• David M. Socko v. Mid-Atlantic Systems of Cpa, Inc.
  • January 6, 2016 | Author: Anthony T. Bowser
  • Law Firm: Thomas, Thomas & Hafer LLP - Harrisburg Office
  • Supreme Court of Pennsylvania

    No. 2015 WL 7283317

    Decided: November 18, 2015
    • Restrictive Covenant
    • Uniform Written Obligations Act
    An employment agreement containing a restrictive covenant, entered into after commencement of employment, requires additional consideration to be enforceable, even where the agreement states the parties “intend to be legally bound,” which language implicates the insulating effect of the Uniform Written Obligations Act (“UWOA”).

    Background

    Appellant Mid-Atlantic Systems of CPA, Inc. (“Mid-Atlantic”) is in the business of providing basement waterproofing services. Mid-Atlantic employed Appellee David Socko (“Socko”). The parties entered into a series of employment agreements containing restrictive covenants, with the relevant agreement being entered into during, rather than prior to, Socko’s employment. This agreement expressly provided for the application of Pennsylvania law and stated that the parties intended to be “legally bound.” In 2012, Socko resigned from his employment with Mid-Atlantic and accepted a position with a competitor. The parties initiated litigation to determine their respective rights under the agreement.

    The trial court and Superior Court found that the restrictive covenant was unenforceable for want of consideration. Under Pennsylvania common law, when an employee enters into an employment contract subsequent to the commencement of employment, which contains a covenant not to compete, the covenant must be supported by new consideration in the form of a benefit to the employee or a beneficial change to his or her employment status. Mid-Atlantic challenged that the UWOA expressly provides that a written promise shall not be invalid or unenforceable for lack of consideration if the writing also contains an express statement that the signer “intends to be legally bound.”

    Holding


    As a matter of first impression, the Supreme Court held that an employment agreement containing a covenant not to compete may be challenged for a lack of consideration even though the agreement, by its express terms, indicates that the parties “intend to be legally bound” pursuant to the Uniform Written Obligations Act (UWOA). The Court relied on Pennsylvania common law’s general disfavor toward covenants not to compete in an employment agreement and the Statutory Construction Act to find that the legislature did not intend to obviate the common law limits on enforceability of non-compete agreements.

    Practice Tip


    Employers that wish to have employees enter into covenants not to compete must do so at the outset of employment or offer new consideration in the form of a benefit to the employee or a beneficial change to his or her employment status.