Non-competes in PA and other states have been a hot-button topic of late.
Non-compete agreements intend to prevent employees from working for competitors or starting a similar business. The period after leaving a company ranges from six months to two years.
Although employers use them to protect business interests, their enforceability depends on state laws. That landscape has changed in recent years, notably in healthcare, where new legislation has taken effect.
Are non-competes in PA legal now? We'll answer that question.
What Is a Non-Compete Agreement?
A non-compete prevents employees from working in the same field or area as their old employer for a set amount of time. Employers use these agreements to protect trade secrets, confidential information, and perhaps most importantly, customer relationships.
Non-competes are standard in virtually every industry, some more than others. However, these agreements can significantly impact career mobility.
FTC Ban on Non-Competes
On April 23, 2024, the Federal Trade Commission (FTC) issued a rule attempting to ban most non-compete agreements nationwide. However, a Texas federal court issued a nationwide injunction to block that attempt.
The rule's scope sought to prohibit employers from entering into or enforcing non-compete agreements with:
- Employees
- Contractors
- Interns
- Volunteers
The only exceptions were for current non-compete agreements with senior executives or those related to business sales. Section 5 of the FTC Act defines a senior executive as a policy-making role who earns at least $151,164.
The ban was to take effect on September 4, 2024, but encountered a lawsuit by the U.S. Chamber of Commerce. The injunction from the Texas federal court declared the ban unlawful.
The bottom line? The ruling is still pending and under legal review. Consequently, state laws continue to govern the enforceability of non-compete agreements.
Are Non-Competes Enforceable in Pennsylvania?
Can employers enforce a non-compete in PA? Pennsylvania courts enforce non-compete agreements only if they meet these requirements:
- Legitimate Business Interest: The employer must prove the agreement protects trade secrets, client relationships, or other business interests.
- Reasonable in Scope: The restrictions must be fair in duration and geographic area.
- Consideration Given: Employees must receive something in return for signing. Employees must receive additional pay or benefits if an employer introduces the agreement after hiring. Consideration can also apply to a promotion or continued employment.
Can You Work for a Competitor with a Non-Compete in PA?
It depends. If a non-compete is enforceable and reasonable, an employer might restrict you from working for a competitor. However, many non-competes can be contested or ruled unenforceable based on their scope, lack of consideration, or public policy violations.
The most common ways to contest a non-compete include:
- The agreement is unreasonable because restrictions on geographic area or time are excessive.
- Your employer acted illegally or unethically.
- The contract doesn't relate to a legitimate business interest.
- A breach of contract by your employer. For instance, if your employer failed to offer appropriate consideration.
- You never signed the non-compete.
- The agreement violates public policy, preventing you from working in your field.
Consult a contract or employment lawyer if you're unsure.
The Fair Contracting for Health Care Practitioners Act
Pennsylvania Governor Josh Shapiro signed the Fair Contracting for Health Care Practitioners Act 74 on July 17, 2024.
The act limits non-competes for specific healthcare roles in PA:
- Nurse practitioners
- Medical doctors
- Osteopaths
- Nurse anesthetists
- Physician assistants
This law ensures healthcare providers can continue working without excessive restrictions. It aligns with growing concerns over restrictive covenants in the healthcare industry.
Employers must notify patients when healthcare providers affected by non-compete agreements leave. Businesses should also continue to monitor how these laws evolve to remain compliant.
Alternatives to Non-Competes for Employers
So, if you're an employer, how can you protect your business interests without a non-compete? Here are three options:
- Non-Solicitation Agreements: They prevent employees from taking customers or coworkers when they leave.
- Confidentiality Agreements: Confidentiality agreements protect trade secrets without restricting employment. Courts may rule a non-compete unenforceable if it is overly broad or lacks legitimate business interest.
- Garden Leave: Employees remain on the payroll for a period, delaying their ability to work for a competitor. Learn more about garden leave.
Practical Advice regarding non-competes for Employers and Employees
Navigating non-compete agreements can be challenging for both employers and employees. Employers must ensure their agreements are legally sound and enforceable, and employees must understand their rights before signing or challenging a non-compete.
Here's what both parties should keep in mind:
- For Employers: Ensure non-competes are reasonable and offer proper consideration. Healthcare employers must comply with new laws when contracting for healthcare.
- For Employees: If you're facing enforcement from an existing employer, understand your rights. If you're unsure, seek legal advice before signing.
Non-Competes in PA – Talk to an Employment Lawyer
Non-compete agreements in Pennsylvania are enforceable only if they meet strict standards. Courts may void or modify agreements that are too restrictive.
The legal landscape is evolving with state law changes and the FTC's rule potentially banning non-competes. Consulting an attorney can help you navigate your options when dealing with a non-compete covenant.
Our contract and employment lawyers help employers draft enforceable agreements and assist employees in challenging unfair non-compete restrictions.
If you own a business or work in Pennsylvania, call our local law offices for legal assistance.
- Doylestown Law Office: 215.345.8888
- Feasterville-Trevose Law Office: 215.354.1100
- Norristown Law Office: 610.275.0700
- Wayne Law Office: 610.975.4468