Thursday, November 19, 2015

PA Supreme Court: Noncompetes not enforceable based on magic words

I've been tracking this issue and this case for a while now. The gist of it is simple. A Pennsylvania statute, the Uniform Written Obligations Act (UWOA), generally provides that a written contract will not be rendered unenforceable for lack of consideration if it expressly indicates that each party "intends to be legally bound." Do these so-called "magic words" work for non-competes?

The Superior Court said 'no.' Yesterday, the Supreme Court agreed (opinion in Socko v. Mid-Atlantic Systems of CPA, Inc. here):
In light of our Commonwealth’s long history of disfavoring restrictive covenants, and the mandate that covenants not to compete entered into after the commencement of employment must be accompanied by new and valuable consideration — a benefit or change in employment status — we conclude an employee is not precluded from challenging such an agreement executed pursuant to the UWOA. Thus, we affirm the order of the Superior Court.
There goes that theory. Now, employers will have to create binding noncompetes the old-fashioned way . . . by making sense of a bunch of convoluted common law rules that inevitably fail to draw anything even remotely resembling bright line distinctions. Good luck!