Monday, March 25, 2013

Insulation Corp. v. Brobston: Is My Non-Compete Covenant Valid and Enforceable if I am Fired From My Job Under Pennsylvania Law?

May Be Unenforceable if You Are Fired
If You Are Laid Off or Fired for Poor Performance, the Non-Compete Clause in Your Employment Agreement is No Longer Valid and Enforceable Under Pennsylvania Law

In a 1995 case called Insulation Corp. v. Brobston, Pennsylvania's Superior Court (the appeal court one step below the PA Supreme Court), the Court considered whether the employer could enforce a non-compete covenant against an employee it had terminated due to alleged poor performance.  The Court held that the non-compete could not be enforced under such circumstances.  Here is the key language from that decision:

Over the course of the next year, Brobston failed to properly file sales call and expense account reports. Further, Brobston failed to make a satisfactory number of overnight sales calls. Finally, of the fourteen accounts in his territory, only three showed growth; the others showed either flat or  decreasing sales. On August 13, 1993, ICA terminated Brobston's employment.

On December 8, 1993, Brobston was hired by Foam Plastics of New England, a competitor of ICA, who was aware of the existence of ICA's restrictive covenants. On December 17, 1993, ICA sought injunctive relief against Brobston, and filed a petition in equity to enforce the employment agreement by enjoining him from disclosing proprietary information about ICA, and by restraining him from competing with ICA...

Following the preliminary injunction hearing, the trial court granted ICA's petition for a preliminary injunction and enjoined Brobston from disclosing ICA's trade secrets and from competing with ICA within three hundred miles of Allentown, Pennsylvania for a period of two years from the date of Brobston's termination...

Where an employee is terminated by his employer on the grounds that he has failed to promote the employer's legitimate business interests, it clearly suggests an implicit decision on the part of the employer that its business interests are best promoted without the employee in its service. The employer who fires an employee for failing to perform in a manner that promotes the employer's business interests deems the employee worthless. Once such a determination is made by the employer, the need to protect itself from the former employee is diminished by the fact that the employee's worth to the corporation is presumably insignificant. Under such circumstances, we conclude that it is unreasonable as a matter of law to permit the employer to retain unfettered control over that which it has effectively discarded as worthless to its legitimate business interests.

The Brobston decision is obviously very helpful for employees otherwise bound by non-compete agreements who are terminated due to alleged poor performance.  However, few employers will concede its applicability, so you will still need to carefully plan your course of conduct even if you are such an employee. 

The is a Difference Between the Non-Compete Clause and the Non-Solicitation Clause Contained Within Your Employment Contract

In addition to the non-compete clause found in the typical employment contract, there usually exists a non-solicitation clause as well.  Non-solicitation clauses prohibit former employees from doing business with customers of his/her former employer.

It is generally understood that the Insulation Corp. v. Brobston rule does NOT apply to non-solicitation clauses.  That is, employees who are laid off or let go due to alleged poor performance are in general still bound by the non-solicitation clause contained within their employment agreements.

John's Video on Pennsylvania Non-Compete Agreements:

                                          Philadelphia Area Non-Compete Attorney

Pennsylvania Lawyer Fighting Non-Compete Agreements Since 1991
Philadelphia Area Employment Attorney Representing Employees
John A. Gallagher is an employment lawyer who represents employees in Pennsylvania. 

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