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A construction of the Uniform Written Obligations Act (UWOA), 33 Pa. Stat. Ann. § 6, which would vitiate the need for new and valuable consideration when entering into an agreement containing a restrictive covenant after the initiation of employment would be unreasonable; refer to 1 Pa.C.S. § 1922. Moreover, this conclusion is buttressed by the narrow construction which must be given to the UWOA. 1 Pa.C.S. § 1928(b)(8). Thus, an employment agreement containing a restrictive covenant not to compete may be challenged for a lack of consideration even though the agreement, by its express terms, indicates that the parties "intend to be legally bound" pursuant to the UWOA.
Appellant Mid-Atlantic Systems of CPA, Inc. ("Mid-Atlantic") hired Appellee David Socko ("Socko") in March 2007 as a salesperson. At this time, Socko executed a two-year employment contract containing a covenant not to compete. In February 2009, Socko resigned from his employment with Mid-Atlantic, but the company rehired him four months later, in June 2009. At his time of rehire, Socko signed a new employment agreement containing another two-year covenant not to compete. While still employed by Mid-Atlantic, Socko signed a third, more restrictive, agreement, entitled "the Non-Competition Agreement" ("Agreement"), which, by its terms, superseded all prior agreements. Pursuant to the Agreement, which is at the heart of his appeal, Socko was not permitted to compete with Mid-Atlantic for two years after the termination of his employment in any of the following locations: Connecticut, the District of Columbia, Delaware, Maryland, New Jersey, Pennsylvania, New York, Virginia, West Virginia, or any other jurisdiction in which Mid-Atlantic did business. The Agreement also expressly provided for the application of Pennsylvania law, and stated that the parties intended to be "legally bound." On January 16, 2012, Socko resigned from his employment with Mid-Atlantic and, a few weeks later, accepted a position with Pennsylvania Basement Waterproofing, located in Camp Hill, Pennsylvania, which was a competitor of Mid-Atlantic. Approximately one month later, Mid-Atlantic informed Socko's new employer of the terms of Socko's prior employment with Mid-Atlantic, attached a copy of the Agreement, and threatened litigation. Ten days later, Pennsylvania Basement Waterproofing terminated Socko's employment. As a result of his termination, on April 13, 2012, Socko filed a Complaint and Action for Declaratory Judgment against Mid-Atlantic in the York County Court of Common Pleas. In support thereof, Socko filed a motion for partial summary judgment, asserting that the non-competition clause in the Agreement was unenforceable, as it was not supported by sufficient consideration. Mid-Atlantic, however, citing the parties' pledge in the Agreement to be "legally bound," contended that the UWOA did not allow Socko to challenge the validity of the terms of the Agreement on the basis of a lack of consideration.The trial court granted Socko's motion for partial summary judgment, offering in a well-written opinion, that there was a want of consideration in exchange for Socko's execution of the Agreement after he had commenced his employment. Further, the court reasoned that the mere intent by Socko, as expressed in the Agreement, to be "legally bound," did not constitute adequate consideration under the UWOA. On appeal, the Superior Court affirmed the trial court's granting of Socko's motion for partial summary judgment.
May the enforcement of an employment agreement containing a restrictive covenant not to compete, entered into after the commencement of employment, be challenged by an employee for a lack of consideration, where the agreement, by its express terms, states that the parties "intend to be legally bound," which language implicates the insulating effect of the UWOA?
Upon consideration of the historic background regarding covenants not to compete, their relative positive and negative impact upon the employer-employee relationship, and their unique treatment in the law, including more rigorous scrutiny by Pennsylvania courts, the Court concluded that a construction of the Uniform Written Obligations Act (UWOA), 33 Pa. Stat. Ann. § 6, which would vitiate the need for new and valuable consideration when entering into an agreement containing a restrictive covenant after the initiation of employment would be unreasonable (refer to 1 Pa.C.S.A. § 1922). The Court held that an employment agreement containing a restrictive covenant not to compete may be challenged for a lack of consideration even though the agreement, by its express terms, indicates that the parties "intend to be legally bound" pursuant to the UWOA.