November 17, 2015
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.
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, email@example.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.