PA SUPERIOR COURT REQUIRES ADDITIONAL CONSIDERATION FOR NON-COMPETE FROM CURRENT EMPLOYEE
The Pennsylvania Superior Court recently ruled in Socko v. Mid-Atlantic Systems of CPA, Inc., that non-compete agreements signed during employment are not enforceable unless the employer provides its employee additional consideration in exchange for signing. David Socko was employed by Mid-Atlantic as a salesman for its basement waterproofing services business. During his employment, Socko signed an employment contract containing a covenant not to compete with Mid-Atlantic in certain specified locations for two years after termination. The contract contained a statement, in compliance with Pennsylvania’s Uniform Written Obligations Act (UWOA), that the parties intended to be legally bound. The court in Socko noted that Pennsylvania courts have generally concluded that a written agreement is not void for lack of consideration if it contains such an express statement.
Socko did not receive a benefit or beneficial change in his employment status in exchange for signing the non-compete. He resigned and, shortly thereafter, accepted a position with another Pennsylvania waterproofing business. Mid-Atlantic notified the new employer of Socko’s non-compete and threatened litigation. Ten days later, Socko’s new employer terminated his employment.
Socko sued Mid-Atlantic in the Court of Common Pleas in York County, Pennsylvania. The trial court granted Socko’s motion for partial summary judgment, and Mid-Atlantic appealed, contending that the lower court erred when it failed to apply the UWOA.
In Socko, the court noted that when a restrictive covenant is included in an initial contract of employment, the job itself is sufficient consideration for the employee’s commitment. However, when the parties add a restrictive covenant to an existing employment relationship, the restriction is not enforceable unless the employee receives an additional benefit or change in job status. The court concluded that a statement that the parties intended to be legally bound, as set forth in the UWOA, was insufficient consideration to support enforcement of a covenant not to compete against Socko because he did not receive any actual benefit. Because Mid-Atlantic did not provide Socko with valuable consideration in exchange for signing the non-compete, the court affirmed the trial court’s order.