An Executive’s View Of Non-Compete in an Improving Economy (Part 1 of 3) : Considering a Lateral Move?

With signs pointing to an improving economy, businesses are looking for avenues of growth. One avenue is lateral hires of executives, a practice that substantially slowed during the cash strapped period of job insecurity known as the Great Recession. Greener pastures may be starting to bloom for corporate leaders, but often a barbed wire fence in the form of covenant not to compete blocks the way. If you are an executive at a business, perhaps you have focused on enforcing these non-competes. Where the shoe is on the other foot and a great opportunity has presented itself, it is important to know your rights from a different perspective.

On the one hand, do not fall prey to the common misperception that your non-compete is unenforceable. Courts (quite often) enforce restrictive covenants in Pennsylvania. If you have a non-compete and your exit is not carefully considered, unexpected and costly litigation, not to mention the lack of a job, may await.

On the other hand, do not assume that all is lost. That fence may have an opening. Courts in Pennsylvania are clear that enforcement a non-compete involves a fact-based inquiry which balances an employer’s interest in protecting its business interests against the employee being able to earn a living in his or her chosen profession. Non-competes are not enforceable by employers who simply want to take out a potential competitor.

Consider whether any of the following apply to your employment situation, all of which may have a bearing on your non-compete’s enforceability:

  1. Has the nature of your employer’s business changed? During the economic downturn many businesses were forced to change to survive. Businesses targeted different geographical areas, sold different products, and changed the methods by which they conducted their business. The business interest the employer sought to protect when it required you to sign your non-compete may no longer be relevant.
  2. Did your employer cut your pay or benefits? Unfortunately, this was a fact of life for many during the recession. You typically receive extra pay or benefits as the consideration to enter into the non-compete. Were these rolled back ?
  3. Were the assets of your company sold? There were many distress sales and strategic mergers during the recession meaning that another company may now be your employer. You are not an impersonal piece of property. Absent your agreement to do so, it cannot be presumed that you willingly restrained your future employment for the benefit of company which is basically a stranger.
  4. Is your non-compete over the top? During the recession, your employer may have tried to lock down any possibility of disruption, and perhaps artificially inflated time and geographic limits in your non-compete. Inflated time and geographical limitations can be rolled back or rejected if an employer has no justifiable interest in these limitations.
  5. What were the circumstances under which you signed your non-compete? During the recession, employees signed non-competes under a number of circumstances. For example, some may have signed when their business was sold; some may have signed when they started their employment; and some may have signed during the term of their employment. Each of these situations can involve a different analysis, and it is worth assessing what business interest your employer seeks to protect.
  6. Were you terminated from your job? If you find yourself involuntarily out of a job, your employer may find enforcement of a non-compete difficult if it has deemed your work performance less than desirable.

Your career is important. If an opportunity presents itself, you need to fully consider your non-compete and whether it may, or may not, be a barrier to a greener pasture.

Next: Time and Geography terms in a Non-Compete – Are they reasonable restraints on your ability to make a living?

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