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Nonsolicitation covenants contained in two expired employment agreements were still in effect even after the employees in question were converted to "at-will" status and later terminated, the Pennsylvania Superior Court has held.
In Metalico Pittsburgh Inc. v. Newman, the superior court held that the trial court erred in finding that the nonsolicitation provisions expired with the agreements due to a lack of consideration.
The plaintiffs were hired pursuant to employment agreements with a three-year term that included a prohibition on soliciting the company's customers, suppliers and employees after leaving employment.
The employment agreements expired in 2014, and the employees continued to work in an at-will status for more than a year, although with certain material changes to their terms of employment. For example, although the former employees' salaries remained the same, raises and bonuses were to be discretionary going forward.
After leaving the company in late 2015, both employees began working for a competitor, where they allegedly solicited the company's customers and employees. The company filed suit, alleging breach of the nonsolicitation covenant in the employment agreements.
Before the trial court, the former employees contended that the nonsolicitation covenants were unenforceable because the employment agreements had expired and been replaced with an at-will relationship that did not include non-solicitation provisions. The company argued that the new terms of employment continued the nonsolicitation covenants.
The trial court granted summary judgment to the former employees, finding that the company unilaterally and materially changed the terms of employment with respect to compensation and benefits, and thus the non-solicitation provisions lacked consideration after the agreements expired.
In reversing the trial court, the superior court found that the employment agreements contemplated that the covenants would remain in effect beyond the expiration of the agreement, not only for the period in which the former employees were still working, but also after they separated from the company.
As the court explained, the former employees "received the consideration they were promised in the agreements, and in return, they continue to be bound by the agreements' restrictive covenants for the full period—both after the expiration of their three-year terms and after their at-will employment—during which they agreed to be bound" by the nonsolicitation provisions.
Although this decision is consistent with prior case law enforcing restrictive covenants after a contractual period of employment has ended, employers can now be assured they can also change the terms and conditions of post-contractual employment without jeopardizing the restrictive covenants to which an employee has agreed.
Amy L. Bashore is an attorney with Ballard Spahr in Cherry Hill, N.J. Rogers Stevens is an attorney with Ballard Spahr in Philadelphia. Steven W. Suflas is an attorney with Ballard Spahr in Cherry Hill, N.J., and Denver. © Ballard Spahr. All rights reserved. Reposted with permission.
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