. Pennsylvania courts routinely enforce well crafted, reasonable non-compete agreements, but, in addition to the language and scope of the non-compete clause, the timing and circumstances of approaching an employee to sign a non-compete are important factors as well.
Generally, an employer can bind a new hire to a reasonable non-compete agreement at the commencement of employment, but, in Pennsylvania, the offer of continued employment to an existing employee is not enough to support the legal validity of a non-compete. So, if you wish to implement a non-compete agreement with an employee already working for you, you must offer, as the Pennsylvania Supreme Court ruled, “new and valuable consideration, beyond mere continued employment” to the existing employee such as a promotion, salary increase, bonus payment, or equity grant to make the non-compete enforceable. In the ordinary course of employment, businesses often reward critical employees with promotions, bonuses, equity, and similar benefits – it behooves an employer, when these occasions occur, to consider seeking a non-compete agreement as a way to de-risk one aspect of its business.
This post was written by George Thomas