I meant to write about this a week or so ago after I saw Dan Packel’s article at Law360. But, then, I got sidetracked with a bunch of NLRB stuff. Until, yesterday, Lizzy McLellan’s article at The Legal Intelligencer brought me back.
So, here’s the deal. The basic rule in PA has always been that, for a non-compete to be enforceable, it needs to be entered into when employment begins (i.e., as consideration for offering employment), or there needs to be some independent consideration to support it (e.g., a raise, bonus, promotion, etc.).
However, some outlier judicial decisions in PA have concluded that PA’s Uniform Written Obligations Act magically adds consideration to any agreement with the words “intending to be legally bound.”
But, back in May, the PA Superior Court disagreed and held that where the employer provided the employee with no benefit or change in job status when the employee signed the non-compete, even if the agreement states that the parties “intend to be legally bound” by its terms, a restrictive covenant is not enforceable.
Now, the Supreme Court will determine whether those five little words are, indeed, magic.
Obviously, if the Supreme Court sides with the company, it will create the proverbial game changer, by allowing companies to require employees to enter into restrictive covenants in exchange for zero consideration.
We’ll see what happens.
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