Friday, July 15, 2011

Noncompete Doesn't Prevent Ex-Employee from Working for Competitor - COTW #49

Many jurisdictions disfavor noncompetes, including my home state of Pennsylvania. In fact they're strictly construed against the employer under Pennsylvania law. This Case of the Week shows that there are circumstances in which a noncompete won't even restrict an employee from going to work for a competitor of the employer with whom she entered in to the agreement.

The employee was working for Colorcon, and her new employer is Sensient. If you didn't know (and believe me, I didn't know before this lawsuit) they compete in the food and pharmaceutical colorant industry. But, the employee signed a noncompete when she started.

Colorcon terminated her in July and they entered into a severance agreement. The severance agreement gave her money and some benefits in exchange for waiving all claims and... you guessed it, reaffirmance of her noncompete. So, she did receive consideration.

So what's the problem then? First, the employee was working in the food colorant group with the old employer; and she's working with the pharmaceutical colorant group with the new employer. Despite, significant overlap between the two fields, the Court found that the employee was not breaching the noncompete which prohibited working in the same "technical area" (remember that bit about construing agreements against the employer?).

Anything else? Yeah, the employee was terminated. Contrary to popular belief this is not determinative but enforcing restrictive covenants against fired employees is certainly disfavored (in Pennsylvania). There were some other negatives too: she would likely be terminated by the new employer and have trouble finding a new position, she would be foreclosed from many of the jobs for which she is qualified, and it would jeopardize her payment of bills and other debts (student loans).

Further proof that enforcing noncompetes and restrictive covenants in Pennsylvania is tough work!

Citation: Colorcon, Inc. v. Lewis, CIV.A. 11-1700, 2011 WL 2149741 (E.D. Pa. May 31, 2011).

HT: The Legal Intelligencer: Court Won't Enforce Restrictive Covenant Despite Work in Same Industry (subscription required).

Posted by Philip Miles, an attorney with McQuaide Blasko in State College, Pennsylvania in the firm's civil litigation and labor and employment law practice groups.