Philadelphia Business Lawyers: Non-Compete/Disclosure Agreement

In Socko v. Mid-Atlantic Systems of CPA, Inc., the Superior Court of Pennsylvania gave a key ruling which held that a non-compete agreement that only states the parties “intend to be legally bound, ” but does not provide any new advantage of value or change in employment status, is unenforceable against a current employee for lack of consideration. A previous ruling in the 2007 Western District of Pennsylvania opinion in Latuszewski v. Valic Financial Advisors, Inc. was declined to be followed. Instead, the Superior Court ruled that Pennsylvania’s Uniform Written Obligations Act (“UWOA”), 6 P.S. § 33, which generally says that the parties’ stated “intent to be bound” represents adequate consideration, is not fitting to restrictive covenants because, unlike other agreements, the value of the consideration is a factor in determining if the covenant can be enforced.

David Socko was a salesman for Mid-Atlantic Systems of CPA Inc. (“Mid-Atlantic”), and more than a year after he began his employment there, the company had Socko sign a new employment agreement. This agreement contained a new, two-year restrictive covenant not to compete. Socko did not receive any additional benefits, and his employment status did not change. After Socko left Mid-Atlantic and started working for a competitor soon after, Mid-Atlantic sent Socko’s new employer a letter threatening litigation under the non-compete agreement. Soon after the letter, Socko was fired from his job.

Socko brought suit seeking to have the non-compete agreement ruled unenforceable for lack of consideration. Mid-Atlantic cited the 2007 federal case that stated under the UWOA, the use of language “intending to be legally bound” provides sufficient consideration. The trial court rejected the federal court’s reasoning and held that the UWOA does not permit enforcement of a non-compete agreement without a consequential change in the employee’s benefits or job status. Mid-Atlantic appealed.

In its Socko ruling, the Superior Court acknowledged that a non-compete agreement in an employment agreement typically has been treated differently than other contracts and requires actual and valuable consideration.

For more information, call Philadelphia commercial lawyers at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.