The Uniform Written Obligations Act Does Not Relieve the Requirements of Consideration for Signing Noncompete Agreements
In business law and commercial litigation appellate case of Socko v. Mid-Atlantic Systems of CPA, the Honorable Christine L. Donohue writing on behalf of the three-judge Pennsylvania Superior Court panel ruled in a decision that garnered very different reactions from several employment lawyers, the Uniform Written Obligations Act does not relieve employers valuable consideration in exchange for signing noncompete agreements.
In Socko v. Mid-Atlantic Systems of CPA, a three-judge Superior Court panel unanimously affirmed a York County trial judge’s ruling that defendant Mid-Atlantic Systems of CPA’s noncompete covenant with plaintiff David M. Socko was unenforceable because the employer failed to offer Socko, who was already working for the company, any benefit or change in job status.
While Mid-Atlantic had argued that it was not obligated under the UWOA to give Socko valuable consideration because the noncompete agreement stated that the parties “intend to be legally bound” by its terms, the court disagreed.
The UWOA states that a “written release of promise… shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement… that the signer intends to be legally bound.”
Judge Christine L. Donohue wrote for the panel that the Pennsylvania Supreme Court has previously ruled that a seal to a restrictive covenant does not eliminate the requirement that an employer offer an employee valuable consideration.
Because the UWOA and seals “have precisely the same legal effect,” Donohue said, it follows that the UWOA does not allow employers to contract away the consideration requirement in the context of a noncompete agreement.
“When the restrictive covenant is contained in the initial contract of employment, the consideration is the job itself,” Donohue said. “But when the restrictive covenant is added to an existing employment relationship, however, to restrict himself the employee must receive a corresponding benefit or a change in job status. Contractual language satisfying the UWOA does not provide the employee with any actual benefit, and thus cannot suffice as a form of consideration that is adequate to support the later enforcement of the covenant not to compete against the employee.”
Reference: Zack Needles, Pennsylvania Law Weekly. Vol. XXX VII, No. 20,May 20, 2014
Filed Under: Business Law: Commercial Litigation; Business Litigation; Restrictive Covenants
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