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Under Pennsylvania law, covenants not to compete are enforceable if they are (1) incident to an employment relationship between the parties, (2) reasonably necessary for the protection of the employer, (3) supported by consideration, and (4) reasonably limited in duration and geographic extent. The geographic scope of a non-compete agreement is reasonably limited if it encompasses only such territory as may be reasonably necessary for the protection of the employer without imposing undue hardship on the employee. This test is satisfied if the geographic restriction, even if broad in extent, is roughly consonant with the scope of the employee's duties.
Adhesives Research, Inc. was a manufacturer of specialty tape, which it sold as raw material to other businesses which convert the tape into a final product that is sold to consumers in the medical, pharmaceutical, electronics, and industrial markets. Between September of 2000 and August of 2014, Newsom was employed by Adhesives Research, Inc. In January 2012, Adhesive Research required all of its employees to sign a Confidentiality, Assignment, and Non-Compete Agreement. The non-compete portion of the agreement provided that during the period of the employee’s employment and for two years thereafter, said employee shall not “perform any services similar to the services performed by the Associate during his employment with Company, for…any business…that develops, manufactures or sells any products that compete in kind with…any products manufactured, sold or under development by the Company…, in any area of the world in which such products are sold by the Company…” Newson signed this agreement. In August 2014, she terminated her employment with Adhesives Research, Inc. Thereafter, in January 2015, she was hired by Scapa Tapes North America, LLC, a company that was a manufacturer of bonding products and adhesive components for the electronic, healthcare, industrial, and automotive markets. Adhesive Research, Inc. filed a complaint alleging common laws claims of breach of contract and unfair competition, as well as a statutory claim under the Pennsylvania Uniform Trade Secrets Act and a Motion for Temporary Restraining Order and/or Preliminary Injunction. The Court vacated the temporary restraining order, allowing Newson to work, and instructed the parties to submit post-hearing briefings.
Is the non-compete agreement enforceable against Newson?
The geographic scope of a non-compete agreement is reasonably limited if it encompasses only such territory "as may be reasonably necessary for the protection of the employer without imposing undue hardship on the employee." Jacobson & Co. v. Int'l Environ. Corp., 427 Pa. 439, 235 A.2d 612, 620 (Pa. 1967). This test is satisfied if the geographic restriction, even if broad in extent, is "roughly consonant with the scope of the employee's duties." Victaulic Co. v. Tieman, 499 F.3d 227, 237 (3d Cir. 2007). Here, despite Newson’s sale's territory consisting of the western half of the United States, the geographic restriction contained in the non-compete agreement extends to anywhere in the world where Adhesive Research, Inc.’s products are sold. Because the breadth of the restriction is much larger than Newsom’s sales territory, the restriction is not "roughly consonant" with Newsom’s duties. Moreover, by prohibiting Newsom from engaging in her profession anywhere in the world where Adhesive Research, Inc.’s products are sold, the restriction imposes a severe hardship on Newsom. Accordingly, the geographic extent of the agreement is unreasonably broad. When a covenant not to compete contains an unlimited geographic scope, although the nature of the business was such that a relevant geographical area could have been specified, the agreement is void, and courts may not use their equitable power to alter the agreement. Reading Aviation Serv., Inc. v. Bertolet, 454 Pa. 488, 311 A.2d 628 (Pa. 1973).