Last week it was #thedress. Before that, Kim Kardashian broke the internet. But, first, there was the Jimmy John’s non-competition agreement kerfuffle that dominated my Twitter. Probably not yours though, because you have a life. Then again, here you are reading this post, pot.
Or shall I call you kettle?
I meant to write about this a week or so ago after I saw Dan Packel’s article at Law360. But, then, I got sidetracked with a bunch of NLRB stuff. Until, yesterday, Lizzy McLellan’s article at The Legal Intelligencer brought me back.
So, here’s the deal. The basic rule in PA has always been that, for a non-compete to be enforceable, it needs to be entered into when employment begins (i.e., as consideration for offering employment), or there needs to be some independent consideration to support it (e.g., a raise, bonus, promotion, etc.).
However, some outlier judicial decisions in PA have concluded that PA’s Uniform Written Obligations Act magically adds consideration to any agreement with the words “intending to be legally bound.”
My Facebook and Twitter feeds were blowing up yesterday with links to articles at NYTimes.com, Huffington Post, and Jezebel about how the sandwich chain, Jimmy John’s, supposedly makes its sandwich makers and delivery drivers sign these non-competition agreements. These agreements purport to preclude employees from working for certain nearby competitors for two years after their employment with Jimmy John’s ends.
Now, I know what you’re thinking…
That Meyer has the coolest Facebook and Twitter feeds evah! How can I get with him? (Well, here’s how you can get with me next month, but I digress).
I’m not going to comment specifically on Jimmy John’s and its purported practice other than to say that I work in Philadelphia and it would be sacrilege to let a “sub sandwich” pass between these lips. But, after the jump, I do have a few general pointers from employers about restrictive covenants…
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In Pennsylvania, a company and an employee can enter into an agreement whereby, in exchange for some form of consideration, the employee agrees not to compete with the company after the employment ends.
Consideration can come in a variety of forms; for example, a raise, bonus, promotion, or sugar. Initial employment can also be sufficient consideration.
However, in Pennsylvania, continued employment won’t cut it. That is, a non-competition agreement will be invalid if an employee signs it after commencing employment — even if you tell the employee that he/she will lose his job by not signing.
You’re hiring for an engineer position. To assist, you engage a search firm, which finally locates an ideal candidate. After a telephone conversation, and a subsequent tour and in-depth interview, you know that you have the right person for the job. So, you prepare and send an offer letter.
The offer letter includes a summary of the position, responsibilities, location, base salary, benefits, effective date, and confidentiality. The letter also states: “You will also be asked to sign our employment/confidentiality agreement. We will not be able to employ you if you fail to do so. In addition, the first day of employment you will be required to sign an Employment Agreement with definitive terms and conditions outlining the offer terms and conditions contained herein.”
The offer letter does not contain any mention of a non-competition agreement.
You’re looking to hire a new salesperson. Scott Salesperson comes in to interview. He currently works for your top competitor.
“Scott, do you have a non-competition agreement?”
“No.”
“Scott, do you have a confidentiality agreement?”
“No. In fact, I have a list of my own customers that I could sell to if you hire me.”
Sounds good, right. But, before hiring Scott, do you have any obligation to independently verify the facts that Scott has represented?
New Jersey employers will definitely want to click through because, last week, the New Jersey Supreme Court answered…
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I was reading a blog post from Jennifer L. Gokenbach at the Colorado Employer’s Law Blog, discussing how, as of yesterday, Colorado deems continuation of at-will employment to be sufficient consideration to support a non-competition agreement. In non-lawyer speak, that means that if an employee signs an agreement not-to-compete in Colorado after the employee starts working, on the condition that if the employee does not sign the agreement then the employee will be fired, the employer may later enforce that agreement.
That’s now the law in Colorado. Is that also the law in PA, NJ, and DE?
Delaware: Yes. Research & Trading Corp. v. Powell, 468 A.2d 1301, 1305 (Del.Ch.1983).
New Jersey: Yes. Hogan v. Bergen Brunswiq Corporation, 153 N.J.Super. 37, 378 A.2d 1164 (App.Div. 1977).
Pennsylvania: No. An agreement not to compete with a former employer must be supported by new consideration; i.e., a change in the conditions of employment (e.g., a raise, promotion, or other financial benefit). Maintenance Specialties, Inc. v. Gottus, 455 Pa. 327, 314 A.2d 279, 280 (Pa. 1974).
In an unpublished opinion, the Third Circuit Court of Appeals denied a Pennsylvania company’s attempt to enjoin a former employee, who had entered into several restrictive covenants with the company, to compete directly against the company and solicit its customers.
What did this employer do wrong and how can you learn from its mistakes?
After the jump…
This story that I wrote with my Dilworth Paxson LLP colleague, David Laigaie, the Chair of Dilworth’s Corporate Investigation/White Collar Group, recently appeared in The Legal Intelligencer. If you operate a business in Pennsylvania and you have trade secrets, employees with non-solicitation agreements, or non-competition agreements, then take a few minutes and read this article. You’ll be glad you did.
The Employer Handbook Blog