Thursday, September 20, 2012

Enforceable Pennsylvania Noncompetes Without Consideration?

In Pennsylvania, employers generally must provide employees with consideration to make a noncompete contract enforceable. Furthermore, continued employment is generally not enough. The Legal Intelligencer published an interesting article that makes an argument for enforceable noncompetes with no consideration other than magic words: Noncompetes Supported by 'Intending to Be Legally Bound' Phrase? (subscription required).

The gist of the article is that Pennsylvania has a Uniform Written Obligations Act (UWOA) that provides:
A written release or promise, hereafter made and signed by the person releasing or promising, shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement, in any form of language, that the signer intends to be legally bound.
 33 Pa. Stat. Ann. § 6 (West). So, can adding the magic words, "intending to be legally bound" really make an enforceable noncompete?

The article provides a number of trial court decisions holding that the UWOA does apply to noncompetes. Most recently, according to the article:
In Latuszewski v. Valic Financial Advisors, No. 03-0540, 2007 WL 4462739, at *1 (W.D. Pa. Dec. 19, 2007), the U.S. District Court for the Western District of Pennsylvania held the UWOA can provide consideration for a noncompetition covenant entered into subsequent to the commencement of the employment relationship.
But be careful - as the article warns: no Pennsylvania appellate court has weighed in on this issue yet, and at least one trial court decision has ruled the other way.

Update: The Pennsylvania Superior Court addressed this issue on May 13, 2014. Read more here