Fate of noncompete agreements up in the air

Fate of noncompete agreements up in the air

On Behalf of | Sep 8, 2022 | Employment Contracts, Noncompete Agreements

For years, the topic of noncompete agreements has been hotly debated in Pennsylvania and throughout the nation. Many workers and their advocates argue that these agreements constitute unfair restrictions on the right of workers to change jobs when they want better pay or working conditions. Many employers argue that the agreements are necessary to protect their businesses from unfair competition and theft of trade secrets.

In recent years, a handful of states have outlawed or strictly limited the enforceability of noncompete agreements. The Federal Trade Commission has proposed a new rule that would impose such limitations nationwide.

What is a noncompete agreement?

Simply put, a noncompete agreement is a contract between an employer and an employee in which the worker agrees to not work for a competing company. Typically, these agreements come in the form of a clause in an employment contract, and the worker signs them when they first take the job. These contracts typically cover a geographical area and a time period.

For example, a worker may agree not to work for another company in the same industry in the same state as the employer for a year after leaving the job. A worker who violates the terms of the agreement may face civil penalties.

Such agreements are routine for certain highly-paid professionals such as doctors, and they have become increasingly common for lower-paid workers as well. Some states have limited the enforceability of such agreements to cases involving highly-trained workers.

Pennsylvania law

In 2022, the Pennsylvania Supreme Court ruled that noncompete agreements are enforceable, but only in certain contexts. They must be :

  • Incidental to the employment relationship
  • Necessary for the protection of the employer’s interests
  • Reasonable in their restrictions on the worker

For the time being, these are still the guiding principles behind noncompete agreements in Pennsylvania. However, the final form of the FTC rule could change this status. The final form of the rule may prohibit the use of noncompete agreements for lower-paid workers, but could ultimately leave the status quo unchanged for doctors and other professionals.

Both employers and workers may want to keep a close eye on this issue in the months ahead.