Practice Area: Employment Law

Post-employment restrictive covenants in PA come in multiple varieties. But the non-compete covenant is the most burdensome of all.

Most people have heard, and are likely familiar with, the term non-compete, which is one type of restrictive covenant. It's not uncommon for an employer to ask an employee to sign a non-compete clause, which limits competing for employment after the employee's current job ends. For example, you may have heard of non-competes because of high-profile cases involving executives or broadcast personalities 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 limits that are easier to create and manage may serve an employer just as well.

What's the Purpose of a Restrictive Covenant?

At their core, restrictive covenants contain four types of promises:

1. A promise not to compete with a former employer
2. A promise not to solicit or accept business from customers of the former employer
3. A promise not to recruit or hire away employees of the former employer
4. The promise not to use or disclose the former employer's confidential information.

Typically, the duration of restrictive covenants ranges from  1-2 years for employment and 5-10 years for the sale of a business. In addition, covenants must be limited to where the company conducts business and the employee's responsibilities. However, no geographic scope is necessary for a non-solicitation of customers or employees.

A Restrictive Covenant Requires a Legitimate Purpose

Three states prohibit employers from asking their employees to sign restrictive covenants, including California, Montana, and North Dakota. In addition, California prohibits the non-solicitation of customers. Note that Pennsylvania recognizes only the first two types of non-competes presented below.

In the remaining jurisdictions, a restrictive covenant is enforceable only when serving a legitimate purpose. Moreover, the covenant must be reasonable in scope, geography, and time. Although limitations vary from state to state, most jurisdictions apply this framework for determining legitimate purposes:

• The covenant preserves confidential information
• It protects customer relationships
• And it preserves goodwill

For the most part, continued employment is sufficient consideration to support the covenant. But some states require an employer to offer additional consideration, for example, through a signing bonus or severance.

7 Types of Restrictive Covenants

From a broad perspective, we'll address seven types of restrictive covenants. Whether each is enforceable or not, and to what extent, depends mainly on state laws. However,  most states impose varying rules on what specific types of clauses are allowed in restrictive covenant agreements. You can learn more about the enforcement of restrictive covenants here.

1. Non-Compete Covenant

It prohibits an ex-employee from working for a competing employer for a stated period after leaving a job.

2. Specific Non-Compete Covenant

This restrictive covenant is narrower. It keeps the ex-employee from doing business with customers for a set time. But it does not prohibit working for a competitor.

3. Customer Non-Solicitation Covenant

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

4. Employee Non-Solicitation Covenant

Sometimes called an anti-piracy clause, these agreements prohibit ex-employees from soliciting other former co-workers from joining the new employer. Unfortunately, the courts hesitate to enforce anti-piracy clauses without evidence of an intention to destroy a competitor.

5. Confidentiality or Non-Disclosure Covenant

This restrictive covenant prohibits ex-employees from using or disclosing the employer's confidential business information. Technically, these clauses are not essential to protect confidential information. For example, 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.

6. Garden Leave

The newest type of restrictive covenant is the "garden leave" requirement. This "pre-post-employment" restriction 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 remains on the old employer's payroll. However, they may not perform work for the old or new employer. In addition, they 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." Here, 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.

7. Assignment of Property Rights

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

Have Questions About Restrictive Covenants?

This article serves as a basic introduction to the types of restrictive covenants. But, if you need more information, including what it takes to draft and enforce a valid restrictive covenant, contact Thomas Rees via email at trees@highswartz.com.

The information above is general: we recommend you consult an employment lawyer at our Doylestown and Norristown law firm regarding your circumstances. You should not consider the content of this information as legal advice or a substitute for legal representation.

Obtaining an employee's signature on a post-employment restriction is simpler than restrictive covenant enforcement. By the way, I detailed the 7 types of restrictive covenants in this post.

For example, the former is like a level road with a few curves; the latter is like a twisting mountain highway. Consequently, courts do not view post-employment restrictive covenants 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. However, a Pennsylvania court will look only at the terms when the ex-employer sues for damages, not an injunction. It will not consider the reasonableness of the agreement.

The Four Requirements for Restrictive Covenant Enforcement

There's an easy acronym for the four requirements for restrictive covenant enforcement -- ACRE. It stands for Ancillary, Consideration, Reasonable Terms, and Equitable to Enforce. So, let's look at how each applies to enforcing covenants.

1. Ancillary

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

2. Consideration

For restrictive covenant enforcement, consideration must support the non-compete or non-solicit. Consequently, the employee must receive something to execute the restrictive covenant. Commencement of employment helps determine consideration, 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. For example, in some states, continued employment with the employer is sufficient consideration. That's not the case in Pennsylvania, however.

For example, in Socko v. Mid-Atlantic Systems, the Pennsylvania Supreme Court held that consideration is still needed for restrictive covenant enforcement when a current employee signs a restrictive covenant binding the parties. However, 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.

3. Reasonableness

The threshold requirement to enforce a restrictive covenant requires a protectable business interest. As a result, the non-compete or non-solicit must be reasonably necessary to protect the employer's legitimate interests and reasonable in length and geographic scope.

However, an employee's general knowledge of customer information is not a protectable interest. As a result, a company cannot restrict future employment for all employees.

Legitimate employer interests include:

• • Goodwill
  • Customer relations
  • Trade secrets
  • Confidential business information
  • Specialized skills or training

In addition to employer interest, restrictive covenants must include reasonable geographic and time limitations. Reasonableness of length often depends on the time the employer needs to hire and train a new employee and restore customer relations and goodwill. Restrictive covenants of one to two years are generally considered reasonable and enforceable.

However, longer (sometimes much longer) durations are appropriate for the sale of a business.

Generally, a restrictive covenant that covers the territory served by the employee will be reasonable. For example, some situations may preclude an employee from joining a competitor within twenty miles. In other instances, it could include preventing employment throughout the United States. However, greed does not pay.

For example, an employer who asked the court for protection everywhere except "the North Pole and Tibet" left the court without restrictive covenant enforcement. Courts have the final say to narrow the time or geography based on what they deem reasonable.

4. Equitable

Finally, the court will look to the case's facts to ensure that restrictive covenant enforcement is fair. For example, 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 making the loss of business the employer's fault
  • The employer's past violation of a restriction in hiring the employee it now seeks to restrict.

What Happens When the Restrictive Covenant is Enforced?

If enforced, the employer can seek injunctive relief and obtain a court order enjoining the former employee from violating the terms of the covenant. Generally, injunctive relief requires the employee to leave the new employer.

However, depending on the restrictive covenant's language, the court can direct the violating employee to reimburse the employer for its attorney's fees to enforce the covenant. Typically, the initial agreement spells out this outcome. In addition, it can require the employee to pay back any monies stemming from their violation of the restrictive covenant.

Other forms of monetary relief from restrictive covenant enforcement include the employee compensating the employer for lost profits. The original covenant may also include an amount for violating the agreement. The employee may face punitive damages when evidence of malicious conduct occurs.

Pennsylvania's Blue Pencil Rule for Restrictive Covenant Enforcement

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 restrictive covenant enforcement, there is no complete guarantee the court will enforce a restrictive covenant fully.

For more information, including what it takes to draft and enforce a valid restrictive covenant, contact Thomas Rees via email at trees@highswartz.com. The employment lawyers at our law firm are here to help. We have offices in Doylestown and Norristown, serving Montgomery and Bucks counties.

The information above is general: we recommend you consult an employment lawyer regarding your circumstances. You should not consider this information as legal advice or a substitute for legal representation.

Garden Leave Allows Some Protection for an Employer

The term sounds pastoral, but its use is practical. For example, garden leave is an agreed-upon period when an employer pays a departing key employee not to work before the employee joins a competitor. In essence, it's another type of restrictive covenant.

Originating in England, the employee is to stay "in the garden" for the leave's term.

Garden leave is similar, but not identical, to other contracts where an ex-employee is paid instead of working for a competitor. For example, an employer occasionally agrees to a "safety net" or "bench pay," paying the ex-employees salary for the length of a non-compete. However, the ex-employee must first show that the non-compete prevents them from obtaining suitable work.

Garden leave, by contrast, is unconditional. Also, on garden leave, the employee remains on the payroll. Conversely, the employee has already left in a "bench pay" situation.

While the employee is on garden leave, the previous employer has the opportunity to contact the departing employee's customers to retain them. The departing employee has what amounts to a paid vacation and must not work for a competitor during this period. Once this period ends and the employee starts with the new firm, it is an open season. The departing employee and the old employer may solicit and pursue business freely.

How Long Does Garden Leave Last?

Garden leave can range from several months through a year. During the leave period, the employee does no work for either the old or prospective employer. The employee defers the new employer's start date until the leave period's end.

What Type of Companies Use It?

Investment banking and financial service sectors often use this approach. In effect, it takes the place of non-compete agreements. Many firms using garden leave are in the Northeast and Mid-Atlantic regions. During the past ten years, courts have begun to pay more attention to its provisions, and the trend is likely to continue.

Pros of Garden Leave

On the surface, garden leaves appeal to courts more so than non-competes. These covenants lower the burden on employees. First, they get paid. Second, the length of the agreement is typically less than a non-compete. It's essential to note that case law is limited in many jurisdictions, leading to concerns about its enforceability.

For employers, garden leave allows them to remove an employee while ensuring they can't use company resources to further their agenda. It also offers the employer some protection as they investigate the situation.

During the leave, only the employer can contact the departing employee's clients without fear of competition from the employee. Courts allow the typical 30 to 90-day period of most garden leave agreements. And that's a critical time for employers following an employee's departure. In addition, employers can release departing employees from the contract if they present no threat.

On the other hand, the employee bears the burden of separation from customers and the possible stigma of not being active in the industry for a brief period. But, they get paid. And the employer can't hire a replacement during garden leave. In addition, employees know that the former employer's customers are fair game after a much shorter restrictive period expires.

Garden Leave Cons

Although the shorter timeframe may benefit an employer, it provides less protection than a restrictive non-compete covenant. Non-competes generally use terms of six months up to two years.

Equally important, the employer pays the employee without them performing work. However, from the employee's perspective, they remain employed and may be required to work during the garden leave period.

Employers can legally fire employees who refuse to take garden leave without explaining. So if employees are not prepared to risk losing their job, their employers can force garden leave upon them.

Employees must realize that the no-contact rule during garden leave is critical. Because the employee is still on the payroll, any attempt by the employee to divert business to a new firm would violate multiple obligations:

1. The restrictive covenant itself
2. The duty of loyalty that employees owe to employers
3. The commitment to preserve confidential employer information and trade secrets

Why Do Employers This Type of Restrictive Covenant?

As a restrictive covenant, garden leave is a less costly, more specific way to sever ties with an employee who poses a competitive threat.

Its use depends on an ex-employers motivation to pursue and secure business that might otherwise migrate with the departing employee. The goal for the employer becomes how to retain business, a more positive focus than non-compete litigation. With a non-compete, the goal is to keep the departing employee from retaining customers. It also prevents them from entering into competition against their former employer.

If you require legal advice regarding garden leave or any other employment law matter, don't hesitate to contact Thomas D. Rees at 610-275-0700 or trees@highswartz.com. The employment lawyers at our Norristown and Doylestown law offices are here to help.

When an ex-employee works for a competitor, the violation of a non-compete covenant is clear-cut. But few employment contracts define what it means to "solicit."

What is a non-solicitation agreement?

As a restrictive covenant, non-solicitation agreements prevent a departing employee from soliciting the old employer's customers or workforce to do business or work with a new employer. But, these clauses are less burdensome than non-compete agreements that prohibit any work for a competitor or bar any service to a former employer's customers.

Like its stricter cousins, a non-solicitation agreement is a restraint on competition. However, it must not tie the ex-employees hands too tightly. Non-solicitation clauses must include consideration. For example, some benefit to the employee to compensate for the post-employment restriction. And the agreement must be reasonably necessary for the employer's protection and reasonable in time, geographic scope, and scope of the prohibited activities. These are the minimum requirements for an ex-employer who seeks a court injunction against violation of a non-solicitation agreement.

These agreements can be confusing. So, if you are looking for an employment lawyer near you to review these documents, contact us at 610.275.0700.

What does it mean to "solicit" and violate a non-solicitation clause?

When an ex-employee works for a competitor, the violation of a non-compete covenant is clear-cut. But few employment contracts define what it means to "solicit."

As a result, courts have developed workable definitions of "solicit" on a case-by-case basis. In Meyer Chatfield v. Century Business Servicing, Inc., 732 F.Supp.2d 514, 520 (E.D. Pa. 2010), Judge Slomsky used Black's Law Dictionary's definition of "solicit":

To appeal for something; to apply to for obtaining something; to ask earnestly; to ask for the purpose of receiving; to endeavor to obtain by asking or pleading; to entreat, implore, or importune; to make petition to; to plead for; to try to obtain; and though the word implies a serious request, it requires no particular degree of importunity, entreaty, imploration, or supplication. To awake or incite to action by acts or conduct intended to and calculated to incite the act of giving. The term implies personal petition and importunity addressed to a particular individual to do some particular thing.

Under this definition, an ex-employee violates a non-solicitation agreement by contacting or inducing former contacts to bring business to the ex-employee. However, an ex-employee must be proactive in violating the agreement. For example, responding to a former customer who initiates contact with the ex-employee is not "solicitation."

In Harry Blackwood Associates v. Caputo, 434 A.2d 169 (Pa. Super. 1981), the Pennsylvania Superior Court held that a non-solicit clause did not prevent an ex-employee from doing business with a customer who had sought out the ex-employee.

What about other ways to inform the business community of new employment?

For example, is it a solicitation to post-employment announcements or send out business cards where some recipients are former contacts? A statement or mentioning a new employee's name in marketing materials does not constitute a solicitation. However, when targeted only to customers inviting them to move their business may be a solicitation. See PharMerica Corp. v. Sturgeon, 2018 WL 1367339, *8 (W.D. Pa. March 16, 2018)

Does a LinkedIn profile post about new employment violate a non-solicitation agreement?

Courts have held that a simple posting or invitation to connect on LinkedIn is not a solicitation. Bankers Life and Casualty Co. v. American Senior Benefits LLC, 83 N.E.3d 1085 (Ill. App. 2017).

But a posting that morphs into a sales pitch constitutes a solicitation. Mobile Mini, Inc. v. Vevea, 2017 WL 3172712 (D. Minn. 2017). For example, in an unpublished 2017 decision, the Pennsylvania Superior Court enjoined as unlawful solicitation a veterinarian's creation of a Facebook page for a new practice containing postings from former clients and other links about animal and pet care. Joseph v. O'Laughlin, 2017 Pa. Unpub. Lexis 3191, 175 A. 3d 1105 (Pa. Super. August 22, 2017). The moral of these cases is that actions beyond a plain vanilla new employment announcement can cross the line into solicitation.

Courts are less likely to crack down on violations of employee non-solicitation contracts than customer non-solicits. However, an ex-employer should be ready to show a court that the purpose of the solicitation is to "cripple and destroy" competition to stop an ex-employee from soliciting former co-workers. Generally, a court will not prohibit solicitation or recruitment of skilled or gifted employees. Nor will courts punish less aggressive contacts with former co-workers, such as telling former colleagues to look for a job posting.

Documentation is Essential

Like all restrictive covenant cases, non-solicitation disputes involve three key participants- the former employer, the ex-employee, and the new employer. Real-time factual documentation is essential for each player in a non-solicitation case. For instance, ex-employees should record all contacts with former customers and co-workers. The record should include information on:

• Who initiated the communication?
• Steps the ex-employee took in responding to the contact
• When they took those steps
• Whether and how the contact generated new business

A spreadsheet is an excellent way to preserve this information. First, the new employer should monitor the employee's actions. Next, the ex-employer can try to document the loss of business or employees. Finally, customers who don't want to do business with the ex-employee may be willing to provide information on improper conduct. But other customers may want a better deal and freely give business to breakaway employees.

Employers must also resist the temptation to be heavy-handed in dealing with customers and employees. Ex-employers and departing employees must avoid misleading customers or disparaging each other, or litigation for business disparagement or contractual interference may result. And overly adversarial behavior may lead customers to stop doing business with both the ex-employer and the ex-employee. In that case, everybody loses.

If you require an employment attorney near you, contact Thomas D. Rees of High Swartz in Norristown, PA, at 610-275-0700.

On June 3, 2021, the United States Supreme Court issued a long-awaited decision on the scope of the Computer Fraud and Abuse Act (“CFAA”). Van Buren v. United States, _ U.S. __, 141 S. Ct. 1648, 2021 WL 2229206, 2021 U.S. Lexis 2843. The Court held that the CFAA prohibited only the gathering of information from sources to which access was not permitted. The Court held that the CFAA did not cover the gathering of information from databases to which access was authorized, even if the information gathering had an improper purpose.

Congress enacted the CFAA in 1986. The original law provided criminal sanctions for computer hacking. The law created criminal liability for (1) obtaining information from intentional access to a computer without authorization and (2) exceeding authorized access and thereby obtaining information. The law defined “exceeds authorized access” as access to a computer with authorization and using such access to obtain or alter information in the computer. Civil remedies for CFAA violations were enacted in 1994, allowing victims of CFAA violations to recover money damages and obtain equitable relief in federal court.

The CFAA’s civil remedies led to increased use of the federal courts for litigation that had previously been confined to state courts. One such example was employee mobility litigation where the ex-employer and ex-employee resided in the same state (precluding diversity jurisdiction). If an employee accessed client information and then used the information to solicit business for a new employer, the CFAA before Van Buren enabled the ex-employer to claim in federal court that the employee exceeded authorized access to a business computer. The CFAA’s low damage thresholds did very little to limit federal suits. The expansive view of “exceeds authorized access” even allowed state court staples such as family law cases to find their way into federal court. The fact that the CFAA had criminal as well as civil sanctions attached an additional stigma to any parties accused of CFAA violations.

Conflicts arose between various federal circuit courts on what actions exceeded authorized access. Some circuits adopted a more restrictive view of the CFAA, holding that an individual with permitted access to data did not violate the CFAA by using the data for an improper purpose, such as misappropriation of confidential information for a new employer. Other circuits took a less restrictive view that an employee who accessed a computer for the purpose of misusing information violated CFAA by exceeding authorized access.

It was in this context that Van Buren, a criminal CFAA case, reached the Supreme Court. Van Buren, a Georgia police officer, had authority to access vehicle registration data through his patrol car computer. But Van Buren accepted payment from a citizen for turning over registration data about a stripper whom the citizen suspected of being an undercover police officer. After Van Buren and the citizen completed the transaction, the FBI arrested Van Buren in a sting operation. The United States charged Van Buren with violating the CFAA for “exceeding authorized access” to a computer by using the computer for personal use. A District Court jury convicted Van Buren, and the Eleventh Circuit upheld the conviction. The Supreme Court accepted review of the case, given the conflict between four federal circuits that upheld the more restrictive view of the law and four circuits that adopted the broader view of the law. (The Third Circuit had not taken a stand either way but District Court decisions within the circuit were conflicting.)

The Supreme Court, in a 6-3 decision that split the Court’s conservative justices, supported the less expansive view of the CFAA. New Justice Barrett wrote the majority opinion in a tightly reasoned analysis of the statute’s wording. Barrett noted that the parties agreed that Van Buren accessed the computer with authorization when he logged into the law enforcement automobile license database. The parties also agreed that Van Buren obtained information from the computer. The narrow question was whether Van Buren was entitled to obtain the information. Van Buren argued that the CFAA allowed him to obtain the information if he was allowed access to the computer. The prosecution argued that since the officer intended to use the information for personal purposes, authorized access was exceeded and the law was violated. Justice Barrett rejected the broader view. She stated that the broader CFAA interpretation would criminalize a “breathtaking amount of commonplace computer activity”, such as sending a personal email or reading the news on an office computer. Therefore, the term “exceeds authorized access” meant to enter a database that was off limits to the user.

The Supreme Court’s narrow interpretation of the law will have effects in the workplace and the court system. Employers may decide cut back on authorized access to computer data. If fewer employees have authorized access, the CFAA may gain back some teeth. The Van Buren decision will leave parties to state disputes with one less access point to federal court. This effect may be mitigated in the employee mobility area where trade secrets are at issue, given the Federal Defend Trade Secrets Act. And for Supreme Court watchers, the decision provides insight into a possible split between Justices who will rely on the plain meaning of a statute and those who will look beyond the meaning to the purpose of the acts covered by the law. Time will tell.

In 2018, I blogged about the Pennsylvania Superior Court decision in Pittsburgh Logistics Services v. Beemac Trucking, LLC, invalidating a no-hire contract between two transportation firms. Earlier this year, the Pennsylvania Supreme Court affirmed the Superior Court. See Pittsburgh Logistics Systems, Inc. v. Beemac Trucking, LLC, _ A.3d , 2021 WL __, 2021 Pa. Lexis 1853 (April 29, 2021). The Court held that the no-hire contracts were an unreasonable restraint of trade in violation of public policy.

The Supreme Court’s decision continues the Pennsylvania appellate courts’ movement to limit employers’ restrictions on ex-employees’ ability to work. As the Pennsylvania Supreme Court held in Hess v. Gebhard & Co., 808 A.2d 912 (Pa. 2002), a restrictive employment covenant may not be used to prevent competition or to keep employees from earning a living. In 1995, the Superior Court refused to enforce a noncompete against an employee who was fired through no fault of his own (Insulation Corp. of America v. Brobston, 667 A.2d 729, 733 (Pa. Super. 1995)). Hess v. Gebhard followed in 2002, refusing to allow a purchaser of a business’ assets to enforce a noncompete where the asset seller did not assign the noncompete to the buyer. Socko v. Mid-Atlantic Systems of CPA, Inc., 126 A.3d 1266 (Pa. 2015), refused to enforce a noncompete when the employer offered the employee no consideration for the noncompete other than continued at-will employment.

In the Pittsburgh Logistics case, Pittsburgh Logistics engaged in the business of arranging for the shipping of goods. Beemac was a transporter of goods. The companies entered into a motor carriage contract in which Beemac would transport goods of shippers arranged by Pittsburgh Logistics. The contract provided that Beemac would not solicit or hire Pittsburgh Logistics’ employees during the contract term and for 2 years after the contract ended. Beemac hired four of Pittsburgh’s employees while the motor carriage contract was still in effect. Pittsburgh sued both Beemac and the departing Beemac employees. The trial court found that the non-hire contracts were void as against public policy. The Superior Court upheld the trial court, first in a panel decision and then in a decision of the court en banc.

The state Supreme Court accepted review to address the question of whether contractual no-hire provisions in a service contract between sophisticated business entities were enforceable under Pennsylvania law. The Court analyzed the law of other states since Pennsylvania had not addressed this issue. The Court found a division between the various states, but held that the trend in other states and at the federal level ran against enforcement of the agreement. The Court noted the Department of Justice’s interest in a case challenging no-poach agreements in the railway industry in the Western District of Pennsylvania (In re Railway Industry Employee No-Poach Antitrust Litigation, 395 F.Supp.3d 464 (W.D. Pa. 2019)). Farther afield, the Court referred to the class action challenge to no-poach agreements between the Duke University and University of North Carolina Medical Schools. See Seaman v. Duke University, 2019 WL 4674758, 2019 U.S. Dist. Lexis 163811 (M.D. N.C. Sept. 25, 2019) (approving class action settlement). Also important, but not noted by the Court, are the recent federal criminal indictments of businesses for wage fixing and no-poach agreements.

In rejecting the no-hire agreement, the Supreme Court employed the traditional reasonableness analysis for restrictive covenants. The Court found that the agreement was ancillary to a shipping contract and Pittsburgh Logistics had a legitimate interest in preventing poaching of employees. But the Court concluded that the no-hire clause was more than what PLS needed to protect this interest. The no-hire provision prevented Beemac from hiring any PLS employee, even those who had not worked with Beemac. The no-hire clause also created a harm to the public. The clause created potential harm to third parties by cutting off possible employment to PLS employees who were not parties to the contract. The restrictions deprived employees of the ability to earn their livelihoods and undermined free competition in the labor market. Finally, restrictive contracts of this sort contributed to slow wage growth and rising wage inequality. The Court noted that wages are 4-5% higher in states that do not enforce worker non-compete agreements.

Pittsburgh Logistics was a narrow ruling on a harsh restriction. The future will tell whether the state’s highest court’s public policy concerns will open the door to further erosion of post-employment restrictions in Pennsylvania.

For business owners, minimizing the risk of civil liability is one of the most effective ways to avoid impacting your profitability by unnecessary lawsuits. A sexual harassment lawsuit by an employee can result in a substantial award paid by the employer.

In 2019, Employers paid out a record $68.2 million through the Equal Employment Opportunity Commission (EEOC) to employees.[1] Even in cases that settle before trial, the average cost to an organization for a harassment claim can be between $75,000 - $125,000.[2]

As an employer, reducing the likelihood of such lawsuits requires taking proactive steps to ensure that you do not run afoul of state and local law. It can also make sense to speak with an employment attorney conversant in those laws.
But what exactly are the duties of an employer with regards to preventing sexual harassment claims from arising? Below are three of the most common ways to reduce this potential liability and add an extra layer of protection to your business's bottom line.

Reducing Your Exposure to Sexual Harassment Litigation

It is essential first to understand the various laws subject to a business owner.

At the federal level, under Title VII of the Civil Rights Act of 1964 (commonly referred to as "Title VII," employers have a responsibility to maintain a workplace free of sexual harassment and to "take all necessary steps to prevent sexual harassment from occurring." [3] To help accomplish this, the EEOC has issued regulations and guidance on the definition of sexual harassment and the employer's responsibilities. Courts use these guidelines to decide whether to hold an employer liable in a sexual harassment case (29 C.F.R. § 1604.11(e).

According to state law, each state has a similar commission or guidance; in Pennsylvania, for example, the Pennsylvania Human Relations Commission, according to state law, issues guidance and provides another way for employees to bring claims against an employer (43 P.S. § 955.)

1. Address sexual harassment before or at the start of employment.

Sexual harassment claims by employees often revolve around the conduct of a co-worker rather than the actions of a manager or a third party. At the same time, this varies by industry.

Educating your employees at their pre-employment orientation or the first day of work is key to protecting against later liability.[4] However, liability for sexual harassment turns on whether an employer permits an intimidating, hostile, or offensive work environment to exist. Employers, therefore, have a duty to proactively prevent sexual harassment, including expressing strong disapproval to employees, developing a procedure for handling complaints (and informing new employees of the existence of these procedures), and educating employees about their rights under state and federal law.

Under U.S. Supreme Court precedent, employers who take reasonable steps to prevent and correct sexual harassment have a strong defense should a claim ever arise.[5] Equally important is ensuring that these preventative measures and the availability of corrective actions are open and available to employees at all times.

While there is no definitive list of pre-employment practices to follow, at a minimum, having a stated anti-harassment policy would establish that the employer attempted to prevent harassment before it began. The more thorough your orientation training and educational practices are, the less likely you will face liability down the road.

2. Develop a system or procedure for handling complaints and follow it.

As mentioned above, informing employees of how you will handle sexual harassment complaints is an essential component of preventing such harassment before it can occur.

Nonetheless, employers who fail to follow a set practice for addressing complaints or who do not take such complaints seriously when made open the door wide open for a later lawsuit. Time and again, failure by business management to take swift action when an employee complains of sexual harassment invites more of the same conduct.

From a legal standpoint, when an employer fails to take corrective action, it opens the door to a sexual harassment suit. That failure can lead to substantial fines and costly settlements. When a procedure is put in place to address instances of sexual harassment, following through on those policies is an excellent way to reduce liability. An employment lawyer can help draft those policies to make sure you avoid potential issues.

3. Avoid retaliatory actions.

While it may seem common sense, employers unknowingly expose themselves to lawsuits and administrative sanctions when they take disciplinary action against the employee complaining of the harassing behavior. A surprisingly high number of complainants, perhaps as high as 75%, face some form of retaliation from their employers after reporting the harassment.[6]

While it may be tempting to transfer, demote, or otherwise discipline an employee who is causing disruptions at your business, employers need to think carefully before taking such action if they have voiced complaints about sexual harassment. While the discipline might seem unrelated to you, an arbitrator, judge, or jury may think differently.
To avoid litigation (which may be costly even if you win), be sure to work with your Human Resources department or employment lawyer before taking any action against an employee in this situation.

Implementing solid policies and a workplace culture that disapproves of sexual harassment is the best way to prevent unwanted conduct from becoming a costly problem.

Talk with an Employment Lawyer Near You

Implementing solid policies and a workplace culture that disapproves of sexual harassment is the best way to prevent unwanted conduct from becoming a costly problem. In addition, consulting with an employment lawyer near you experienced in employment discrimination can give you the best course of action for keeping your business running smoothly. Our law firm has offices in Montgomery and Bucks County. We can help create effective policies and deliver appropriate guidance for sexual harassment in the workplace claims.

[1] https://www.eeoc.gov/statistics/charges-alleging-sex-based-harassment-charges-filed-eeoc-fy-2010-fy-2020
[2] https://www.yourerc.com/blog/post/the-cost-of-sexual-harassment-in-the-workplace
[3] Phila. Hous. Auth. v. Am. Fed'n. of State, Cty. & Mun. Emples., Dist. Council 33, Local 934, 956 A.2d 477, 483 (Pa. Cmwlth. 2008).
[4] The sources of sexual harassment vary based on the work environment; for example, roughly 90% of women in the restaurant/foodservice industry reported some form of sexual harassment in a 2018 study by Harvard Business Review. https://hbr.org/2018/01/sexual-harassment-is-pervasive-in-the-restaurant-industry-heres-what-needs-to-change.
[5] Faragher v. City of Boca Raton, 524 U.S. 775, 806 (1998); Burlington Indus. v. Ellerth, 524 U.S. 742, 766 (1998)
[6] See https://pubmed.ncbi.nlm.nih.gov/14570522/

“If you can’t say anything nice, don’t say anything at all,” our parents told us. Two recent Pennsylvania employment termination cases give this same advice to adult social media users. In both cases, courts upheld terminations for employees’ mean-spirited off-duty social media comments.

In Carr v. Commonwealth, 230 A.3d 1075 (Pa. 2020), a PennDOT employee (Carr) encountered a poorly driven school bus while driving to work. She posted to a Facebook group, “School bus drivers don’t give a flying s**t about those babies” and said she would “gladly crash into a school bus”. She added, “You’re (sic) kids are your problem. Not mine.” Carr disclosed that she worked for PennDOT. Facebook users sent Carr’s post to PennDOT, which terminated her for misconduct.

Carr filed a civil service appeal , claiming First Amendment free speech rights. PennDOT argued that Carr’s off-duty conduct undermined PennDOT’s traffic safety goals and harmed PennDOT’s reputation. The Civil Service Commission upheld PennDOT’s action.

Surprisingly, the Pennsylvania Commonwealth Court overturned Carr’s dismissal. Commonwealth Court viewed Carr’s comments as protected speech about a matter of public concern, despite the reprehensible tone.

The Pennsylvania Supreme Court reversed Commonwealth Court and upheld Carr’s dismissal. The Court held that Carr’s Facebook rant interfered with PennDOT’s highway safety mission. PennDOT therefore had reasonable concerns about adverse effects on PennDOT’s ability to carry out its duties. Commonwealth Court therefore was wrong to hold that Carr’s interest in commenting on bus safety outweighed PennDOT’s broader public safety interest. In short, Carr’s personal rant had limited public importance but caused significant detriment to PennDOT.

Justice Wecht concurred, stating that Carr’s comments raised no public concern at all. He also discussed social media platforms’ potential to disrupt agency operations, suggesting that public employees consider possible employment consequences before making off-hours social media comments.

Ellis v. Bank of NY Mellon Corp., 2020 WL 2557902 (W.D. Pa. May 20, 2020), affirmed, 2021 WL 829620 (3rd Cir. March 4, 2021) (not precedential) also mentioned vehicular violence in a Facebook post. Ellis was a white at-will employee in BNY Mellon’s Pittsburgh wealth management department. During an East Pittsburgh street protest after police killed an African-American teenager, a local councilman drove a car through the crowd. Ellis commented on her public Facebook page, “He should have taken a bus to plow thru.” Her Facebook account disclosed that she was a Mellon employee.

Public reaction was immediate. The public “inundated her employer with complaints” on Facebook and the Bank’s ethics hotline, and to the CEO and Human Resource Chief. They demanded to know if the post reflected Mellon’s values.

After an emergency investigation, Mellon terminated Ellis immediately. Mellon decided that Ellis had violated Mellon’s Social Media Policy prohibiting employees from conduct harming the Bank’s reputation. This Policy warned that violations could lead to termination. The Bank told Ellis that her post was offensive, showed poor judgment and disrespect for others, and encouraged violence.

As an at-will private sector employee, Ellis lacked First Amendment protection for off-duty comments. However, Ellis filed a race discrimination claim. She complained of harsher treatment than African-American employees who posted Facebook comments on the same incident or police brutality. BNY Mellon moved for summary judgment, contending that Ellis failed to make out a prima facie case because the African-American comparators were not similarly situated to Ellis. The comparators worked in different positions with different responsibilities and supervisors. The court granted summary judgment to Mellon. The court contrasted Ellis’ posting from the comparators’ postings, holding that Ellis addressed current news and supported driving through a crowd. The Court held that the Bank had legitimate, non-discriminatory grounds to fire Ellis for a posting that “was offensive in nature, advocated violence, demonstrated extremely poor judgment, and created a reputational risk” to the Bank. In a very brief opinion, the Third Circuit recently affirmed the District Court.

Our parents’ warning was right. And before posting on social media, employees should also remember the warning given law enforcement, albeit in a different context: “You have the right to remain silent; anything you say may be used against you.”