Employers In Pennsylvania Required To Provide Additional Consideration For Non-Compete Agreements

Non-compete agreements are utilized by employers in order to restrict where and who their employees can work for after they are fired or quit.

In Socko v. Mid-Atlantic Systems of CPA, the Superior Court held that an employer is required to give an employee additional consideration in exchange for signing a non-compete agreement if the employee already works for that employer at the time the non-compete agreement is signed.

Previous to the Superior Court’s ruling in Socko, federal courts interpreting Pennsylvania law were split upon whether additional consideration by an employer is necessary for non-compete agreement to be enforceable.

The Superior Court in Socko emphasized that, for a non-compete agreement to be enforceable, the employee must receive actual consideration in exchange for signing the agreement.

When the promise restricting employment is contained within the employment agreement signed by the employee at the time the employee is hired, the Superior Court noted that consideration for the promise is the job itself.

However, when the promise is added to an existing employment relationship, the Superior Court believed that the employee must receive an additional benefit, such as a raise or bonus, or a change in job status (i.e., promotion), in order for that promise to be binding upon the employee after the employment relationship ends.

While the Supreme Court of Pennsylvania has yet to weigh in on this issue, an employer doing business in Pennsylvania would be prudent to provide additional consideration when asking for a current employee to sign a non-compete agreement.

As for employers with non-compete agreements which do not currently meet the requirements set forth by the Superior Court in Socko, steps should be taken promptly to implement new, valid agreements.