Skip to main content

Continued Employment is Not Sufficient Consideration to Enforce a Non-Compete Agreement


Socko v. Mid-Atlantic Systems of CPA, Inc. - Pennsylvania Supreme Court


Facts:  David Socko ("Socko") was hired as a salesperson at Mid-Atlantic in March 2007.  Upon being hired, Socko signed an employment contract which contained a two year non-compete covenatn.  Socko resigned in February 2009 but upon being rehired in June 2009, he hired a new employment agreement which contained another two year non-compete covenant.  While still employed at Mid-Atlantic, Socko signed a third employment contract in December 2010 which contained a non-compete for two years after his termination of employment.

Socko resigned from Mid-Atlantic in January 2012 and accepted a position elsewhere a few weeks later.  After Mid-Atlantic sent a letter to Socko's new employer and threatened litgiation, Socko was terminated from his new position.  Socko filed suit against Mid-Atlantic and alleged that the non-compete was not enforceable because it was not supported by sufficient consideration.  The trial court granted summary judgment in favor of Socko in regard to the continued employment portion of the case.  Mid-Atlantic subsequently appealed the issue to the Pennsylvania Supreme Court.

Holding:  The Pennsylvania Supreme Court noted that the issue over whether continued employment was sufficient consideration in a non-compete agreement was a matter of first impression at the appellate level in the state.  While federal cases on the issue provided arguments for both sides, the Supreme Court discarded with those cases and pointed to the fact that traditionally, non-competes had been disfavored in Pennsylvania.  

The Court turned to prior cases which provided support for the argument that the initial taking of employment constituted adequate consideration to permit the enforcement of a non-compete agreement.  However, when the non-compete was entered into after employment had already begun, it had been previously held that the non-compete was unenforceable as a result of a lack of consideration.  However, if the non-compete was entered into after employment had begun and there was a change in employment status, that could be sufficient consideration.

In this case, the Supreme Court held that the facts demonstrated that no "new and valuable consideration" was given in exchange for the non-compete.  As the Court wrote, the fact that Socko had continued employment in exchange for the restrictions of the non-compete was not enough to establish valid consideration.  Given the fact that non-competes have long been disfavored in the state, the Court reached the conclusion that the non-compete was unenforceable for want of consideration.

Judgment:  The Pennsylvania Supreme Court affirmed the granting of summary judgment in favor of Socko on the grounds that the non-compete he entered into was unenforceable as continued employment was not valid consideration to enforce the non-compete.

The Takeaway:  Readers might remember several cases I have written about before in regard to the validity of continued employment in regard to non-compete agreements.  A District Court in Hawaii previously held that continued employment was not sufficient consideration, while the Wisconsin Supreme Court has held that it is.  

It goes without saying that there remains wide disagreement on the issue, depending upon the state.  This case certainly highlights the importance of reviewing the laws in a particular state beforehand to know whether that particular jurisdiction holds that continued employment is valid consideration in regard to non-compete agreements.  (Or perhaps more importantly in this case, reviewing developments at the appellate level...given that this was an issue of first impression).  Failure to do so could result in an unwanted surprise down the road...and a costly one at that. 

Majority Opinion Judge:  Judge Donohue

Date:  November 18, 2015

Opinion:  www.pacourts.us/assets/opinions/Superior/out/J-A07028-14o%20-%201018076762221145.pdf?cb=1

Comments

Post a Comment

Popular posts from this blog

NLRB: Discussion Among Employees About Tip Pooling is Protected Concerted Activity

  This Advice Memorandum from the National Labor Relations Board’s Associate General Counsel, Jayme Sophir, addressed whether employees which discussed and complained about tip pooling at work constituted protected concerted activity. In relevant part, an employer in New York operated a chain of steakhouses.  While tip pooling was in place at these steakhouses, some of the employees objected to it on the grounds that it was not transparent and improperly divided tips among the workers.  Employees were told not to complain or talk to each other about the tip pool and were told that doing so would endanger their jobs.  Despite the employer later attempting to provide some clarity as to how the tips were being divided, rancor still existed among some employees.  At one point, the employees were told by a general manager that some employees that had been talking about the tip pool were “cleared out” and the employer would continue to do so. In the Advice Memorandum,...
Post a Comment
Read more

San Diego Rolls Back Vaccine Mandate For City Workers

Last Tuesday, the San Diego City Council voted to do away with the vaccine mandate for city employees. The city’s vaccine mandate that was in place required city workers to get the coronavirus vaccine or risk termination.  Perhaps to this surprise of no one, the city’s policy came under fire with 14 employees being terminated and over 100 other employees resigning.  With the coronavirus subsiding, including in Southern California, the San Diego City Council took action. Now, bear in mind, the repeal of the vaccine mandate does not take place immediately. With that being said, the mandate will be repealed March 8th.  I suppose the question now is, what other cities or regions follow San Diego’s lead? For additional information:   https://www.sandiegouniontribune.com/news/politics/story/2023-01-24/san-diego-repeals-controversial-covid-19-vaccine-mandate-citing-drop-in-cases-hospitalizations
Post a Comment
Read more

NLRB: Former Employee Cannot Be Barred From Work Premises After Filing Wage Suit

MEI-GSR Holdings, LLC - NLRB Facts :  MEI-GSR Holdings, LLC d/b/a Grand Sierra Resort & Casino ("GSR") operated a facility that included a hotel, casino, restaurant, clubs, bars, and a pool which were all open to the general public.  Tiffany Sargent ("Sargent") was briefly employed by GSR as a "beverage supervisor" in December of 2012.  After her employment ended, Sargent continued to socialize at one of the clubs.  GSR had a long standing practice of allowing former employees to patronize its facility and did not prohibit Sargent from doing so.  In June of 2013, Sargent and another employee filed a class and collective action against GSR for alleged unpaid wages, in violation of the Fair Labor Standards Act and Nevada law.  In July of 2014, GSR denied Sargent access to an event at one of the clubs.  GSR followed up with a letter and stated that with the on-going litigation (from the wage suit), it decided to bar Sargent from the premises. ...
1 comment
Read more