Covenants Not to Compete

A covenant not to compete is a contract stipulating that a person will not compete against another. These contracts generally prevent an employee from working for a direct competitor or from starting his own business that would directly compete with his current employer.

There are generally two common scenarios that will give rise to covenants not to compete:

• Employment Contracts — Frequently, a business owner will require this agreement to prevent employees from providing their services to competitors in the future or in situations where employees are exposed to valuable trade secrets.
• Sale of a Business — Non-compete agreements are frequently included in the sale of a business in order to prevent the former owner from setting up shop across the street and directly competing with the new owner of the business.

Enforceability of Covenants not to Compete

Due to the serious ramifications in both employment contracts and business sale contracts, covenants not to compete are very complex contracts. It is important to have this document reviewed by an experienced commercial lawyer before signing the agreement. If you are an employer or the purchaser of a business, you will want to make sure that the contract will be enforceable in court. If you are an employee or the seller of a business, you will want to ensure that your ability to earn a living after leaving your current job or selling your business isn't jeopardized.

Since a covenant not to compete may be considered a restraint of trade, there are certain requirements that must be met for the agreement to be enforceable by the courts:

• There must be reasonable time limitations stipulated in the agreement.
• There must be reasonable geographic limitations stipulated in the agreement.
• There must be reasonable consideration on both sides of the agreement.

Pennsylvania has not spelled out iron-clad guidelines for enforceability of covenants not to compete. The courts examine each case on its individual merits and make their ruling according to the specific facts and language of the agreement. Therefore, it is essential that you are represented by a lawyer experienced in handling non-compete contract cases if you are trying to enforce or dispute your agreement.

If you have a question regarding your non-compete agreement, please contact the commercial litigation lawyers at Saidis, Sullivan & Rogers today to schedule a consultation at one of our offices in Carlisle, Camp Hill, or Chambersburg, Pennsylvania.