Employee Non-Compete Agreement and Enforceability Memo — Pennsylvania

Pennsylvania Employee Non-Compete Agreement and Enforceability Memo

Quick-Reference Summary

Part A — Enforceability Memo

I. Statutory and Common-Law Framework

Pennsylvania has no general non-compete statute; the enforceability of employee non-competes is governed by common law. The Pennsylvania Supreme Court in Hess v. Gebhard & Co., 570 Pa. 148, 808 A.2d 912 (2002), articulated the standard:

"[A] restrictive covenant is enforceable if it is incident to an employment relationship between the parties; the restrictions imposed by the covenant are reasonably necessary for the protection of the employer; and the restrictions are reasonably limited in duration and geographic extent."

Pennsylvania law also requires that the covenant be supported by adequate consideration. This places Pennsylvania in the minority of states that do not treat continued at-will employment, by itself, as sufficient consideration for a post-hire restrictive covenant. All-Pak, Inc. v. Johnston, 694 A.2d 347 (Pa. Super. 1997); Socko v. Mid-Atlantic Sys. of CPA, Inc., 126 A.3d 1266 (Pa. 2015).

Limited statutory overlay (healthcare): Act 74 of 2020 (codified, in relevant part, at 35 P.S. § 10231.2 et seq. — Pennsylvania Fair Contracting for Health Care Practitioners Act) restricts certain non-compete covenants against specified healthcare practitioners. Verify exact scope and most recent amendments before relying.

II. Reasonableness Factors (Hess v. Gebhard)

III. Consideration Requirements (Critical)

This is the most distinctive feature of Pennsylvania non-compete law:

At-hire non-competes: Initial employment is sufficient consideration if the offer of employment is conditioned on or expressly contemplates execution of the non-compete. Pulse Technologies v. Notaro, 67 A.3d 778 (Pa. 2013), holds that an offer letter stating that the candidate "will be required to sign an Employment Agreement with definitive terms and conditions" on the first day of work supports a non-compete signed on day one, because the restrictive covenant is part of the hiring bargain.

Mid-employment / post-hire non-competes: Continued at-will employment, even where the agreement recites the parties' intent to be "legally bound" under the Uniform Written Obligations Act (33 P.S. § 6), is NOT sufficient consideration. Socko, 126 A.3d at 1276. The employer must provide new and valuable consideration — examples include:

• Promotion or change in employment status;
• Increase in salary, bonus, or commissions beyond what was already promised;
• Grant of stock or stock options;
• Access to new confidential information or specialized training not previously provided;
• Severance or other tangible benefit not previously owed.

The new consideration must be simultaneously bargained for with the noncompete. Recitals of "consideration" without delivery of an actual new benefit are vulnerable to Socko attack.

IV. Notice and Disclosure Requirements

No statutory notice or review period applies generally. Best practices:

• At-hire: State in the offer letter that an employment agreement containing restrictive covenants will be required and must be signed on or before the first day of work (Pulse).
• Mid-employment: Document the new consideration contemporaneously (e.g., promotion memo, equity-grant notice, salary-adjustment letter referencing the covenant).
• Provide a meaningful review period (recommended 10–14 days) and recommend that the employee consult independent counsel; document the recommendation.

V. Income / Salary Thresholds

No statutory income threshold. Pennsylvania does not exclude any income tier from non-compete coverage; however, courts apply the Hess reasonableness inquiry with attention to the employee's hardship and earning capacity.

VI. Industry Carve-Outs

VII. Remedies

• Injunctive relief — preliminary and permanent. Plaintiff must show (i) right to relief is clear, (ii) injunction necessary to prevent immediate and irreparable harm not compensable in damages, (iii) greater injury without injunction than with, (iv) injunction restores parties to status quo, (v) reasonable likelihood of success, (vi) public interest. Summit Towne Centre, Inc. v. Shoe Show of Rocky Mount, Inc., 828 A.2d 995 (Pa. 2003).
• Damages — actual damages flowing from breach.
• Attorneys' fees — only if contract or statute provides; no default fee-shifting.
• Liquidated damages — enforceable if a reasonable estimate of actual harm and not a penalty.
• Trade-secret claims under Pennsylvania Uniform Trade Secrets Act, 12 Pa. C.S. §§ 5301 et seq., as an independent remedy with statutory damages and (in cases of willful misappropriation) exemplary damages and attorneys' fees.

VIII. Recent Caselaw and Legislative Changes (2023–2025)

• Act 74 of 2020 continues to apply to covered healthcare practitioners — confirm scope at time of use.
• Socko v. Mid-Atlantic Sys. of CPA, Inc., 633 Pa. 555 (2015) — controlling on mid-employment consideration.
• Pulse Technologies v. Notaro, 67 A.3d 778 (Pa. 2013) — controlling on at-hire offer-letter structure.
• Ryan, LLC v. FTC, No. 3:24-cv-986 (N.D. Tex. Aug. 20, 2024) — FTC noncompete rule set aside; Pennsylvania common law remains controlling.
• Monitor: legislative proposals to ban or restrict non-competes for lower-wage Pennsylvania workers have been introduced in recent sessions; none enacted as of May 2026.

Part B — Employee Non-Compete Agreement (TEMPLATE)

Caption and Recitals

EMPLOYEE NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY AGREEMENT

This Agreement is entered into as of [__/__/____] (the "Effective Date") between:

Recitals:

A. Company is engaged in the business of [________________________________] (the "Business") in the Commonwealth of Pennsylvania and the geographic area described in Section 3.

B. Company has invested substantial resources in developing trade secrets, confidential information, customer goodwill, and specialized training that constitute legitimate interests under Pennsylvania common law as articulated in Hess v. Gebhard & Co., 570 Pa. 148 (2002).

C. Employee will, in the course of employment, receive Confidential Information and develop substantial relationships with Company's customers.

D. The parties intend the restrictions in this Agreement to be no broader than reasonably necessary to protect Company's legitimate interests and to be supported by adequate consideration as required by Pennsylvania law (Socko, Pulse Technologies).

1. Definitions

"Confidential Information" means non-public information of Company including customer lists and customer-specific information, pricing, financial information, business strategies, technical data, supplier and vendor information, and methods or processes.

"Trade Secret" has the meaning in 12 Pa. C.S. § 5302.

"Restricted Period" means [____] months following the Termination Date. [Recommended: 6–24 months.]

"Restricted Territory" means: ☐ a [____]-mile radius from each Company office at which Employee worked or had supervisory responsibility during the [____] months before the Termination Date; ☐ the counties of [________________________________]; ☐ the Commonwealth of Pennsylvania; ☐ the customer accounts assigned to or contacted by Employee during the [____] months before the Termination Date.

"Restricted Business" means the design, sale, marketing, or provision of products or services materially similar to or directly competitive with the Business in which Employee was actually involved during the [____] months before the Termination Date.

"Termination Date" means the date Employee's employment with Company ends for any reason.

2. Acknowledgment of Legitimate Business Interests

Employee acknowledges that Company has the following legitimate interests under Pennsylvania law that the restrictions in this Agreement are designed to protect:

☐ Trade secrets and confidential business information;
☐ Customer goodwill developed at Company's expense;
☐ Specialized training and investment in Employee;
☐ Protection against use of Employee's unique or extraordinary services to Company's competitive disadvantage.

3. Non-Competition Covenant

During the Restricted Period and within the Restricted Territory, Employee shall not, directly or indirectly, engage in the Restricted Business, whether as employee, owner, partner, agent, officer, director, consultant, or independent contractor. Passive ownership of less than 1% of a publicly traded company is permitted.

4. Non-Solicitation of Customers

During the Restricted Period, Employee shall not, directly or indirectly, solicit, accept business from, or attempt to divert from Company any customer or prospective customer with whom Employee had material contact, or about whom Employee had Confidential Information, during the [____] months before the Termination Date.

5. Non-Solicitation of Employees

During the Restricted Period, Employee shall not, directly or indirectly, solicit, recruit, or hire any employee or contractor of Company with whom Employee worked or had access to Confidential Information during the [____] months before the Termination Date.

6. Consideration (Pennsylvania-Specific)

The parties acknowledge that under Socko v. Mid-Atlantic Sys. of CPA, Inc., 126 A.3d 1266 (Pa. 2015), and All-Pak, Inc. v. Johnston, 694 A.2d 347 (Pa. Super. 1997), continued at-will employment alone is insufficient consideration for a post-hire non-compete. Accordingly, in addition to employment, Company is providing the following new and valuable consideration, which is being contemporaneously delivered with this Agreement:

☐ At-hire structure (Pulse Technologies): Initial offer of employment with Company, where the offer letter dated [__/__/____] expressly required execution of this Agreement as a condition of employment; Employee has not yet commenced work as of execution of this Agreement (or signs this Agreement on the first day of employment as required by the offer letter).

☐ Promotion to [________________________________] effective [__/__/____].

☐ Increase in salary from $[____] to $[____] effective [__/__/____].

☐ Signing or retention bonus of $[________________].

☐ Grant of stock or stock options per the [________________________________] Plan with value of $[________].

☐ Access to new confidential information / specialized training not previously provided, specifically: [________________________________].

☐ Severance entitlement not previously owed: [________________________________].

☐ Other new and valuable consideration: [________________________________].

Employee acknowledges receipt of the consideration described above and that such consideration is independent of, and in addition to, any consideration for continued at-will employment.

7. Garden Leave / Continued Compensation (Optional)

☐ Not applicable.

☐ Upon Employee's notice of termination, Employee shall provide [____] days' advance written notice during which Employee remains on payroll at full salary and benefits, may be relieved of active duties, and shall not commence employment with another business.

8. Acknowledgment of Review Opportunity

Employee acknowledges that Employee was provided this Agreement on [__/__/____], had at least [____] days to review it, was advised of the right to consult with an attorney of Employee's choice at Employee's expense, and signs voluntarily and knowingly.

9. Remedies

Breach or threatened breach of Sections 3, 4, or 5 will cause Company irreparable harm. Company is entitled to a preliminary injunction and permanent injunction under Pennsylvania law (Summit Towne Centre), in addition to actual damages and any other relief available at law or in equity. Each party shall bear its own attorneys' fees and costs except as expressly provided by statute or in this Agreement.

10. Partial Enforcement / Blue-Pencil Election

If a court of competent jurisdiction finds any restriction in this Agreement overbroad, the parties expressly request that the court partially enforce the covenant by striking or narrowing the overbroad portion and enforcing the remainder to the maximum extent permitted by Pennsylvania law. The parties acknowledge that Pennsylvania courts apply a limited blue-pencil approach and may decline to rewrite an unreasonable covenant; therefore, the parties have drafted the restrictions in Sections 3, 4, and 5 to be no broader than reasonably necessary.

11. Choice of Law and Forum

This Agreement is governed by Pennsylvania law without regard to choice-of-law principles. Any action arising out of or relating to this Agreement shall be brought exclusively in the state or federal courts located in [____] County, Pennsylvania, and the parties consent to personal jurisdiction and venue there.

12. Severability

If any provision is held invalid (and partial enforcement under Section 10 is not available), the remaining provisions shall remain in full force and effect.

13. Entire Agreement

This Agreement is the entire agreement of the parties as to its subject matter and supersedes all prior agreements and understandings. Amendments must be in writing signed by both parties.

Signature Block

COMPANY:

By: [________________________________]
Name: [________________________________]
Title: [________________________________]
Date: [__/__/____]

EMPLOYEE:

[________________________________]
[Employee Printed Name]
Date: [__/__/____]

Part C — Pre-Signing Checklist (☐)

☐ Legitimate interest identified under Hess v. Gebhard (trade secrets / confidential information / customer goodwill / specialized training / unique services).
☐ Duration within 6 months – 2 years (longer requires strong record).
☐ Geographic / scope of activity tied to actual employee role.
☐ Consideration analysis — Pennsylvania-specific:

• At-hire: offer letter expressly required execution of this Agreement as a condition of employment (Pulse Technologies); signed at or before start of work.
• Mid-employment: new and valuable consideration delivered contemporaneously (promotion, raise, bonus, equity, new training/information, severance entitlement) — not mere recital of "intent to be legally bound" (Socko).
  ☐ Healthcare-practitioner carve-out (Act 74 of 2020 / Pa. Fair Contracting for Health Care Practitioners Act) — confirm if subject employee is a covered practitioner.
  ☐ Attorney carve-out (Pa. R. Prof'l Conduct 5.6) — verify if subject employee is a lawyer.
  ☐ Choice-of-law analysis — Pennsylvania chosen; verify enforceability if employee resides in a stricter-rule state (e.g., California § 925).
  ☐ Partial-enforcement election (§ 10) included; covenant drafted narrowly because Pennsylvania does not aggressively rewrite.
  ☐ Documentation of review opportunity and right to counsel.
  ☐ PUTSA trade-secret claim preserved as parallel remedy.
  ☐ Monitor pending state legislation on low-wage / healthcare expansion.
  ☐ Counsel review completed.

Sources and References

• Hess v. Gebhard & Co., 570 Pa. 148, 808 A.2d 912 (2002)
• Pulse Technologies, Inc. v. Notaro, 67 A.3d 778 (Pa. 2013) — https://caselaw.findlaw.com/court/pa-supreme-court/1632834.html
• Socko v. Mid-Atlantic Sys. of CPA, Inc., 633 Pa. 555, 126 A.3d 1266 (2015)
• All-Pak, Inc. v. Johnston, 694 A.2d 347 (Pa. Super. 1997)
• Summit Towne Centre, Inc. v. Shoe Show of Rocky Mount, Inc., 828 A.2d 995 (Pa. 2003)
• Pennsylvania Uniform Trade Secrets Act, 12 Pa. C.S. §§ 5301 et seq.
• Act 74 of 2020 — Pennsylvania Fair Contracting for Health Care Practitioners Act, 35 P.S. § 10231.2 et seq.
• Pa. R. Prof'l Conduct 5.6 (attorneys)
• Uniform Written Obligations Act, 33 P.S. § 6 (discussed in Socko)
• Ryan, LLC v. FTC, No. 3:24-cv-986 (N.D. Tex. Aug. 20, 2024)
• Pennsylvania General Assembly bill tracker: https://www.legis.state.pa.us/