The Future of Non-Compete Agreements

Pennsylvania employment lawyers discuss the proposed bill dealing with non-compete agreements. Shortly before the close of 2017, the Pennsylvania legislature introduced a bill that would ban non-compete agreements in employment contracts. Under Bill 1938, known as the “Freedom to Work Act,” non-compete agreements would be not only unenforceable, but null and void.

The bill has several stated goals, including lowering the unemployment rate, enabling an increase in income for highly-skilled employees, allowing employees to make a living wage and provide for their families by “maximizing their talents,” and allowing businesses to hire workers of their choice. With this bill the Commonwealth hopes to attract high-tech companies and discourage workers from leaving the state for better opportunities.

Additionally, the bill intends to promote the following:

  • Increased wages and benefits
  • Unrestricted trade and mobility of workers
  • Innovation and entrepreneurship

Pennsylvania joins a trend of proposed legislation to limit non-compete agreements that includes New Jersey, Maryland, New York, Massachusetts, Missouri, and New Hampshire among others. In California, North Dakota, and Oklahoma, legislation has already passed that bans almost all forms of non-compete agreements.

Definition of Non-Compete

The Freedom to Work Act defines a non-compete agreement broadly as “[a]n agreement between an employer and employee that is designed to impede the ability of the employee to seek employment with another employer.” As there is no mention of non-solicitation agreements, it seems it would still be possible for an employer to enter into such an agreement with employees.

Exceptions are made for agreements deemed reasonable that concern the sale of a business, and those that involve the dissolution of a partnership or limited liability company. Any non-compete agreements that existed before the effective date of the new law would also be exempt.

Provision for Attorney’s Fees

Included in the proposed legislation is a provision that cases concerning Pennsylvania residents shall be decided in Pennsylvania state court, under Pennsylvania law. There is also a provision that awards attorney’s fees and damages, including punitive damages, to employees who sue their employer over a non-compete agreement and win. This essentially provides employees with incentive to sue, should the bill be enacted, and they find themselves subject to a non-compete clause.

Changes at the Federal Level

There is also proposed legislation at the federal level that seeks to reform the misuse of non-compete agreements. Employers must watch carefully for any changes in state and federal legislation, and are advised to be prepared to use other ways to protect proprietary information. Non-compete agreement forms should be reviewed regularly, to ensure they comply with the law in all jurisdictions where they are in use.

MacMain Leinhauser is well versed in the complexities of Pennsylvania employment law and can provide you with highly skilled representation. Call 484-318-7106 or contact us online to schedule a consultation with one of our experienced attorneys. From our office in West Chester, our experienced attorneys serve clients throughout Chester County and Philadelphia.