OWM NEWSLETTER
APRIL 2015

ATTORNEY SPOTLIGHT

JOSEPH K. KOURY

Joseph K. Koury, Esq., Co-Chair of OWM Law’s Business Law Practice Group, is a business and estate planning lawyer whose clients benefit from his advanced law degree in taxation and his experience, which includes a two-year clerkship with a respected trial judge. Mr. Koury regularly drafts and reviews business and estate planning agreements and documents for the personal and corporate clients whom he serves, clients which vary from the mom and pop store down the street to the more sophisticated business enterprise. Mr. Koury regularly assists and advises clients with business formation, business planning and succession planning. His clients gain value from his insights on taxation in their business and estate planning endeavors, enabling them to make better-informed decisions. Mr. Koury is active in the communities which OWM Law serves, and he holds leadership positions on the Boards of various local nonprofit organizations. He resides in northern Chester County with his wife and two daughters.

Phone: 610-323-2800
Fax: 610-323-2845
Email: jkkoury@owmlaw.com


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The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

 

NON-COMPETITION AND SIMILAR
AGREEMENTS IN PENNSYLVANIA

If you have ever worked for someone else or sold a business, chances are you have been party to what is popularly known as a “Non-Compete.” This occurs when a party, usually an employee, agrees not to enter into relationship with competing businesses both during employment and for a period of time after employment, in exchange for something from the employer called consideration.  Pennsylvania courts can judicially limit the agreement of the parties as necessary, which weighs in favor of careful drafting and consideration from the outset.

Another “contractual” restrictive covenant you may have encountered includes the “Non-Solicit,” by which an employee typically agrees not to solicit/accept business from the now-former employer’s continuing customers.  Also, the “Non-Disclosure Agreement,” whereby a party, usually an employee, agrees not to use or disclose the other party’s “confidential” information (a shorthand example of which is illustrated by the Pennsylvania’s Uniform Trade Secrets Act definition of “trade secret”: “information, including a formula, drawing, pattern, compilation including a customer list, program, device, method, technique or process…”). 

An example combining all three of these restrictive covenants, non-compete, non-solicit, and non-disclosure clauses, is as follows:

If John Doe works an executive for PepsiCo providing soft drinks to the local sports stadium, gaining knowledge of PepsiCo’s price structuring strategies and awareness of the existence of PepsiCo’s multi-year exclusivity contract with said stadium, then John Doe, if subject to these restrictive covenants, could not then go to work for The Coca-Cola Company in the same capacity (non-compete), meet with stadium executives, and implore them to switch over to Coca-Cola products (non-solicit) by exposing PepsiCo’s confidential pricing strategies and then deliberately undercutting them (non-disclosure).

Anecdotally, non-compete clauses are being proposed by a more diverse array of employers than the traditional sales, science and technology fields.  Service-sector employers now view the time and resources dedicated to the training and mentoring of employees as incentive to protect an investment.  Additionally, the Pennsylvania Uniform Trade Secrets Act may have application that is broader than that of a non-compete clause.

Requirements:

Legitimate Business Interest

Restrictive covenants sought to be imposed by employers must relate to a legitimate business interest of that employer.  Traditionally, examples have included protection of customer lists/goodwill, confidential information, and specialized training.

Geographic Scope

Here, as elsewhere, restrictive covenants must be tailored for the employee, in this case to the minimum necessary to protect the employer’s legitimate interests.  But for an employee with a large territory, a geographically expansive non-compete agreement would be appropriate.  Contrast this with the employee whose employer is a small business with a modest footprint. 

Consideration – Generally

The restrictive covenant usually relates to either a contract for the sale of a business or a contract for employment, and must be supported by “consideration.” Consideration simply means that both employer and employee have both bargained for an exchange in the transaction which is occurring, be it employment-related or as part of the overall sales transaction. 

Consideration – Employment Context

While a restrictive covenant need not be part of the original employment contract, if not, then the covenant can only be imposed at a later time if it’s supported by “new” consideration; Pennsylvania is of the view that continued at-will employment does not supply “new” consideration, whereas, if the covenant was entered into contemporaneously with initial employment, then employment itself is the consideration needed.  

Consideration – Sale of Assets

Generally, courts are likely to uphold restrictive covenants given in connection with the sale of a business’ assets or its stock.  There are associated, and important, tax consequences relating to this scenario which are beyond the scope of this article.

Injunctive Relief

Parties seeking to enforce the terms of a restrictive covenant often also seek “injunctive” relief from a court.  This means that the court requires a party to do, or refrain from doing, specific acts, such as “return former-employer’s property” and “stop soliciting former-employer’s customers.”  The party seeking the injunction (e.g., the employer) must prove a likelihood of irreparable harm and the unavailability of a fully adequate monetary remedy.

New Employer Concerns

A “new” employer may face the repercussions of an enforceable non-compete clause, including having the new employee restrained from working.  The employer may also be named as a party to litigation, or at least threatened with the possibility of the same.  The employer may wish to consider pre-existing non-compete clauses as part of the hiring process.

Conclusion

Properly drafted and supported, however, restrictive covenants should be enforceable. Consult your professionals, including the lawyers at OWM Law, to further discuss the contents of this article.

If you would care to discuss the above in detail, please call me at 610-323-2800 or email me at jkkoury@owmlaw.com. Also, please watch OWM's April 2015 Legal Talk program regarding Non-Competition Agreements on our website here.


SMALL-BUSINESS OWNERS NEED LEGAL COUNSEL TOO

Business is complex, no matter what size of enterprise.  A business attorney can help you understand and evaluate risk, and plan accordingly.  From entity formation to contract drafting and beyond, the “do it yourself” approach is not recommended.  Each decision that you make regarding your business requires an understanding of the laws that govern that area. For example:

  • What do your organizing documents provide if there is a disagreement among owners?
  • What types of insurance do I need?
  • Should my business purchase or lease space from which to operate?
  • How do I legally close my business?

The Business Law Practice Group at OWM Law can assist you with the legal needs of your business.  Don’t wait to get into legal trouble before contacting them for assistance.


UPCOMING EVENTS

David A. Megay, Esq., speaking at Chester County Night School Seminar (6:30p.m.-8:30p.m.) at Owen J. Roberts High School, Pottstown, PA, on 4/29/15 entitled "Buying and Selling Real Estate in PA" (contact Chester County Night School at 610-692-1964 or online at www.chestercountynightschool.org).

Kathleen M. Martin, Esq., speaking at Chester County Night School Seminars at Owen J. Roberts High School, Pottstown, PA, on 4/8/15 entitled "Elder Law Issues"; and at Owen J. Roberts High School, Pottstown, PA, on 4/22/15 entitled "Beyond the Simple Will" (contact Chester County Night School at 610-692-1964 or online at www.chestercountynightschool.org).

Watch Legal Talk, brought to you by OWM, on PCTV, Tuesdays at 8:30 on Channel 28, and Thursdays at 9:30 p.m. on Channel 98, or on our website here.

Read Legal Ease every first and third Sunday in the Pottstown Mercury.

O'Donnell,Weiss & Mattei, P.C.

41 E. High Street
Pottstown, PA 19464
610-323-2800
Fax: 610-323-2845

347 Bridge Street, Suite 200
Phoenixville, PA 19460
610-917-9347
Fax: 610-917-9348

www.owmlaw.com