Wednesday, 20 August 2014 19:08

Restrictive Covenants: A Cautionary Tale

A recurring issue employers must address is the enforceability of restrictive covenants entered into with an employee. These restrictive covenants are typically non-disclosure (confidentiality), non-solicitation, and/or non-competition agreements.   The timing, form, and substance of these agreements will determine whether a court will find them valid. From a former employee’s perspective, the issue is basically the same but reversed: can the employee disregard a previously signed restrictive covenant without being liable for monetary damages to his former employer (and if newly employed at another company, keeping the second company out of litigation)?

Two cases recently decided by the Pennsylvania Superior Court provide guidance for employers and employees:

Fleisher v. Bergman, concerned an employee who was hired as a full-time employee. At the time of his hire, employee signed a restrictive covenant which was a confidentiality and non-competition agreement. The restrictive covenant provided that employee would not divulge any “Confidential Information” (e.g., customer lists, pricing policies, names of vendors) to other parties without the consent of employer; the Agreement further mandated that for a period of five years after termination of his employment, employee would not “. . . solicit or do business with any . . . entity . . . that was, within the three year period preceding the Employee’s termination, a Client or Prospect of Employer... ”

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