This post was contributed by Eric N. Athey, Co-Chair of McNees Wallace & Nurick LLC’s Labor and Employment Law Practice Group.
In Pennsylvania, a non-compete agreement (NCA) must be supported by legal "consideration" in order to be enforceable. If a newly hired employee signs a NCA at the time of hire as a condition of employment, the new job is the consideration for the agreement not to compete in the future. On the other hand, once an employee is already employed, his employer cannot foist an NCA on him and expect it to be enforceable unless new consideration is given (e.g. a special bonus, job protection, promotion, severance benefits, etc.). These basic principles are well established under Pennsylvania law. But what happens if an employer presents a NCA to a new hire after he accepts a written job offer but before he actually starts work? This scenario was recently addressed by the Supreme Court of Pennsylvania in Pulse Technologies, Inc. v. Notaro.
In Pulse Technologies, the company provided Mr. Notaro with a 2 ½-page offer letter that included a description of the job, salary, benefits, and start date. The letter also stated: "You will also be asked to sign our employment/confidentiality agreement. We will not be able to employ you if you fail to do so." The letter further explained that the employment agreement would contain "definitive terms and conditions" of employment. Mr. Notaro signed and returned his offer letter as instructed. On his first day of employment, he was provided with an "employment/confidentiality agreement" that contained a non-compete provision. Notaro read and signed the agreement without objection, understanding that it contained restrictions on his ability to compete in the future. Significantly, he signed the agreement before he began performing his new job.
Over four years later, Mr. Notaro left Pulse Technologies to take a managerial position with one of the company’s competitors.
Pulse Technologies successfully enforced its NCA against Notaro in trial court; however, on appeal, the Superior Court of Pennsylvania found the NCA to be unenforceable. Specifically, the Superior Court found that Pulse Technologies’ offer letter did not mention a NCA and the company could not impose one on him after he had started employment.
On appeal to the Supreme Court of Pennsylvania, Pulse Technologies succeeded in having the Superior Court’s decision vacated. The Supreme Court disagreed with the lower court’s ruling on several counts. First, Mr. Notaro’s offer letter explained that he would be required to sign an employment agreement that contained the "definitive terms and conditions" of employment – and nowhere did the letter preclude the possibility of a NCA. Secondly, the offer letter was merely a part of the hiring process and was not itself an employment contract. Third, and most importantly, the Supreme Court found that it was the signing of the employment agreement, and not the offer letter, that signified Mr. Notaro’s acceptance of employment. For this reason, Notaro was provided with consideration (i.e. his new job) when he agreed to the NCA provision as necessary for the NCA to be enforceable.
In a nutshell, the Pulse Technologies decision means that a NCA signed before an employee begins his job may be enforceable even if it was not mentioned in the employee’s written job offer. However, as a matter of best practice, employers should in most cases avoid surprising new hires by presenting them with NCAs on their start date. Notwithstanding the Pulse Technologies decision, advance notice to new hires of a NCA requirement is advisable – and the best way to provide this notice is often in an offer letter.