Are Non-Compete and Non-Disclosure Agreements Enforceable in Pennsylvania?
Are Non-Compete and Non-Disclosure Agreements Enforceable in Pennsylvania?
As a business owner, it can be incredibly frustrating to watch a former employee walk out the door with insider knowledge, client relationships, or strategies, and then use that information to compete against you. To prevent this, non-compete and non-disclosure agreements come into play. These agreements are binding contracts designed to protect what you have built while still allowing employees to move on with their careers. They also come in handy during business transactions that require disclosing confidential information, such as trade secrets.
In Pennsylvania, enforcing these agreements is not automatic. Courts can uphold a non-compete or non-disclosure agreement only if it serves a legitimate business purpose and is fair to both parties. Whether you’re hiring key employees, promoting a manager, or creating partnerships that involve confidential information, it is critical to understand how Pennsylvania courts view non-compete agreements and NDAs. At Cali Law, we help business owners draft these agreements to ensure they are enforceable.
Understanding Non-Compete Agreements
A non-compete agreement is a contract that restricts the extent to which a former staff member engages with a competitor or gives a specific period after leaving your company during which they may start a competing business. The goal of these agreements is not to punish employees, but to protect your business interests, such as trade secrets, proprietary processes, and established customer relationships.
In Pennsylvania, non-competes are often used to safeguard client goodwill and specialized knowledge, giving your business a competitive edge. In industries where information is gold, losing that protection can have immediate and long-term financial consequences. At the same time, a non-compete must be drafted so it doesn’t infringe on an employee’s right to earn a living, which is why they are closely scrutinized.
Are Non-Competes Enforceable in Pennsylvania?
Yes, but only if they meet specific legal requirements. Pennsylvania courts may enforce non-compete agreements if they are reasonable and supported by a valid business purpose. To be enforceable, a non-compete must meet the following three elements:
Legitimate Business Interest
The agreements must protect a legitimate business interest, such as trade secrets, confidential information, specialized training, or significant customer relations developed through the employer’s efforts. If your goal is to avoid competition, the agreement may not be enforceable.
Reasonable Scope
The restrictions must be reasonable. Courts typically consider how long the restriction lasts and how far it extends geographically. If an agreement involves a long restriction period or is overly broad, it may be rejected.
Adequate Consideration
The agreement must be supported by adequate consideration. This means that if a non-compete is signed at the start of employment, the job offer itself qualifies. On the other hand, if it is introduced later, the employee must receive an additional benefit, such as a raise, bonus, promotion, or another tangible benefit.
What Makes a Non-Compete More Likely To Hold Up in Court?
For a non-compete agreement to withstand scrutiny in court, it must be well-drafted. This means that it must clearly define what competitive activity is restricted, for how long, and where. It should also directly tie those restrictions to the business interests being protected.
For example, a non-compete agreement limiting a former employee from soliciting your existing clients for a short period in the same market is more enforceable than one that imposes a blanket ban on working in the industry anywhere in the state.
Pennsylvania judges may also use a doctrine called “blue-penciling”. Here, the courts can modify overly broad terms and enforce only the reasonable portions. You should, however, never rely on the court to fix a poorly drafted contract because a judge can decide not to enforce the contract at all.
Understanding Non-Disclosure Agreements (NDAs)
Non-disclosure agreements, also known as confidentiality agreements, are often easier to enforce than non-competes. NDAs restrict employees or business partners from using or sharing confidential information learned during the relationship. This may include customer lists, pricing strategies, formulas, internal processes, or other non-public information that adds value to your business.
Unlike non-compete agreements, NDAs do not prevent someone from working elsewhere. Instead, they focus on protecting the business's information, such as trade secrets. It is worth noting that NDAs do not protect information that is publicly available or already disclosed. Once a trade secret becomes public through the company’s own actions, it may no longer be protected by law.
When are NDAs Enforceable in Pennsylvania?
In Pennsylvania, NDAs are generally enforceable when:
They are part of an employment or business relationship and supported by adequate consideration
They are tailored to protect legitimate business interests
The restrictions listed in the NDA are reasonable in duration and scope
The agreement clearly defines what information or conduct is restricted.
As a business owner, it is critical to ensure that employees and business partners with access to sensitive information sign NDAs and non-compete agreements. When properly drafted, they create clear expectations and provide a strong legal foundation should disputes arise.
When Might These Agreements Be Unenforceable?
Not every NDA or non-compete will successfully be enforced. Courts may reject an agreement if the information it claims to protect is not confidential or if the agreement attempts to restrict lawful conduct.
For example, if an NDA attempts to restrict reporting wrongdoing or complying with legal obligations, it may be unenforceable. Similarly, a non-compete may be unenforceable if it is introduced without proper consideration, even if the restrictions themselves are reasonable.
Every situation is unique, and relying on cookie-cutter agreements can create more problems than what your business is trying to solve. It is advisable to work with an experienced business attorney to tailor agreements to your situation and regularly review them to ensure compliance with evolving laws, thereby adequately protecting your business and relationships.
Let Our Pennsylvania Business Law Attorney Protect Your Interests
Non-compete and non-disclosure agreements are powerful tools in business, provided they are drafted and enforced correctly. At Cali Law Firm, our business law attorneys help business owners create agreements that hold up in court and align with real-world business goals. Whether you’re hiring, restructuring, or facing a potential breach, we can provide practical guidance based on Pennsylvania law. Our team has experience creating enforceable agreements throughout Pike, Wayne, Monroe, Luzerne, Wyoming, Bradford, Sullivan, Lackawanna, and Susquehanna counties. If you want to protect your confidential information, customer relationships, and competitive edge, contact us today to schedule a confidential consultation and discuss your strategy.
