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Labor and Employment Law

Pennsylvania Superior Court Requires Additional Consideration For Non-Compete From Current Employee

 by Jami K. Suver 

The Pennsylvania Superior Court recently ruled in Socko v. Mid-Atlantic Systems of CPA, Inc.that non-compete agreements signed during employment are not enforceable unless the employer provides its employee additional consideration in exchange for signing [an enhanced version of this opinion is available to subscribers]. David Socko was employed by Mid-Atlantic as a salesman for its basement waterproofing services business.  During his employment, Socko signed an employment contract containing a covenant not to compete with Mid-Atlantic in certain specified locations for two years after termination. The contract contained a statement, in compliance with Pennsylvania’s Uniform Written Obligations Act (UWOA), that the parties intended to be legally bound.  The court in Socko noted that Pennsylvania courts have generally concluded that a written agreement is not void for lack of consideration if it contains such an express statement.

Socko did not receive a benefit or beneficial change in his employment status in exchange for signing the non-compete.  He resigned and, shortly thereafter, accepted a position with another Pennsylvania waterproofing business.  Mid-Atlantic notified the new employer of Socko’s non-compete and threatened litigation. Ten days later, Socko’s new employer terminated his employment.

Socko sued Mid-Atlantic in the Court of Common Pleas in York County, Pennsylvania.   The trial court granted Socko’s motion for partial summary judgment, and Mid-Atlantic appealed, contending that the lower court erred when it failed to apply the UWOA.

In Socko, the court noted that when a restrictive covenant is included in an initial contract of employment, the job itself is sufficient consideration for the employee’s commitment.   However, when the parties add a restrictive covenant to an existing employment relationship, the restriction is not enforceable unless the employee receives an additional benefit or change in job status.  The court concluded that a statement that the parties intended to be legally bound, as set forth in the UWOA, was insufficient consideration to support enforcement of a covenant not to compete against Socko because he did not receive any actual benefit.  Because Mid-Atlantic did not provide Socko with valuable consideration in exchange for signing the non-compete, the court affirmed the trial court’s order.

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