Monday, March 25, 2013

Kistler v. O'Brien: I Signed My Non-Compete Agreement After I Started My Job - is it Enforceable Under Pennsylvania Law?



Pennsylvania Law Holds That a Non-Compete Agreement Signed After an Employee Starts a Job is Not Enforceable UNLESS the Employee is Provided "Additional Consideration" in Exchange for Signing the NCA

SCENARIO I:

You join company in January, and are not asked to signed a non-compete agreement.  Six months later, the company hands you a non-compete agreement and tells you that you have to sign it to keep your job.  You sign it. 

Did You Get a Raise or a Bonus?
Two years later, you leave the company.  Is the agreement enforceable? 

In 1975, Pennsylvania's Supreme Court decided this issue in Kistler v. O'Brien.  Here is what the Kistler Court said: 

While a restrictive covenant, in order to be valid need not appear in the initial contract, if it is agreed upon at some later time it must be supported by new consideration. See Maintenance Specialties Inc. v. Gottus, 455 Pa. 327, 331, 314 A.2d 279, 281 (1974); Jacobson & Company v. International Environment Corporation,... 

Furthermore, we have stated that continuation of the employment relationship at the time the written contract was signed was not sufficient consideration for the covenant despite the fact that the employment relationship was terminable at the will of either party.

SCENARIO II:

You join company in January, and are not asked to signed a non-compete agreement. Six months later, the company hands you a non-compete agreement and tells you that you have to sign it to keep your job. The non-compete agreement states that, in consideration of your execution of same, you will receive [A $500 bonus; a raise; a promotion; a higher commission on future sales; the right to participate in the company's 401k plan; etc.] You sign it.

Is the agreement enforceable?

Yes, assuming it is not unenforceable for other reasons.  Insofar as you received "additional consideration in exchange for signing the agreement, the Kistler principle does not apply.

John A. Gallagher is an employment lawyer who represents employees in Pennsylvania.

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