Philadelphia Business Lawyers: Restrictive Covenants – Who Owns Customer Goodwill?

Pennsylvania courts recognize that an employer does not have a legitimate business interest in restricting an employee from soliciting customers he did not obtain during his employment. In Radian Guar. Inc. v. Bolen, 2014 WL 2777450, at *1 (E.D. Pa. 2014), the defendant, Bolen, was employed as an account manager for the plaintiff, Radian, a mortgage insurance company. Bolen was subject to a non-competition covenant, and when Bolen secured employment with a competitor of Radian, Radian sought an injunction to enforce the covenant. While employed at Radian, Bolen was responsible for seventeen customers, eight of which Bolen knew before she began working for Radian as a result of a job she had with a company known as “PMI,” before Radian hired her.

The Court ruled that Radian did not have a legitimate interest in the goodwill with regard to the eight customers Bolen knew when she worked at PMI and before she began working at Radian, stating that a former employee has a legitimate business interest only in protecting the client relationships developed while the employee was under their employ. Citing BDO Seidman v. Hirshberg, 712 N.E. 2d 1220 (N.Y. 1999). Therefore, the restrictive covenant did not prohibit Bolen from soliciting customers that she knew at PMI prior to joining Radian.

For more information on restrictive covenants, contact Philadelphia business lawyers at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.