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Pennsylvania High Court Takes Up Enforceability of Restrictive Covenant In Non-Compete Agreement

In Socko the plaintiff sued his employer, Mid-Atlantic, after it threatened litigation to enforce a non-compete agreement Socko executed during his tenure with Mid-Atlantic. While employed as an at-will employee with Mid-Atlantic, Socko signed multiple employment contracts, the last of which contained a covenant not to compete with Mid-Atlantic for a period of two years following termination of his employment in eights states (including Pennsylvania), the District of Columbia, and any other state in which Mid-Atlantic conducted business. Two years after signing the agreement Sucko accepted another position with a competitor. Ten days after receiving the threat of litigation from Sucko's previous employer he was terminated by the competitor.

Subsequently, Sucko filed suit against Mid-Atlantic and challenged the enforceability of the restrictive covenant. Mid-Atlantic did not dispute that the non-compete agreement was signed during the course of Sucko's employment. Similarly, Mid-Atlantic did not deny Socko's contention that he did not receive a benefit or beneficial exchange for signing the last agreement. However, Mid-Atlantic argued that the agreement was nevertheless enforceable because it contained the language "intending to be legally bound" and that as a result the UWOA prevents the avoidance of any written agreement for lack of consideration.

The trial court ruled in favor of Socko, granting his motion for summary judgment, and the Superior Court affirmed that decision. In reaching its conclusion, the Superior Court noted that the Pennsylvania Supreme Court has repeatedly inquired into the adequacy of consideration to enforce restrictive covenants in employment contracts. Further, it noted that contractual formalities such as a seal or $1.00 for consideration, will not protect such restrictive covenants. Thus, the Court concluded that "[l]anguage in an employment contract that the parties intend to be legally bound does not constitute valuable consideration in this context".

The Superior Court noted in its opinion the lack of Supreme Court authority on this particular issue and pointed out that each of the parties relied upon federal decisions. The Pennsylvania Supreme Court will now consider, among other issues, whether the Superior Court misconstrued the UWOA, making such restrictive covenants enforceable.

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