Business Law: Restrictive Covenant in Employment Agreement Enforced But Modified as Overly Broad
In the case of SunGard Business System, LLC Vs. McCloskey, PICS Case No: 13-3138, C.P., Chester County, November 1, 2013, the Honorable Mark L. Tunnel ruled that although there was adequate consideration to enforce a non-competition agreement in the amendment to defendant’s employment agreement and contract, the court chose to modify the non-competition clause because the provision was overly broad.
Defendant Gregory B. McCloskey was a salesperson for SunGard Business Systems LLC until Feb. 1, 2013, when he began work for Administrative Systems Inc. (ASI). In July 2013, SunGard filed this action against McCloskey and other parties.
SunGard asserted claims for breach of non-competition and non-solicitation provisions contained in an amendment to McCloskey’s sales compensation agreement. The court noted that in order to be effective, a non-competition covenant must be supported by adequate consideration.
If a covenant not to compete is executed at the inception of employment, the consideration supporting the covenant is the job itself. However, when an employee enters into a non-competition agreement subsequent to commencement of employment, the restrictive covenant must be supported by new consideration to be enforceable.
Such new consideration must be in the form of some corresponding benefit to the employee or favorable change in employment status. The court noted that both McCloskey and SunGard, through their respective counsel, had hammered out an arm’s length transaction over a period of time, which ultimately produced the amendment dated Dec. 5, 2011.
The court interpreted the document to be a settlement agreement, negotiated and bargained for by counsel for the parties. “This court has no intention of inquiring into the sufficiency of the consideration, in the absence of fraud.” The parties had reached a compromise acceptable to both of them regarding sales compensation.
Because the deal was supported by consideration, the court regarded McCloskey as being in breach of the non-competition covenant. However, the court found the covenant was over broad. Pennsylvania law “permits equitable enforcement of employee covenants not to compete only so far as reasonable necessary for the protection of the employer’s protectable business interests.”
In those instances where a non-competition agreement imposes restrictions that are deemed to be broader than necessary to protect the former employer’s interests, the Supreme Court has “repeatedly held that a court of equity may grant enforcement limited to those portions of the restriction that are reasonably necessary for the protection of the employer.”
The court found that the non-competition covenant in the 2011 amendment constituted overreaching on SunGard’s part in its efforts to protect its interests. As such, the court modified the prohibition so as to adequately protect SunGard’s legitimate interest in customer goodwill, while simultaneously respecting McCloskey’s right to earn a living in his chosen field. “If the non-competition covenant should be in conflict with the modification covenant, the latter shall govern,” the court stated.
Reference: Digest of Recent Opinions, Pennsylvania Law Weekly (December 3, 2013)
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