Pennsylvania Supreme Court to Decide Fresh Consideration Rule for Employee Non-Competes

Yesterday, the Pennsylvania Supreme Court granted allocator in Socko v. Mid-Atlantic Systems of CPA, Inc., 99 A.3d 928 (Pa. Super. Ct. 2014). Socko is the Pennsylvania Superior Court decision from May 2014 that re-affirmed the rule that fresh consideration is required for a non-compete signed after the inception of employment. In Socko, the employer tried to avoid the fresh consideration requirement by relying on Pennsylvania’s Uniform Written Obligations Act (“UWOA”). The UWOA provides that a written release or promise “shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement . . . that the signer intends to be legally bound.”

The Superior Court called the issue one of “first impression in this Commonwealth,” but federal district courts interpreting Pennsylvania law had split on the issue of whether the UWOA applies in the non-compete context. On the merits, the Superior Court sided with the employee and held that the UWOA does not apply to restrictive covenants in the employment context, reasoning that non-compete covenants “are disfavored in Pennsylvania because they are in restraint of trade and may work significant hardships on employees agreeing to them.”

The Supreme Court’s decision in Socko will be of interest to business owners who use non-compete and to employees who are subject to non-competes. The subjects take on particular importance because in our experience the number of non-compete cases in litigation tends to rise with a growing economy.