Making Sense of Non-Compete and Non-Disclosure Agreements in Pennsylvania
As employees begin to navigate the new job market created by the COVID-19 pandemic, it is important to keep in mind any agreements signed with a previous employer. Often, employees sign non-compete (NCA) and non-disclosure agreements (NDA) without giving them much thought.
But the consequences of these contracts are real, and they could prevent you from getting a new job or result in legal action by a former employer. In this post, we will walk through the typical attributes of NCAs and NDAs, and touch upon how they are enforced under Pennsylvania law.
At its core, an NCA restricts the right of employees to work for competitors of their former employer or in a particular industry. Typically, these restrictions include both geographic and temporal limits. For example, a chef that works for a catering company could have signed an NCA that prevents him from working in Philadelphia County for one year at other catering companies.
- Non-Compete Agreements Must Be Reasonable
Under Pennsylvania law, NCAs are usually enforceable if their restrictions are reasonable. Courts consider whether the agreement is (1) necessary to protect the employer, (2) connected to an employment relationship between the parties, and (3) reasonably limited in duration and geographic interest.
- Challenging Non-Compete Agreements
However, employers cannot just have employees sign NCAs after the employee has started working unless the employer provides new consideration (compensation). So, if the chef in the above example was asked to sign an NCA six months into his job, but was never offered better pay, this agreement would likely not be enforceable.
Further, if the employer had the chef sign an agreement that prohibited working for catering companies across the entire US, and for a period of four years, a court would likely decline to enforce the NCA because it is unreasonable.
Thus, while many agreements can be enforceable, it is important to understand when the NCA was signed and what limitations it imposes on future employment.
NDAs generally require the employee not to disclose confidential or proprietary information obtained from a previous employer. While NDAs do not restrict who you can work for, they can be just as effective in hampering your ability to land new employment.
Returning to the chef example, the catering company could use an NDA to restrict the chef’s ability to disclose any recipes or customer lists that he obtained during his time with the company.
- Enforcing NDAs
NDAs do not have the same type of reasonableness requirements that accompany NCAs. NDAs can extend for long periods of time and can have a much broader geographic scope than NCAs. Further, an employer does not need to provide new consideration (compensation) if the employee is signing the NDA after already starting to work for the company.
Even though NDAs can be harder to challenge, employees still have opportunities to contest parts of the agreement. For example, the definition of confidential information may be unclear or the information in question may have become public knowledge. An employee might therefore be able to argue that he is not bound by the agreement because the information is no longer confidential.
Whether you are trying to understand the parameters of an employment agreement you’ve signed or are looking to challenge the enforceability of an NCA/NDA, we are here to help. Contact us to learn more at: 215.717.2200.