Elements of a good noncompete agreement

On Behalf of | May 18, 2021 | Employment Law -- Employer |

Contracts are the lifeblood of any business, and their enforceability depends not only on the wording, but also the timing of the terms. A noncompete agreement between an employee and employer is a contract that prohibits the employee from entering into competition with the employer during or after employment.

A noncompete clause protects a business from unfair competition that may include the leaking of trade secrets or classified information, such as clients or targeted customers, formulas, methods and practices, strategy or future products, into the competitive market.

In order to be enforceable, a noncompete agreement should include:

  • An effective date when it will begin
  • Reasons for the agreement
  • Specific dates or time frame during which the employee must comply with the noncompete terms, as well as the location
  • Specified consideration to the employee for agreeing to the terms

The terms of the agreement must have realistic time frames during which the employee cannot compete after the termination of employment with the company. A noncompete with unreasonable terms that bar the former employee from furthering his or her career, either by an indefinite time frame or geographic noncompete zone, is likely to be challenged.

Pros and Cons

For the employer, it is highly advantageous to have noncompete clauses at the outset of employment. A noncompete agreement not only protects the company’s trade secrets, but can reduce turnover by incentivizing the loyalty of employees who may not wish to change jobs, and employers may then wish to further invest in their employees’ skills with costly training.

An estimated 37% of employees are asked to sign a noncompete agreement after beginning employment, which puts them at a disadvantage by reducing their bargaining power since they have already turned down other employment. Noncompetes can also discourage top talent from using their skills, forcing them to leave the field altogether.

The validity of noncompetes in Pennsylvania

Although some states, do not uphold the validity of noncompetes, Pennsylvania in general does. However, a recent ruling by the Pennsylvania Supreme Court has affirmed that a noncompete agreement is not valid if it is entered into after employment has begun, unless its restrictions and consideration were agreed to prior to the commencement of employment.

These and other legal considerations are essential to businesses in Pittsburgh, Philadelphia and throughout Pennsylvania when assessing the terms and proper timing of employment contracts.