In a December 2014 post, I presented an overview of what items should be included by an employer in a covenant not to compete in order to make it enforceable with respect to the employer’s employees and when that covenant should be implemented by the employer. This post highlighted a Superior Court of Pennsylvania case being followed by many Pennsylvania attorneys, including my colleague, John Gotaskie. I supplemented that post with another piece in February of this year which examined the issues being considered by the Pennsylvania Supreme Court on appeal of this case. While this case is still on appeal, the original ruling held that a covenant not to compete is not enforceable against a former employee who went to work for a competitor due to the fact that the covenant was not supported by additional consideration given by the employer.
Another one of my colleagues, Alex Radus, recently provided another cautionary tale concerning covenants not to compete. In a June 2015 post, Alex highlighted a Nebraska Supreme Court case which held that a franchisor’s overly broad covenant not to compete would not be enforced against a former franchisee. One of the two reasons the court gave for not enforcing this overly broad covenant was that the State of Nebraska has a long-standing rule which provides that if a portion of a covenant not to compete is legally unenforceable, then the entire covenant will be unenforceable. Unlike most other states that allow their courts to rewrite or “blue pencil” an otherwise illegal covenant not to compete in order to make it enforceable, Nebraska courts are not permitted to rewrite the overly broad portions of a covenant not to compete.
Alex concludes his piece by noting that franchisors and their lawyers should ensure that their covenants not to compete are enforceable from the outset under local law, especially in states that do not allow their courts to “blue pencil” these covenants. Of course, this advice is equally applicable to employers as it is to franchisors. However, his piece led me to place myself in the shoes of many of my clients who will likely have the following two questions: What is my local law with respect to covenants not to compete and how do I find out if my state will allow courts to rewrite covenants that are deemed to be overly broad and unenforceable? For those looking for answers to these questions, Fox Rothschild provides an outstanding resource.
The National Survey on Restrictive Covenants prepared by colleagues in my firm’s Labor and Employment and Securities Industry practice groups gives a state-by-state overview as to the enforceability of covenants not to compete (as well as covenants not to solicit, covenants not to hire and confidentiality covenants) and whether the so-called “blue pencil doctrine” is allowed to be used by that state’s courts. As is the case with most laws, the answers provided in this survey are not always cut and dry and will undoubtedly continue to evolve over time, so please be sure to consult your lawyer with respect to particular questions. In the meantime, feel free to familiarize yourself with your state’s requirements and find out whether your state will permit courts to scale back an otherwise unenforceable covenant not to compete.