EMPLOYMENT LAW: NON-SOLICITATION RESTRICTIVE COVENANT IS ENFORCEABLE DURING A ONE-YEAR POST EMPLOYMENT PERIOD
In the business litigation, employment law case of Metalico Pittsburgh, Inc. vs. Newman, PICS Case No. 17-0673 (Pa. Super. April 19, 2017) the Honorable Carl A. Solano, writing on behalf of the Pennsylvania Superior Court, ruled that the trial court erred in finding the non-solicitation provisions in employees’ employment contracts were not applicable due to a failure of consideration because the language of the covenants made them apply both throughout the employment and after the agreements’ expiration and employees agreed to the covenants in return for consideration which was paid. Reversed.
Scrap metal broker sued to enforce a non-solicitation provision in the employment contracts of two former employees. Employees and broker discussed the employees’ employment terms if they remained with the broker as at-will employees after their contracts expired. The discussion over terms did not mention the non-solicitation agreement. They continued working as at-will employees for another year and then left to work with another scrap metal supplier. Broker alleged that in their new positions, they solicited broker’s customers and employees to move to the other company. Employees contended that the non-solicitation agreements were unenforceable because their contracts expired more than a year prior to the termination of their employment with broker and that their contracts had been replaced with at-will relationships that did not include any restrictive covenants. The trial court granted employees’ motion for partial summary judgment, finding that when broker unilaterally and materially changed their compensation and benefits, considerations for the non-solicitation provisions failed and when the employment contracts expired, employees were terminated and their subsequent employment restarted with none of the provisions of their earlier contracts. The trial court also found that by its terms, the non-solicitation provision continued in effect for one year after a termination without cause and thus, was no longer in effect when employees started work with other company. Broker appealed.
Broker argued that the trial court erred in finding that the non-solicitation provisions were unenforceable for lack of consideration when the employees continued their employment as at-will employees and in resolving material disputes of facts and inferences in favor of employees when it found that there were material changes to employment after the employees became at-will employees. The court disagreed with the trial court and found that the case resembled Boyce v. Smith-Edwards-Dunlap Co., 580 A.2d 1382. The court found that the specific language of the employment agreements made the restrictive covenants apply to the employees both throughout the time of their employment by broker and in the time at issue here when they left broker’s employ. The terms of the non-solicitation agreements made them applicable both after the agreement’s expiration and during a one- or two-year “post-employment period.” The provision also stated that the employees agreed to the covenants “in consideration of the compensation and benefits to be paid or provided by employer” and there was no dispute that broker paid the benefits. There was thus, no failure of consideration.
Reference: Pennsylvania Law Weekly, Digest of Recent Opinions, 40 PLW 429, May 9, 2017