What Makes a Post-Employment Restrictive Covenant Enforceable?

November 20, 2015

By Thomas D. Rees, Esquire

In a previous post, I detailed the types of restrictive covenants. Click here to read that post.

Restrictive CovenantsObtaining an employee’s signature on a post-employment restriction is easy work compared to court enforcement of a restrictive covenant. The former is like a level road with a few curves; the latter is like a twisting mountain highway. Courts do not view post-employment restrictions favorably, because the law prohibits restraints on competition. The courts will restrain an ex-employee from violating a restrictive covenant only when the circumstances make it reasonable to enforce the covenant. (However, if the ex-employer sues for damages, not an injunction, a Pennsylvania court will look only at the terms, not the reasonableness, of the agreement.)

There are four essential requirements that make post-employment non-compete and non-solicit covenants enforceable in the eyes of the court. It helps to use the word ACRE to remember these four elements: Ancillary, Consideration, Reasonable Terms, and Equitable to Enforce.

Ancillary – A non-compete or non-solicit must be ancillary to an employment relationship or other legally enforceable relationship. The vast majority of restrictive covenants accompany employment relationships. Other relationships that support restrictive covenants include independent contractor agreements, sales of businesses, franchises, distributorships, and joint ventures.

Consideration – The non-compete or non-solicit must be supported by consideration. Consideration is found in the commencement of employment, but an employer who extends a comprehensive pre-employment offer must include information about a restrictive covenant with the offer. For current employees, consideration must include a significant enough benefit to the employee to offset the burden of new post-employment restrictions. The test of what benefit is enough is very much a case-by-case analysis. Mere continuation of at-will employment is not sufficient; “sign or hit the road” is clearly inadequate. In the case of Socko v. Mid-Atlantic Systems, the Pennsylvania Supreme Court has just held that consideration is still needed when a current employee signs a non-compete stating that the parties intend to be legally bound, although Pennsylvania’s Uniform Written Obligations Act provides that a contract will not be unenforceable for lack of consideration where the parties recite that they intend to be legally bound.

Reasonableness – The non-compete or non-solicit must be reasonably necessary to protect the employer’s legitimate interests and reasonable in length and geographic scope. The employer’s legitimate interests include goodwill, customer relations, trade secrets, confidential business information, and specialized skills or training. Reasonableness of length depends on the time the employer needs to hire and train a new employee and restore customer relations and goodwill. Covenants of one year are generally reasonable for employees. Longer (sometimes much longer) durations are reasonable in the sale of a business. Reasonableness of geographic scope depends on the area that is necessary to protect the employer’s business. Generally a covenant that covers the territory served by the employee will be reasonable. Greed does not pay: An employer who asked the court for protection everywhere except “the North Pole and Tibet” left court without an enforceable covenant.

Equitable – Finally, the court will look to the case’s facts to ensure that it is fair to enforce a restrictive covenant. The court may refuse to enforce a non-compete if the employer has discharged the employee through no fault on the employee’s part. Examples of a no-fault discharge include a layoff or termination for poor performance despite the employee’s best efforts. Other facts that may lead a court to deny enforcement are

  • sexual harassment of the employee
  • failure to pay an employee
  • poor handling of business that makes the loss of business the employer’s own fault
  • the employer’s past violation of a restriction in hiring the employee it now seeks to restrict.

It is important to remember that Pennsylvania follows the “blue pencil” rule that allows courts to modify restrictive covenants so that the terms are reasonable to enforce. Therefore, before enjoining an ex-employee, the courts always consider whether it is necessary to limit the terms of the non-compete or non-solicit agreement. Even where the law and facts support enforcement, there is no complete guarantee that a restrictive covenant will be enforced fully.

For more information, including what it takes to draft and enforce a valid restrictive covenant, feel free to contact Thomas Rees via email, trees@highswartz.com.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

“The Magnificent Seven”- 7 Types of Restrictive Covenants to Know

November 17, 2015

By Thomas D. Rees, Esquire

Most people have heard, and are likely familiar with, the term non-compete. It’s not uncommon for an employer to ask an employee to sign a non-compete clause, which sets limitations on competing employment after the employee’s current job ends. You may have heard of non-competes because of high-profile cases involving executives or broadcast personalities who are invited to join a competing employer.

Restrictive Covenants

But, media spotlight aside, post-employment restrictions come in multiple varieties and the non-compete covenant is the most burdensome of all post-employment restrictive covenants. Other restrictions that are easier to create and manage may serve an employer just as well.

Pennsylvania recognizes two types of non-competes. The “general non-compete” prohibits an ex-employee from working for a competing employer for a stated time period after leaving a job. The “specific non-compete” is narrower- it keeps the ex-employee from doing business with customers for a set time period, but does not prohibit working for a competitor.

A third and less strict restrictive covenant is the “customer non-solicitation covenant,” which prevents the former employee only from initiating contact with customers (or even prospects) after leaving a job. A non-solicit does not bar an ex-employee from doing business with a customer that initiates contact with the ex-employee.

Further down the ladder is the “employee non-solicitation covenant,” sometimes called an anti-piracy clause. These agreements prohibit ex-employees from soliciting other former co-workers to leave and join up with the new employer. The courts hesitate to enforce anti-piracy clauses without evidence of an intention to destroy a competitor.

The fifth type of restriction is the “confidentiality or non-disclosure clause.” These agreements prohibit ex-employees from using or disclosing the employer’s confidential business information. Technically these clauses are not essential to protect confidential information. Trade secret law, now embodied in the Pennsylvania Uniform Trade Secrets Act, does this job as well. But many employers also want an explicit prohibition on misuse of employer secrets to bolster any trade secret claim.

The sixth and newest restriction is the “garden leave” requirement. This restriction is really a “pre-post-employment” restriction and is most common in high-end financial services work. Once the employer has notice of an employee’s impending departure, the employer sends the employee home to “the garden” for an extended period. During garden leave, the employee is still on the old employer’s payroll, but may not perform any work for the old or new employer and may not contact clients or customers. The employer uses the employee’s garden leave to cement relations with the employee’s clients so the clients do not follow the ex-employee to the new employer. A variation on garden leave is “bench pay,” where an employer has to pay an ex-employee who can show that the non-compete has prevented acceptance of a new position during the restricted period.

The seventh restriction is the assignment of property rights, generally the rights to own, patent, copyright, or trademark items developed during employment. This assignment is essential where an employee develops inventions of possible value to the employer.

This is a basic introduction to the world of restrictive covenants. For more information, including what it takes to draft and enforce a valid restrictive covenant, feel free to contact Thomas Rees via email, trees@highswartz.com.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Facebook and Employee Discipline: Employers “Dislike” the NLRB

November 16, 2015

By James B. Shrimp, Esq.

Can an employer get into trouble for firing an employee over something the employee wrote on Facebook? Apparently, yes.

Facebook and Employee Discipline

The United States Second Circuit Court of Appeals recently agreed with the National Labor Relations Board (NLRB) that an employer violated the National Labor Relations Act “by taking certain actions against its employees, including discharge, for their Facebook activity.” The Second Circuit further found that the employer’s social media policy violated the Act.

Importantly, this decision applies to both union and non-union shops. In fact, over the last several years the NLRB has increasingly used its enforcement powers against non-union employers.

An Employee’s Protections Under the Act

The Act guarantees that “employees shall have the right to self-organization, to form, join, or assist labor organizations … and to engage in other concerted activities for the purpose of … mutual aid of protection…” The Act protects an employee’s rights by prohibiting an employer from interfering with, restraining, or coercing employees in the exercise of these rights.

An employee’s rights have to be balanced against an employer’s interest in preventing disparagement of its products or services and protecting the reputation of the business. Thus, an employee’s communications may lose protection if they are sufficiently disloyal or defamatory. Importantly, if an employee relays in good faith what he has been told by another employee, reasonably believing it to be true, the fact that the initial report was inaccurate does not eliminate the employee’s protection.

The Triple Play Sports Bar – Facts

The NLRB’s decision in a case at the Triple Play Sports Bar serves as a cautionary tale for employers. Here are the details of the case, which can be ound at 361 NLRB 31 (August 22, 2014). I have cleaned up the language a bit for family consumption, just in case you want to read this to your kids at bedtime.

“The employer employed Jillian Sanzone as a waitress and bartender, and Vincent Spinella as a cook. In approximately January 2011, Sanzone and at least one other employee discovered that they owed more in State income taxes than they had expected. Sanzone discussed this at work with other employees, and some employees complained to the employer. In response to the complaints, the employer planned a staff meeting for February with its payroll provider to discuss the employees’ concerns.

Sanzone, Spinella, and former employee Jamie LaFrance, who left the employer’s employ in November 2010, have Facebook accounts. On January 31, LaFrance posted the following “status update” to her Facebook page:

Maybe someone should do the owners of Triple Play a favor and buy it from them. They can’t even do the tax paperwork correctly!!! Now I OWE money…Wtf!!!!

The following pertinent comments were posted to LaFrance’s page in response:

DESANTIS (a Facebook “friend” of LaFrance’s and a customer): “You owe them money…that’s f*%&ed up.”

 *                      *                      *

LAFRANCE: “The state. Not Triple Play. I would never give that place a penny of my money.

Ralph [DelBuono] f*%&ed up the paperwork…as per usual.”

DESANTIS: “yeah I really dont go to that place anymore.”

LAFRANCE: “It’s all Ralph’s fault. He didn’t do the paperwork right. I’m calling the labor board to look into it bc he still owes me about 2000 in paychecks.”

(At this juncture, employee Spinella selected the “Like” option under LaFrance’s initial status update. The discussion continued as follows.)

 *                      *                      *

SANZONE: “I owe too. Such an a**hole.”

Sanzone added her comment from her cell phone on February 1. On February 2, when Sanzone reported to work, the employer told her she was being discharged. When Sanzone asked why, the employer, having learned of the Facebook post, responded that she was not loyal enough to be working for the employer because of her Facebook comment.

When Spinella reported for work on February 3, he was summoned to a meeting. The Facebook comments from LaFrance’s account were displayed on a computer screen in the office. After asking Spinella if he “had a problem with them, or the company,” he was interrogated about the Facebook discussion, the meaning of his “Like” selection, the identity of the other people who had participated in the conversation, and whether Spinella had written anything negative to say about the employer. Spinella was told that because he “liked the disparaging and defamatory comments,” it was “apparent” that Spinella wanted to work somewhere else. Spinella was then discharged.”

In the case there were two instances of employee conduct at issue.

  • Spinella, “Lik[ing]” the post of Ms. LaFrance, which stated “maybe someone should do the owners of Triple Play a favor and buy it from them. They can’t even do the tax paperwork correctly!!! Now I OWE money … Wtf!!!!”
  • Sanzone, commenting on the LaFrance post stating “I owe too. Such an a**hole.”

The Triple Play Sports Bar – Legal Decision

The Court and the NLRB both determined that Mr. Spinella and Ms. Sanzone’s conduct on Facebook was concerted activity under Section 7 of the Act, because it involved an “ongoing sequence of discussions that began in the workplace about [the] calculation of employees’ tax withholding.” The Court and the NLRB further determined that the statements were not defamatory, even though profanity was used, because the conversation wasn’t directed at customers and did not relate to the employer’s brand. The Court also determined that the employer violated the Act by (1) threatening employees with discharge for Facebook activity; (2) interrogating employees about their Facebook activity; and (3) informing employees that they were being discharged for their Facebook activity.

In addition, the Court determined that the employer social media policy violated the Act. The employer maintained the following work rule as part of its Internet/Blogging policy in its employee handbook:

The Company supports the free exchange of information and supports camaraderie among its employees. However, when internet blogging, chat room discussions, e-mail, text messages, or other forms of communication extend to employees revealing confidential and proprietary information about the Company, or engaging in inappropriate discussions about the company, management, and/or co-workers, the employee may be violating the law and is subject to disciplinary action, up to and including termination of employment. Please keep in mind that if you communicate regarding any aspect of the Company, you must include a disclaimer that the views you share are yours, and not necessarily the views of the Company. In the event state or federal law precludes this policy, then it is of no force or effect.

The Court determined that “employees would reasonably interpret [this] rule as proscribing any discussions about their terms and conditions of employment deemed ‘inappropriate’ by the employer.”

Takeaways for Employers

  • “Concerted activity” is being interpreted very broadly by the NLRB. Any statements, expressions or shows of support by employees about terms and conditions of employment and/or support for union activities, even if the employer is non-union, should be deemed concerted activity by the employer.
  • Employers must view any social media, including Facebook, as an extension of the workplace. If something is said by an employee on social media that would be protected if it were said in the workplace, it is likely protected on social media.
  • Employers must review and reevaluate their social media policies. Many of these policies were drafted near the beginning of the social media explosion and did not contemplate the assertion of NLRB authority in the social media space.
  • In reviewing social media policies focus on the protection of the employer’s product and/or brand. Statements by employees disparaging or defaming an employer’s product or brand can still lead to the lawful termination of an employee.
  • Realize that many employees under 35 (Gen Xers) complain about everything on social media – work, food, people, TV shows, etc… Whereas an employee currently in their 50s used to complain about their boss or working conditions to others around the water cooler, younger employees do so on social media – social media is their water cooler. Unfortunately, social media provides more publicity to discussions about issues at work, but the NLRB deems social media to be the equivalent of the water cooler. With that said, the torts of defamation, tortious interference, and invasion of privacy still provide some protection to the employer.

For more information about employment law, feel free to contact James B. Shrimp at (610) 275-0700 or by email at jshrimp@highswartz.com.

Visit the firm’s Employment Law page.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

High Swartz Attorney Mark Fischer Selected to MBA Leadership Academy

November 11, 2015

High Swartz is pleased to announce that attorney Mark Fischer has been selected to participate in MBA Leadership Academythe 2016 Montgomery Bar Association’s Leadership Academy. The mission of the Academy is to foster leadership within the Bar Association by identifying attorneys who possess leadership qualities and providing opportunities for them to develop their skills in preparation for future roles within the Bar Association and the legal community.

mark_r_fischerMark Fischer concentrates his practice on business and real estate litigation, representing a diverse spectrum of clients from multi-national corporations to small businesses and individuals throughout Pennsylvania and New Jersey. He prosecutes and defends disputes involving business-to-business contracts, consumer purchase and fraud claims, real estate transactions, and construction disputes. Mark brings a common sense, customer service approach to complex litigation issues and looks to achieve favorable results, while always being mindful his client’s bottom line.

Mark Fischer can be reached at (610) 275-0700 or by email at mfischer@highswartz.com.

Mary Cushing Doherty to Present at MBA CLE Seminar, “Still Alice: A Discussion about the Effect of Alzheimer’s Disease on the Family”

still aliceThe seminar will cover the impact of Alzheimer’s Disease on a professional woman and her family. The panel will address legal issues once a person is diagnosed, using the book and movie Still Alice. Mary will lead the discussion about the ethical issues clients, lawyers and families face when someone they love (or work with) has Alzheimer’s.Join your peers to discuss an important topic that will not be ignored.Date: Thursday, November 12, 2015Time: 9:00am to 10:00amLocation: Montgomery Bar Association (MBA) CLE RoomCredit(s): 1.0 Hour EthicsWebsite: http://www.mbacle.org/cle.php?eventID=7202 

Mary DohertyMary Cushing Doherty concentrates her practice on all aspects of marital dissolution, including divorce, child custody, spousal support and alimony, pre-marital and marital agreements, complex property division, and service as a private arbitrator. She is a member of the Montgomery County, Philadelphia, Pennsylvania and American Bar Associations’ Family Law Sections, and served as chair of the PBA Family Law Section in 1999 – 2000.

Doherty is also active at the state and national level of the American Academy of Matrimonial Lawyers, serving as Pennsylvania’s governor. She is a frequent lecturer and author in the field of family law, and has served as course planner for programs sponsored by the PBI, PBA, and Montgomery Bar Association. She earned her J.D. from Villanova University School of Law and her B.A. from the University of Delaware.

How Do I Evict a Tenant?

November 10, 2015

By Kevin Cornish, Esq.

As a landlord, it isn’t all that unusual to have an inconsiderate, messy tenant. At some point, you may even decide that it’s necessary to part ways with this problem tenant, and move to evict them from your property. However, that isn’t necessarily as easy as you might expect; residential landlords are often surprised about the numerous requirements and the length of time to takes to evict.

In Pennsylvania, this process is governed by the Landlord and Tenant Act and strict compliance is vital to assure that a tenant is properly evicted.

The first step in the eviction process is to determine the basis for the eviction.  Did the tenant fail to pay rent? Did the tenant violate a provision of the lease agreement? Did the tenant fail to leave the property at the expiration of the lease term? You have to have a valid reason to evict and the reason for the eviction will affect future notice requirements and the overall timeframe for the eviction process.

Next, the landlord may be required to provide the tenant with a notice to quit. This notice officially informs the tenant that they must vacate the property within a certain number of days or else face legal eviction proceedings. The length of time between the notice to quit and the commencement of eviction proceedings can range from 10 to 30 days depending on the nature of the lease violation and the length of the lease term.

The Landlord and Tenant Act requires that the notice to quit be served personally on the tenant, by leaving a copy on the principal building, or posting on the lease premises. It should be noted that the Landlord and Tenant Act does not allow for the notice to quit to be served by mail. While it is common, notice to quit is not always required. Sometime tenants waive receipt for a notice to quit in the lease agreement.

If a tenant fails to vacate the property after the landlord properly serves the notice to quit, the landlord must file a recovery of possession of real property action in the Magisterial District Court in which the property is located. The court will handle serving the lawsuit on the tenant, and will set a hearing date between seven and fifteen days after the complaint is filed. On the date of the hearing, the landlord must appear in person and present their case to the judge, who will then make a decision regarding the pending eviction. In addition to judgement for possession of the property, the judge can enter judgment for outstanding rent due, damage to the property, and costs of the lawsuit. The judge may also be able to award the landlord attorneys’ fees if the lease agreement allows for the recovery of attorneys’ fees. The judge can take up to 3 days to render a decision.

Fifteen days after the judge’s decision, the landlord can request that the court to issue an order for possession, which will be served to the tenant by a constable or sheriff. The order for possession states that a residential tenant must vacate the property with ten days after service (15 days for a non-residential tenant). If the tenant still has not vacated, the constable is authorized to use force as necessary to eject the tenant from the property. Once the constable delivers possession of the property, the landlord has legal possession of the property.

Even after the constable delivers possession of the property, additional issues may arise if the tenant has left personal property at the residence. Further, a tenant could frustrate the timing of an eviction if the tenant files an appeal of the court’s decision.

Often, landlords are not aware of the numerous requirements necessary to legally evict a tenant. A landlord who does not follow the correct procedures and provide the proper notices could create a situation in which steps need to be repeated or, even worse, create a basis for a tenant to file an appeal which further delays the landlord’s recovery of possession.  An attorney well-versed in landlord tenant law can provide cost-effective assistance so that the process proceeds as smoothly as possible.

For more information about landlord-tenant law, feel free to contact Kevin Cornish at (610) 275-0700 or by email at kcornish@highswartz.com.The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Family Lawyer Melissa Boyd to Speak on Issues That Arise in Divorce When the Parties Are Over 50

When: November 5, 2015

Where: 5080 Ritter Road, Mechanicsburg, PA 17055

Don’t miss this opportunity to have your questions answered by your peers!

Course Information

  • Be prepared to handle the nuances of senior divorce.
  • Learn the intricacies of dealing with this once unthinkable concept. Identify the issues that distinguish senior divorces from usual practice.
  • Become familiar with the blueprint for successful representation.
  • Recognize the pitfalls and possibilities of alimony and retirement benefits and receive down-to-earth hints on retirement accounts, tapping the equity in a marital home, estate planning, premarital agreements, Social Security, Medicare, Medicaid, and guardianship.

Approved Credit:

  • PA CLE: 5.00 hours Substantive Credits, 1 hour Ethics Credits

To learn more about the seminar or to register, click here.

Melissa BoydMelissa M. Boyd is a partner with High Swartz LLP. She concentrates her practice on family law including, but not limited to, divorce, pre-nuptial and post-divorce agreements, child custody and support, equitable distribution, alimony, adoptions, protection from abuse and juvenile law. She has dedicated much of her professional career to preserving the rights of children and their families.

Ms. Boyd is a fellow of the American Academy of Matrimonial Lawyers and member of the family law sections of the American Bar Association, Pennsylvania Bar Association and the Montgomery Bar Association. She is presently Chair of the Family Law Section of the Montgomery Bar Association. Ms. Boyd has been certified as a Family Law Arbitrator by the American Academy of Matrimonial Lawyers.

Eminent Domain Rights Clarified in Intrastate Pipeline Projects: Landowners Beware

November 2, 2015

By David J. Brooman, Esq.

Across Pennsylvania, there are miles of gas pipeline buried in homeowner’s backyards. This system transports gas from a record-setting natural gas reserve in the Marcellus Shale region of the state. It’s currently being affected by a bottleneck within the system that is preventing over 1,000 of the 8,000 wells in Pennsylvania from being tapped.

This expensive problem has led several energy companies to plan to invest billions of dollars in natural gas infrastructure projects in Pennsylvania over the next ten years. It’s expected that parts of Berks County, Chester County, Delaware County and other areas north and west of these counties will be impacted. As these companies plan to dig up backyards across the Commonwealth to replace and add to the current infrastructure with newer, larger pipes, many landowners have refused to negotiate and have chosen to litigate.

Natural Gas Pipelines in PA

These landowners were dealt a significant blow on September 29, 2015, when Cumberland County Judge Edward Guido dismissed preliminary objections filed by a group of landowners challenging Sunoco Pipeline L.P.’s (SPLP) right to condemn land for pipeline use. SPLP’s pipeline, known as Mariner East, is designed to transport ethane, propane and other liquid petroleum products from the Marcellus Shale region to Marcus Hook. It’s a project estimated at $3 billion, and it spans 300 miles.

Judge Guido reversed a prior ruling he made reasoning that since his prior ruling, SPLP altered its business model from purely interstate transportation to a combination of intrastate and interstate transportation.   As a result of the intrastate component, the Mariner East pipeline is regulated by the Public Utility Commission.   Thus the order held that SPLP “is a public utility corporation as defined by state law and should have the right to utilize the land as needed.”  This latest Common Pleas Court ruling is consistent with a decision rendered by the Public Utility Commission in October 2014.

Landowners impacted by these new pipelines should know their rights, and the proper way to approach the threat of eminent domain in the face of these rulings.

For the landowner, it is almost always better to negotiate rather than fight. This approach increases the likelihood that the landowners will obtain concessions from the pipeline companies that are not available in an eminent domain proceeding. These concessions include the length of time for construction, limitations on the use of the pipeline, greater flexibility on the future uses of the property, and enhanced property restoration requirements. Negotiation also has the potential to maximize the offer of just compensation for both the temporary inconvenience during construction, and for the permanent easement.

In general, pipeline companies are willing to negotiate and hope to create agreements all parties find acceptable; it’s in their interest to solve issues quickly, rather than through a protracted legal process. As a landowner, the best thing you can do is understand your rights and know the right questions to ask during negotiations.

Of course, there will be situations where the landowner and pipeline company cannot agree, and a jury of view will need to decide the value of the temporary inconvenience and the permanent take.

For more information regarding real estate and eminent domain law as it relates to the Pennsylvania pipeline projects, please contact David Brooman at 610-275-0700, or by email at dbrooman@highswartz.com.

Note:  The information above is general; we recommend that you consult with an attorney regarding your specific circumstances.  The content contained herein is not meant to be considered as legal advice or as a substitute for legal representation.