Thursday, October 12, 2017

Should I Sign a Severance or Separation Agreement Requiring Me to Consent to a Non-Competition Restriction?

Philadelphia-Area Lawyer Experienced in Non-Compete Agreements

Fighting Non-Competes Since 1991

 Questions?  John will spend 5-10 minutes with you discussing your current work situation, your disability/FMLA leave, your employment/non-compete contract, a separation agreement, your wage or overtime claim, your unemployment appeal or your potential lawsuit at no charge to you.  Call 610-647-5027.  John is usually available 24/7.

You may also Click Here to e-mail John directly.

There are some crucial decisions to be made when your former employer offers you a Separation Agreement which includes an offer of severance but requires you to agree to confidentiality, non-competition and non-solicitation provisions, not to mention a Release of all claims you may have against the company.

Can Be Tricky
NOTE: If the company has a written policy stating that you are entitled to severance in case of termination without cause, but does not specify the you must agree to restrictive covenants such as a non-solicitation or non-competition clauses, then you want to contact counsel immediately. Why be forced to agree to something that you should not be forced to agree to in exchange for something that you are entitled to no matter what?

Can Greatly Limit Your Vocational Mobility

Does it Make a Difference if I Have Already Signed Non-Compete Agreement?

It certainly does. Courts look much differently at non-compete contracts signed by an employee when he\he starts a job, versus one signed by the employee in exchange for compensation in the form of severance upon departure from employment. That is to say, courts are less likely on balance to fully enforce a non-compete signed by an employee at the commencement of employment, which they often consider something like contracts of adhesion (i.e. one in which you had no choice), versus a non-compete signed by an employee in exchange for compensation at the end of employment, which they view as a far more voluntary act by the employee.

Consequently, when you receive an offer of severance in a separation agreement that includes restrictive covenants such as a non-competition clause, it is imperative that you first determine whether you previously signed a document that contained such a provision. If you have not previously signed such a contract, you will be free from limitations on your ability to obtain new employment unless you sign the separation agreement.

One clue to look for is this: if you will not previously signed an employment -related document that includes restrictive covenants such as those relating to confidentiality, non-competition and non-solicitation, the severance agreement will contain full and complete restrictive covenants. If, on the other hand, you have already signed a document containing such restrictive covenants (when you took the job, for example), the separation agreement may merely ask you to affirm that you continue to be willing to abide by the terms of the existing restrictive provisions.

NOTE: In some cases, a non-compete agreement that you previously acquiesced to may not be enforceable unless you sign a severance agreement affirming your willingness to comply with the terms thereof.

Employee Subject to RIF "Worthless"

Under Pennsylvania Law, if an Employee has been Separated due to Reduction in Force, Layoff or Alleged Poor Performance, a Previously Agreed Upon Non-compete Contract May be Void

In Pennsylvania, an employee that has been let go through no fault if his/her own may been deemed a “worthless employee” so that some or all of a previously executed non-competition agreement is considered void.

However, if an employee that is been subjected to a layoff, etc., signs a separation agreement wherein the employee agrees to abide by the terms of the previously agreed upon restrictive covenants, then the employee has waived any arguments that the original contract is void pursuant to the worthless employee doctrine. Simply stated, courts view a separation agreement as being a brand-new contract and the payment of severance in exchange for the employee’s promise to abide by the restrictive covenants in question will be deemed to overcome the worthless employee argument.

That's Consideration!

Under Pennsylvania Law, a Non-Compete Agreement Signed After the Employee Commences Employment is Non-Binding Unless the Employer Provides “Additional Consideration” to the Employee

In addition to the worthless employee doctrine, there is another principle under Pennsylvania law to bear in mind.

While a non-compete covenant signed at the outset of employment is always considered to be supported by adequate consideration (i.e. value given in exchange for the employee’s promise to comply with the restrictive covenant), one signed weeks, months or even years after the commencement of employment may not be enforceable unless the employee was at the time that the non-compete was executed provided with “additional consideration.”

In this context, “additional consideration” may take many forms, such as a promotion, payment of money in the form of a bonus or raise, entitlement to participate in an employee benefit plan, the granting of stock options, etc.

I Have Never Signed Non-Compete Contract with My Employer and Now I Have Been Let Go -- Should I Agree to a Non-Compete in Exchange for a Severance Payment?

In this scenario, one must determine whether the value of offered severance payment outweighs the restrictions of the non-compete clause. If you been offered 6-months of severance in exchange for a 6-month non-compete, the answer may be easy. But suppose you are offered 2-months of severance and in exchange for a 2-year non-compete, a much more common scenario? Bear in mind the deterrent effect of a non-compete when seeking new employment may be substantial. It is no secret that prospective employers are quite gun-shy when confronted with the decision to hire an applicant bound by a non-compete limitation. 

Absence Does Not Make Client's Heart Grow Fonder

Up to this point, this Post has generically referred to “non-compete agreements.” This is the short-hand terminology for such contracts but, as noted above, many employment agreements also contain confidentiality and non-solicitation restrictions as well.

Non-solicitation clauses found in such agreements typically prohibit employees from accepting business from any customer or client of their former employer for a year or two following the employee’s departure. For employees in “customer facing positions,” such as recruiters, salespersons and account managers, such a non-solicitation covenant can have devastating consequences. After all, even soldiers who go off to war have been known to lose their girlfriend/boyfriend after a year or two…

Representing Pennsylvania's Workforce Since 1991

Philadelphia Area Non-Compete Attorney Representing Employees

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

John typically represents workers who need an employment lawyer in Philadelphia County, Chester County, Delaware County, Bucks County, Berks County, Lancaster County and Montgomery County.

Pennsylvania Non-Compete Agreement Lawyer Provides Free Telephone Consultations (15 Minutes in Duration)

If you are looking for a lawyer who regularly handles non-competition cases, and live in Paoli, Charlestown, Malvern, Devault, Exton, West Chester, West Goshen, King of Prussia, Villanova, Wayne, Devon, Berwyn, Bryn Mawr, Haverford, Ardmore, Newtown Square, Broomall, Media, Nether Providence, Swarthmore, Radnor, Springfield, Blue Bell, Plymouth Meeting, Chestnut Hill, Lower Gwynedd, Skippack, Dolestown or any of their surrounding towns, feel free to send me an e-mail or give me a call.  I am always glad to spend some time with people via a free telephone consultation.

Need an Experienced Lawyer for a Non-Compete in the Philadelphia Area?

Click Here if you have questions about any aspect of employment law, from wrongful termination, to wage and overtime claims, to discrimination and retaliation laws, to Family and Medical Leave

Click Here if you have questions about any aspect of Pennsylvania Unemployment Law, from willful misconduct, to voluntary quit, to Referee Hearings, to severance issues

Click Here to e-mail John directly

Thanks for checking in with us.

1 comment:

Unknown said...

Nice Post, Thank you for the sharing but I know one good and best separation agreement is a contract between a husband and wife when they separate from each other. In this document they resolve such matters as property division, debts, custody and support. For more details: