New Pennsylvania law restricting noncompetes with health care practitioners is now in effect

The Fair Contracting for Health Care Practitioners Act took effect on January 1, 2025. The Act generally bans the use of noncompete agreements with certain health care practitioners but with some notable exceptions.

Who

The Act defines “health care practitioner” as a medical doctor, doctor of osteopathy, certified registered nurse anesthetist, registered nurse practitioner, or physician assistant.”

What

“Noncompete covenant” is broadly defined as “An agreement that is entered into between an employer and a health care practitioner in this Commonwealth which has the effect of impeding the ability of the health care practitioner to continue treating patients or accepting new patients, either practicing independently or in the employment of a competing employer after the term of employment.” 35 Pa. Stat. Ann. § 10323.

When

The Act took effect on January 1, 2025.

The General Rule

Any noncompete entered into with a health care practitioner after January 1, 2025 is “deemed contrary to the public policy and is void and unenforceable by an employer.” 35 Pa. Stat. Ann. § 10324(a).

The Exceptions

1.      Less than one year, not dismissed. The general prohibition does not apply to noncompetes where (1) the duration of the restrictive covenant is less than one year; and (2) the health care practitioner was not dismissed by the employer. 35 Pa. Stat. Ann. § 10324(b). 

2.      Recovery of reasonable expenses. An employer may still contract with a health care practitioner to recover reasonable expenses, if the expenses are: (1) Directly attributable to the health care practitioner and accrued within the three years prior to separation, unless separation is caused by dismissal of the health care practitioner; (2) related to relocation, training and establishment of a patient base; and (3) amortized over a period of up to five years from the date of separation by the health care practitioner. 35 Pa. Stat. Ann. § 10324(c)(1).

3.     Ownership transfers. Noncompetes remain permissible for: (1) the sale of an ownership interest or all or substantially all of the assets of the business entity; (2) a transaction resulting in the sale, transfer or other disposition of the control of the business entity, including by merger or consolidation; and (3) the health care practitioner’s receipt, by purchase, grant, award, issuance or otherwise, of an ownership interest in the business entity. 35 Pa. Stat. Ann. § 10324(c)(2).

Patient Notification

            The Act also requires employers to notify the health care practitioner’s patients of: (1) the health care practitioner’s departure; (2) if the patient chooses to receive care from the departed health care practitioner or another health care practitioner, how the patient may transfer the patient’s health records to a health care practitioner other than with the employer; and (3) that the patient may be assigned to a new health care practitioner within the existing employer if the patient chooses to continue receiving care from the employer. 35 Pa. Stat. Ann. § 10325. The notice must be sent within 90 days of the employee’s departure and only to patients the employee saw within the past year and had an ongoing outpatient relationship with for two or more years. 

Court Blocks FTC Noncompete Ban

 While this is not shocking, it is still big news - the Northern District of Texas struck down the FTC's proposed ban on noncompetes, which was to take effect on September 4, 2024. You can read the Court's Opinion and Order in Ryan LLC v. Federal Trade Commission here.

In short: "The Non-Compete Rule, 16 C.F.R. § 910.1–.6, is hereby SET ASIDE and shall not be enforced or otherwise take effect on September 4, 2024, or thereafter." The Court held that "the FTC lacks statutory authority to promulgate the NonCompete Rule, and that the Rule is arbitrary and capricious."

What now? Well, for now noncompetes remain as enforceable as they were before the FTC rule, and employers can hold off on sending those notices of unenforceability to employees with noncompetes. We will likely see an appeal from the FTC. It is possible (but in my opinion unlikely) that an appellate court will take swift action to reinstate the rule. Longer term, there will be some appellate action and other pending litigation playing out. Yes, the ol' "stay tuned." 

FTC announces final rule banning noncompetes

Yesterday, the FTC released its final rule banning noncompetes (Announcement | Final Rule). Of course, we had some idea of what to expect from the proposed rule. But, as always, there were a few teaks in the final version. The final rule is 570 pages, so I haven't digested the whole thing yet, but here are some highlights:

The Gist

Employee noncompetes are an unfair method of competition and therefore unenforceable. In other words, it bans new noncompetes *and* renders existing noncompetes unenforceable. 

Effective Date

120 days after publication in the Federal Register - probably late August-ish, 

Changes from Proposed Rule

• Existing noncompetes can still be enforced against "Senior Executives" (workers earning more than $151,164 who are in a "policy-making position"), but no new noncompetes. 
• Employers are no longer required to formally rescind existing noncompetes. Instead, they can simply provide notice to the employee that the existing noncompete will not be enforced. The rule includes a model notice. 

Notable Exceptions

• A noncompete in connection with the sale of a business (note that the Final Rule drops the 25% ownership requirement from the proposed rule).
• Causes of action that accrue prior to the effective date.   

  

  Not official use. 

  
  

Alternatives 

• Non-Disclosure Agreements (NDAs);
• Non-Solictation Agreements (client and employee); and
• Training Repayment Agreement Provisions (TRAPs). 

Note that all of these come with the caveat that they must be narrowly tailored and not so broad as to effectively serve as noncompetes.

Of course, this entire thing comes with the giant caveat that there will likely be legal challenges to the FTC's authority to implement this rule. I plan as though it's happening, but wait until the last minute to actually implement (lesson learned from the salary threshold debacle of 2016).  

Overtime and Noncompete Regulations to Plan for in 2024

What better way to kick off the new year than with my latest article in Pennsylvania Business Central? The article addresses Overtime and Noncompete Regulations to Plan for in 2024. Will they actually take effect? We don't know yet. But, employers should start planning just in case.

FTC to ban most noncompetes

Boy, that escalated quickly! On Wednesday, the Federal Trade Commission (FTC) issued a news release on its first lawsuits to halt enforcement of allegedly unlawful noncompetes. Yesterday, the FTC announced that it plans to ban (almost) all noncompetes. 

You can read the proposed rule here. Some points of interest:

• Whether a contract is covered by the prohibition hinges on a "functional test" that looks at whether a contract clause "has the effect of prohibiting the worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker’s employment with the employer."

• 
  The definition of noncompete generally does not include non-disclosure agreements, non-solicitation agreements, or training reimbursement agreements - but they might be banned if they meet the functional test above);

• The noncompete prohibition would apply to "workers," defined broadly to include employees, volunteers, inters, independent contractors, etc.;

• Employers must rescind existing noncompetes, including notice to the employee (or covered former employee) that the noncompete is "no longer in effect and may not be enforced." This must be done in writing (paper or electronic), and the rule includes model language;

• The rule does not apply to noncompetes entered into by a person selling all or substantially all of a business entity or its operating assets. 

Don't panic yet! This is just a proposed rule and it will be a little while before a final rule is published, if at all. It will almost certainly afford employees some time period in which to come into compliance. That said, employers may want to think long and hard about shelling out a bunch of money to entice an employee into signing a noncompete that may be invalid in a few months.  

If you're a real glutton for punishment, you can read the full Non-Compete Clause Rule Notice of Proposed Rulemaking here. 

FTC enters the noncompete wars

Yesterday, the Federal Trade Commission (FTC) issued a news release: FTC Cracks Down on Companies That Impose Harmful Noncompete Restrictions on Thousands of Workers. This marks "the first time that the agency has sued to halt unlawful noncompete restrictions." So, why has the FTC entered into an area that is primarily governed by state contract (and public policy) law?

The news release primarily points to the standard public policy considerations that already make noncompetes "disfavored" in Pennsylvania - they harm employees by limiting their ability to seek new employment (sometimes with higher wages or better conditions) and prevent businesses from acquiring new talent to compete. That said, noncompetes are still generally enforceable so long as they are tied to a legitimate p[rotectable business interest and reasonably limited in terms of  scope, geographic area, and time. 

Not official use.

The FTC claims that the noncompetes in question "constituted an unfair method of competition under Section 5 of the FTC Act." One of the cases focused primarily on lower wage security guards. Some of the specific factors highlighted by the FTC, include:

• Hourly wage employees earning at or near minimum wage;
• High penalties for breach, including a $100,000 penalty in the employer's standard agreement;
• A fairly large 100-mile radius (what constitutes a reasonable geographic limitation will vary a lot depending on the circumstances); and
• Efforts to enforce the noncompetes through litigation to prevent employees from seeking higher wages at competitors (by suing both the employees and the competitors).

Another case dealt with glass manufacturers. The employer locked down more than 1,000 employees with noncompetes. The contracts covered the whole United States for one year, and banned workers from having any involvement with a business that sold similar products or services. 

The third case dealt with a manufacturer of glass food and beverage containers. The company had 700 employees with noncompetes, who could not provide "same or substantially similar services" anywhere in the U.S., Canada, or Mexico for a period of two years to any business "involved with or that supports the sale, design, development, manufacture, or production of glass containers."

Enforcing noncompetes was complicated enough under state law. Now, employers have to consider whether an enforcement action will draw fire from the FTC. 

The first noncompete case EVER!

I picked up an interesting tidbit from NPR's Planet Money episode Hire Power. The first noncompete case (that we know of) occurred in England in 1414. It involved a young man training to become a fabric dyer. His name was - what else? John Dyer. 

MATT MARX: He had an agreement with his master that once he had been trained in the fine arts of clothes dyeing, he wouldn't set up his own clothes dyeing shop in the same city. He would go somewhere else. 

ARONCZYK: This agreement was supposed to last for six months after he finished his training. Somehow, the master seemed to think that John Dyer didn't, in fact, wait the whole six months. 

MARX: Apparently he broke that promise, and so his master hauled him into court. 

BERAS: And John Dyer shows up to court. And the judge is like, folks, there are bigger labor issues right now. 

MARX: The bubonic plague had basically wiped out about a third of the labor supply in northern England. 

ARONCZYK: There were not a lot of workers left. Even 70 years after the plague ended, there were still not enough people to do all of the work. 

MARX: And so when the master clothes dyer brought this essentially noncompete lawsuit before the judge, the judge basically said, are you kidding me?

Apparently the judge was actually even harsher than "are you kidding me." Per the wikipedia page on Dyer's Case, the judge exclaimed: 

In my opinion, you might have demurred upon him that the obligation is void, inasmuch as the condition is against the common law; and by God, if the plaintiff were here, he should go to prison until he had paid a fine to the King.

Noncompetes are still disfavored here in the United States, but are often enforced under the right circumstances. 

Biden Executive Order Takes Aim at Noncompetes

On Friday, President Biden issues an Executive Order on Promoting Competition in the American Economy. The executive order addresses a lot of issues, including a shot at noncompetes:

To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.

What exactly does that mean? The order does not give us much to go on, and an accompanying Fact Sheet offers only: 

Make it easier to change jobs and help raise wages by banning or limiting non-compete agreements and unnecessary, cumbersome occupational licensing requirements that impede economic mobility.

Another good old "stay tuned!"

Of course, the authority of a federal agency acting without any real express statutory authorization to rewrite state contract law is likely limited. Most states - *definitely including Pennsylvania* - already have very convoluted tests to assess whether restrictive covenants are enforceable. Adding a layer of administrative agency law on top of that will only make it more difficult. In other words - expect some homework soon!

PA Supreme Court on "no poach" aka "no-hire" agreements

The Supreme Court of Pennsylvania (i.e. "SCOPA") recently issued an opinion in Pittsburgh Logistics Systems, Inc. v. Beemac Trucking, LLC, addressing the enforceability of "no poach" aka "no-hire" provisions. Basically, a logistics company contracted with a shipping company, and the shipping company promised not to hire any of the logistics company's employees. You can think of it as kind of like a noncompete, but the parties to the contract are the two companies instead of the current employer and employee. 

SCOPA provided a lengthy opinion with a detailed recitation of the arguments on each side. That said, the actual analysis section is remarkably short. The Court looked at the no-hire contract a lot like it would a traditional noncompete employee-employer agreement:

[W]e employ a balancing test to determine the reasonableness of the restraint in light of the parties’ interests that the restraint aims to protect and the harm to other contractual parties and the public . . . . consider[ing] the reasonableness of the restraint’s geographical scope as well as its duration of time.

It is *very* important to note that the no-hire agreement here was ancillary to a services agreement. The opinion noted that a "naked" no-poach agreement would be "per se illegal" according to DOJ/FTC antitrust guidance. 

Yet, the Court still ultimately concluded that the no-hire agreement in this case was still unenforceable. The Court did recognize that the logistics company had "a legitimate interest in preventing its business partners from poaching its employees, who had developed specialized knowledge and expertise in the logistics industry during their training at PLS." But:

• The agreement was too broad because it covered all of the company's employees regardless of whether they worked with the shipping company or not; 
• "The no-hire provision impairs the employment opportunities and job mobility of PLS employees, who are not parties to the contract, without their knowledge or consent and without providing consideration in exchange for this impairment;" and
• The agreement "undermines free competition in the labor market in the shipping and logistics industry."

The Court ultimately balances the logistics company's interest in enforcing the agreement against the harms bullet-pointed above. Bottom line? In this case - the agreement was unenforceable. 

Moving forward? Who knows - we're saddled with the same vague noncompete test that provides nearly zero-predictability in outcomes. After all, the Court is weighing a bunch of factors that don't have actual weights or units of measurement. How many of the harms noted above would have to shift before the balance tipped in favor of the logistics company? What if the agreement were limited to employees who worked with the shipping company and they all got notice of the provisions - but, they did not provide consent or receive consideration? 

My takeaways?

• Limit the scope of no-hire agreements to employees who have contact with the other party;
• Provide written notice, signed by the affected employees to indicate consent;
• Provide some consideration (which presumably may be initial employment); and
• Accept that you're still rolling the dice. 

New White Paper on Noncompetes and Recent PA Supreme Court Decision

My colleagues, Sean Burke and John Bee, and I published a white paper that may be of interest to Lawffice Space readers: New Pennsylvania Supreme Court Decision: Noncompetes Require More than Magic Words. Enjoy!

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!

Casino or Employee? Who Owns the Book of Elite Players?

The Baltimore Sun has an interesting story on an "alleged high-roller theft case." A casino host resigned from her job and took a new job . . . with a competing casino. 

While she was at the first casino, she accumulated a list of "elite players" as part of her job. When she went to the new casino, she contacted those high stakes players to try to get them to come to the new casino. The first casino is not happy about it.

So, what can employers like the first casino do to protect themselves from things like this? Well, the obvious answer is to put a restriction in writing. According to the article, the employer did present the employee with a noncompete. But, she said she didn't like getting "harassed" to sign it, so she quit. 

Ideally, the employer should have made the noncompete a condition of starting the job. The employee claims she built her book of business on the job - something she could not have done if the casino had simply refused to let her work without first signing the agreement. The noncompete could also include nonsolicitation provisions, and identify the customer list as confidential proprietary information. 

Now, the parties are stuck battling it out in court.

HT: Mike Chittenden (an employee benefits attorney with Miller and Chevalier) via email.

An Enforceable PA Noncompete Without Consideration? Not on the Superior Court's Watch!

A couple of years ago, I blogged about a legal theory in a Legal Intelligencer article that would create enforceable noncompetes without any consideration.

The premise was pretty simple, Pennsylvania has a law called the Uniform Written Obligations Act (UWOA) that 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." So, attorneys in Pennsylvania effectively use the magic words "intending to be legally bound" in contracts. Could such a thing work in the world of noncompetes?

Generally, noncompetes require consideration. That consideration may be the initial job offer, but generally not continued employment after the employee has already been hired. Does the UWOA allow employers to circumvent that requirement?

Well, when I blogged about the theory that the UWOA might get around the consideration requirement, I cautioned: "But be careful - as the article warns: no Pennsylvania appellate court has weighed in on this issue yet" . . . until Tuesday.

In Socko v. Mid-Atlantic Systems of CPA, Inc. (opinion here), the Superior Court addressed exactly this issue:

[F]or a restrictive covenant to be enforceable, the employee must receive actual valuable consideration in exchange for signing an employment agreement containing one. When the restrictive covenant is contained in the initial contract of employment, the consideration is the job itself. But when the restrictive covenant is added to an existing employment relationship, however, to restrict himself the employee must receive a corresponding benefit or a change in job status. Contractual language satisfying the UWOA does not provide the employee with any actual benefit, and thus cannot suffice as a form of consideration that is adequate to support the later enforcement of the covenant not to compete against the employee.

Sorry employers - if you want the noncompete, you gotta fork over the consideration. Then again, the Superior Court is an intermediate appellate court. This case could go up to SCOPA for a final decision.

HT to Eric Meyer, who was quick on the draw on this one: PA Superior Court Closes Non-Competition Agreement Loophole.

Surprise! SCOTUS Drops Noncompete / Arbitration Opinion

In case you didn't know it yet, the Supreme Court loves arbitration. So, what do you think happens when a state court decides a noncompete is unenforceable despite an arbitration clause dictating that all disputes be resolved by an arbitrator (aka not the state court)? If you answered "Supreme Court per curiam benchslap," then congratulations! You're the big winner!

On Monday, the Court issued its brief 5-pager in Nitro-Lift Technologies, LLC v. Howard. I think the opening paragraph pretty much sums it up:

State courts rather than federal courts are most frequently called upon to apply the Federal Arbitration Act(FAA), 9 U. S. C. §1 et seq., including the Act’s national policy favoring arbitration. It is a matter of great im­portance, therefore, that state supreme courts adhere to a correct interpretation of the legislation. Here, the Okla­homa Supreme Court failed to do so. By declaring the noncompetition agreements in two employment contracts null and void, rather than leaving that determination to the arbitrator in the first instance, the state court ignored a basic tenet of the Act’s substantive arbitration law. The decision must be vacated.

The FAA, as federal legislation, is the "supreme law of the land." State courts can't usurp the arbitrator's power even where, as here, there is a clear state statute that makes the noncompete unenforceable.

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. 

Do Noncompetes Kill Creativity?

I recently finished reading Jonah Lehrer's Imagine: How Creativity Works. It's an interesting book about innovation, creativity, and imagination. The book spends almost no time on the law . . . except for a brief discussion of noncompetes.

Once upon a time, Boston's Route 128 was the hot tech corridor. Lately, Silicon Valley in California has had the hot hand. What does this have to do with noncompetes?

[The Boston] companies strictly enforced noncompete clauses and nondisclosure agreements; former employees couldn't work for competitors . . . . This meant that at the Route 128 companies, information tended to flow vertically, as ideas and innovations were transferred within the firms. While this vertical system made it easier for Route 128 companies to protect their intellectual property, it also made them far less innovative . . . . Although the Boston area had a density of talent, the talent couldn't interact - each firm was a private island. The end result was a stifling of innovation. 

The vertical culture of the Boston tech sector existed in stark contrast to the horizontal interactions of Silicon Valley. Because the California firms were small and fledgling, they often had to collaborate on projects and share engineers . . . . It also helped that noncompete clauses were almost never enforced in California, thus freeing engineers and executives to quickly reenter the job market and work for competitors.

If true, this presents something of a prisoner's dilemma for employers. The optimal strategy is to expand innovation by allowing employees (and presumably ideas) to float between firms. However, employers have an incentive to defect - that is have their own employees sign noncompetes so their ideas don't get out, while allowing other companies' ideas to come in.

Of course, there are a number of other factors to consider.

Smuggling Gigs in a Bra - COTW #52

Remember when movies only cost a nickel? Me either. But I do remember when floppy disks were 5.25" and only held about a meg - 1.2 MB to be precise. Now, you can buy a 4 gig flash drive for about $5 (a gig, or GB, is 1,000 MB). And, it's all on a drive small enough to fit in your... bra?

Bloomberg has the story: TCW Employee Says She Smuggled External Hard Drive in Bra. A group of employees left their employer to start their own company. Prior to leaving, one of the employees was placed on administrative leave and escorted from the building. A female co-worker testified that, on the same day, she encountered a co-worker with a hard drive. The contents are unclear from the article... perhaps some mix of personal and employer data. And then? "I said 'give it to me' and stuffed it in my bra." She then found the employee who had been escorted out, and went to his car where she gave him the hard drive.

Now, the employer alleges that the hard drive contained confidential and proprietary information. The employer also claims that some of the employees were terminated for stealing trade secrets and confidential information, including client portfolio information. The lesson for employers is clear: implement Naked Office immediately... just kidding. The case does highlight some data security risks though. It's important to understand that mountains of data can now walk right out the front door on something the size of a key chain.

Case: Trust Co. of the West v. Gundlach, BC429385, California Superior Court, Los Angeles County.

HT: Andrew Slobodien, @LaborLawLawyer via Twitter.

Special Announcement: This is Lawffice Space Case of the Week #52... and there are 52 weeks in a year... so by my calculations this marks the one-year anniversary of Case of the Week [Cue noisemakers and confetti].

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.

Noncompete Defamation Leads to Six-Figure Verdict

Today's post is a cautionary tale for employers. If you're going to enforce a noncompete... you'd better make sure the employee in question actually signed a noncompete. A $123,000 jury verdict from Pennsylvania drives the point home. Kitchen v. McGrath Technical Staffing, Inc., Case No. 09-06-01259 (Phila. Cty. March 2, 2011).

In that case, an employer terminated one of its employees, who then started working for a competitor. The employee/plaintiff alleged that his ex-employer began sending him, and his new employer, harassing letters claiming that the employee was bound by a noncompete. The president and HR director even signed an affidavit attesting to the fact that the employee signed a noncompete. The new employer then terminated the employee.

Well, there's just one problem... the employee never signed the noncompete. He testified that he was presented with one but refused to sign it. At trial, the HR director admitted that he never signed it but claimed that at the time they thought he had. That was enough for the jury to award the plaintiff six figures.

Sidenote: The plaintiff's claims were defined as Defamation, Interference with Contractual Relations, and Invasion of Privacy.

Source: Pennsylvania Jury Verdict Review & Analysis, Vol. 26, No. 6 (May 2011).

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.

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.

Case Summary: Missett v. Hub International Pennsylvania, LLC

The latest Pennsylvania Bar Association Civil Litigation Update is out and it includes my case summary of Missett v. Hub International Pennsylvania, LLC: LLC that Acquires Membership Interests from Contracting LLC Has Standing to Enforce Restrictive Covenant Against Terminated Employee.

Catchy title, huh? Lawffice Space readers may recall that I covered this case extensively when it first came out:

• Non-Solicitation Agreements when Employers "Change Hands"
• Non-Solicitation Agreement Enforceable After Firing
• Non-Solicitation Agreements: Factors to Consider - COTW #11

If you're interested in a formal summary, however, just check out the case summary linked above.

Sidenote: I wrote the blog entries before knowing I would write the case summary and was assigned the case summary by someone who I am quite certain was unaware of the blog entries. I believe it was just a happy coincidence!

See also: My case summary of In re Bridgeport Fire Litigation in the same issue: Individual Class Members Have Standing to Move for Judge’s Recusal, and Recusal Motion Must Be Decided Prior to Issuing Substantive Orders. My McQuaide Blasko colleague, Jon Stepanian of Defense of Medicine fame, also has some summaries in there.

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.