Non-compete contract disputes and how to avoid them

On Behalf of | Dec 14, 2022 | Blog, Employment Law -- Employer |

A non-compete agreement can prevent your former employees from using your company’s secrets to benefit your competitors.

This does not mean that a non-compete contract is appropriate for every employee. Unnecessary or overly restrictive agreements can lead to costly litigation.

When can an employee dispute a non-compete contract?

To be enforceable in Pennsylvania, the non-compete agreement must meet these criteria:

  • The contract must be relevant to the employment relationship.
  • The employee must receive something in return for signing the contract.
  • The terms must be reasonable.
  • The agreement must protect the legitimate business interests of your company.

If the agreement the former employee signed does not meet these criteria, the court may deem it unenforceable.

How can you avoid a dispute?

You can reduce the risk of a dispute by drafting non-compete contracts carefully and exercising discretion in how you use them.

Only use non-compete contracts when they are necessary to protect your business interests, such as client lists and other proprietary information. Employees who have little or no access to such information might not need a non-compete agreement, and asking them to sign one may invite legal troubles.

When you ask an employee to sign a non-compete contract, you must offer “adequate consideration,” such as a job offer, raise or promotion. You should not ask current employees to sign a non-compete contract just to remain employed. The Pennsylvania Supreme Court has ruled against employers who have done this, finding that continued employment alone is not sufficient consideration.

Finally, you should be reasonable in the scope of your non-compete agreement. If the terms last too long or restrict the employee’s opportunities unnecessarily, the court may rule against you.

Non-compete agreements are an important tool, especially in highly competitive industries. However, you must use them wisely.