To answer your question, it depends. And in Pennsylvania, there are a lot of factors that a court will consider, based on a recent case decided by the Pennsylvania Superior Court. But, unlike many prior Pennsylvania decisions that deal with the enforceability of a non-competition agreement after an employee is fired, this recent decision focuses on a non-solicitation agreement.
Read on to find out whether the non-solicitation agreement that an employees signs with your company is still enforceable if you decide to end the employment relationship.
The case is Missett v. Hub Int'l PA, LLC. I'll spare you the facts, because they are long and somewhat complicated. In a nutshell:
- Plaintiff signs a series of non-solicitation agreements with Company A, a limited liability company .
- Company B purchases the membership interests (akin to a stock purchase) of Company A.
- Company B fires Plaintiff because it deems him too expensive.
- No. The court holds that when Company B purchased the membership interests of Company A, it could still enforce the non-solicitation agreement. Had Company B purchased the assets of Company A, rather than its membership interests, the restrictive covenant would have been void.
- No. The circumstances of an employee termination are but one of many factors that a court should consider in determining whether to enforce a non-solicitation agreement. Other factors include: (a) the employee's access to proprietary information and its later use for a competitor (b) the length of the restrictive covenant; (c) the number of restrictive covenants an employee signs over time; (d) the ability of the employee to earn a living (taking into account the size of the overall industry customer base); (e) industry standard and custom.
Other tips for employers who seek to enforce non-solicitation agreements after a layoff:
- Pigs get fed and hogs get slaughtered. So, keep the non-solicitation period to two years or less.
- Along those same lines, a former employer should think twice before trying to enforce a non-solicitation agreement against an employee who wants to maintain customer relationships that the employee brought to the former employer.
- Offer the employee a severance -- some additional consideration -- and have that employee sign a severance agreement in which the employee reaffirms that he/she will abide by restrictive covenants.
None of these tips are "slam dunk" winners. But they should increase the chances of enforceability. Another option is gardening leave. What is gardening leave, you ask? It's a period of time during which the current employer pays an employee to stay out of the office. During the "gardening leave" the employee remains employed with the current employer, so all restrictive covenants remain in full force and effect. The idea is that by the time the gardening period is over, many trade secrets (e.g., client lists) will become stale and the non-solicitation threat is effectively abated. For some recent insight on gardening leave, check out Michael Greco's post over at NonCompeteNews.com.