Employers are now using a new strategy in an effort to keep their employees from leaving the company and working in a competitive enterprise. Traditionally, employers used restrictive covenant agreements, almost always built in to the employee’s written employment agreement. These covenants prohibit employees from engaging in competition with a former employer. Courts tend not to favor restrictive covenants because they impinge on the ability of a worker to earn a living – they are a restraint of trade.

To limit the scope of restrictive covenants, courts impose a reasonableness standard. Restrictions for a limited time, such as a year, and a small geographical area, such as a five mile radius, were favored. Long-term and broad covenants were not. The employee’s skill set and knowledge of the original employer’s enterprise are also key factors in assessing the business need for any restrictions. The more skill needed to do the work, the more knowledge an employee has of the employer’s business strategies, the more justifiable the non-compete clause becomes.

Why Employers Like the Employee Choice Doctrine

The strategy that employers are now using in some states, including Pennsylvania, is a little more artful. Employers are offering employees post-employment benefits such as stock options and deferred compensation with a condition – a catch. The catch is that the benefits are only available if the employee who leaves the company does not compete with the employer providing the benefits. The employee is given a choice to either accept the benefits and not compete, or compete, but forfeit the benefits and be subject to repayment, or "clawbacks” of benefits already paid. The choice has become known as the employee choice doctrine.

The employee choice option works better for the employer than the typical restrictive covenant because it enables the employer to shift the burden to the employee. In the classic non-compete case, the employer's remedy was to seek an injunction against the competing former employee ordering him or her to cease the competition. In employee choice cases, the employer can still seek an injunction. Better still, the employer can just terminate the benefits (the stock option or other post-employment benefit) thus shifting the burden to the employee to seek redress in the courts by demanding payment of the benefit.

In some states, like New York, there is no review of the employee choice option to assure that the choice offered to the former employee is reasonable. That is not the case in Pennsylvania. Pennsylvania law currently does allow employees to craft employment benefits that are tied to non-competition, but the tie has to be reasonable. The cases in Pennsylvania are evolving. As with restrictive covenants, the more reasonable, meaning less strict, the choice is - the more likely Pennsylvania courts will uphold it.

Key Drafting Issues in Employee Choice Benefit Contracts

When drafting employee choice benefit provisions, employers should keep in mind the following points:

• The Employee must have a real choice. The choice between competing in the new position and forfeiting the benefit or not competing and keeping the benefit should be clear. In short, the employee should understand that there is a trade-off.

• The Employee has to leave voluntarily. The choice option is likely only valid if the employee controls the decision about leaving the current employer. Some courts reason that the employee choice doctrine is not really a choice if the employer fires the employee without cause. In such a circumstance, the employer has little or no legitimate business interest in enforcing the non-compete obligation.

• Consideration.  For the employee to be forced to make a choice between forfeiting assets and working with a competitor, the employer has to give the employee additional consideration over and above that which the employee would have been entitled to receive in the normal course of working for the employer, including severance or other payments normally paid upon termination.

Why Legal Counsel Can Help

Experienced business counsel understand the evolving nature of the employee choice doctrine.  In particular, they keep current with the Pennsylvania and federal court decisions so they can craft documents which have the best chance of surviving attack by employees who seek to avoid them by claiming that the choice is invalid as a restraint of trade.

Before drafting, and certainly before presenting an employee benefit with a forfeiture provision – employers should seek to have their business counsel review the language of the benefit contract.

By Elizabeth Fineman, Esquire

As a family law practitioner, I’d like to share some information that could help prepare potential clients for the kind of personal questions they will be asked when they make their first call to schedule a consultation.   Many people are taken aback by being asked for details about sensitive personal and financial details on their initial contact with a family law attorney’s office.  I want to reassure you that, while these initial interviews can be difficult,  there are good reasons why the questions need to be asked,  and  ultimately, you are better served if we gain a fuller picture of your issues before the first meeting with the attorney.

First things first.  The firm is ethically obligated to take names and identifying information related to all parties involved in the case before the attorney consults with the client.  We do this so that we can confirm that there are no conflicts.  A conflict check involves a review of prior cases that the firm and attorneys have handled to make sure that we have not previously represented the opposing party.  Once the firm confirms that there are no conflicts, a meeting with a domestic relations attorney can be scheduled. 

You should also expect to be asked some questions related to jobs, incomes, assets and liabilities.  This information is all provided to the attorney before you meet, enabling that attorney to walk into the initial consultation knowing what issues (divorce, child support, alimony pendente lite, spousal support, alimony and/or child custody) are pertinent to your case and time can be allotted accordingly so that all areas are covered in enough detail at the consultation.

While the first steps in a divorce or family law matter are, by their nature, very personal and fraught with emotion, knowing what to expect before you make that call can hopefully lessen the impact, and lead to a better and more productive exchange.