ChesterNewMatter4thQtr2021 - 11

CCBA Feature
www.chescobar.org
By Brian Boreman, Esq.
Unruh, Turner, Burke & Frees
P
ennsylvania has long permitted the use of non-compete agreements
for restricting employee activity. In general, a non-compete agreement
restricts the ability of a departing employee to work for a competitor
after the employment relationship ends. For employers, it can be a useful
tool to protect against the unfair use of
information learned by the employee
during the employment relationship. To
be enforceable, the restrictions in a noncompete
agreement must be supported by
adequate consideration, protect a legitimate
business interest, and be limited in both
duration and geographic scope. Whenever
the purpose of a non-compete is merely to
stifle competition, it is unenforceable.
Notwithstanding decades of Pennsylvania
enforcement of non-compete agreements, there are a few states that do not,
such as California, Oklahoma, and North Dakota. Several other states, as well
as the District of Columbia, significantly limit their breadth of enforceability.
For instance, in some jurisdictions a non-compete agreement will not
be enforced against a lower-income wage earner. In other jurisdictions,
non-compete agreements are unenforceable in certain industries, such as
healthcare and social services. Still in other jurisdictions, the enforcement of
a non-compete agreement is difficult, if not prohibited, when an employee
has been laid off for reasons other than misconduct.
Rather than totally preclude the enforcement of non-compete
caselaw, the future of non-compete
agreements (at least in their current form)
is somewhat uncertain. On July 9, 2021,
President Biden issued Executive Order
14036, titled " Promoting Competition in
the American Economy. " The Executive Order
submits that when " [p]owerful companies require workers to sign noncompete
agreements that restrict their ability to change jobs, " many benefits
attendant with a competitive marketplace cease to exist. Executive Order
14036, § 1. Accordingly,
To address agreements that may unduly limit workers' ability to change
jobs, the Chair of the FTC is encouraged to consider working with the rest of
the Commission to exercise the FTC's statutory rulemaking authority under
the Federal Trade Commission Act to curtail the unfair use of non-compete
clauses and other clauses or agreements that may unfairly limit worker
mobility.
Executive Order 14036, § 5(g).
To be clear, the Executive Order does not ban the use of non-compete
agreements. Instead, the Executive Order provides an aspirational directive,
namely, encouraging the Federal Trade Commission to consider exercising
its authority to limit the unfair use of non-compete agreements. What the
FTC considers to be the " unfair use " of non-compete agreements (or of other
unnamed clauses and agreements referenced in the Executive Order) is not
yet known.
Presently, the enforcement of non-compete agreements is a matter of
state law rather than federal regulation. Although Pennsylvania permits the
What Is the
Future for
Non-Compete
Agreements?
agreements, the FTC may seek to limit their enforcement based on a salary
threshold, particular industry, or another identifying feature of employment.
Regardless of the change, any rule
implemented in response to Executive Order
14036 will almost assuredly draw
legal challenges.
As an initial matter, any FTC enforcement
action or regulation is limited by statute
to an act or practice that " causes or is likely
to cause substantial injury to consumers,
which is not reasonably avoidable by
consumers themselves and not outweighed
by countervailing benefits to consumers
or competition. " 15 U.S.C. § 45(n). While
the Federal Trade Commission Act provides
that " [un]fair methods of competition
in or affecting commerce, and unfair or
deceptive acts or practices in or affecting
commerce, are hereby declared unlawful, " it
is unclear whether this language applies to the enforcement of non-compete
agreements. 15 U.S.C. § 45(a)(1). Thus, legal challenges will likely be
grounded on the FTC's scope of authority to govern the enforcement of noncompete
agreements, coupled with the level of regulatory intrusiveness over
a contractual relationship between an employer and its employees.
Although legal challenges will likely delay, if not prevent, the
implementation of any rule issued in response to Executive Order 14036,
employers should be prepared for potential changes. To this end, employers
should review their existing non-compete agreements (and any other
agreements containing restrictive covenants) to ensure that they are
necessary to protect their business operations and good will. Safeguarding
trade secrets and confidential information is one such way, and in fact,
is expressly permitted by both federal and Pennsylvania law. Limiting
enforcement of a non-compete agreement to only those employees who
can inflict harm when taking employment with a competitor is another. In
2021, the Wall Street Journal reported that approximately 32% of private
companies in the Unites States require employees to be bound by restrictive
covenants regardless of position or pay. For those employers who fail to
discern and distinguish the instances in which a non-compete agreement
is truly necessary to protect its business interests, the ability to restrict a
departing employee's competitive activities will be in question.
New Matter | 11
http://www.chescobar.org
ChesterNewMatter4thQtr2021

Table of Contents for the Digital Edition of ChesterNewMatter4thQtr2021
