Non-Compete Agreements in Pennsylvania – a 2025 Guide

Non-Compete Agreements in Pennsylvania – a 2025 Guide

Non-compete agreements are a staple in the toolkit of many employers to protect their business interests. These agreements restrict employees from joining competing firms or starting similar businesses within a certain period and geographical area after leaving a company. However, the legal landscape governing non-compete clauses in Pennsylvania and across the nation is evolving, potentially reshaping how these agreements are drafted and enforced. The Bethlehem employment lawyers at Leeson & Leeson work with our clients to handle all aspects of employment litigation, including non-compete agreements.

What are Non-compete Clauses?

Non-compete clauses are contractual provisions that prohibit employees from working for a competing company or starting their own business in the same industry for a certain period of time after leaving their current employer. While these clauses may be intended to protect a company's intellectual property or trade secrets, they often create barriers to workers' mobility. They can harm competition by preventing new businesses from entering the market.

Recent Trends and Legal Changes

In recent years, there has been a growing movement to limit the scope of non-compete agreements to protect employee mobility and prevent unfair restrictions. Pennsylvania, like many states, is scrutinizing these agreements more closely, focusing on their impact on employees and the competitiveness of the labor market. n January, a new rule was proposed by the Federal Trade Commission (FTC) banning non-compete clauses in employment contracts. This new rule aims to protect workers from unfair restrictions on their ability to seek new employment opportunities and promote healthy competition in the marketplace.

What is the New FTC Rule?

Presently, an estimated 18% of workers in the United States are covered by their employer's non-compete clauses. Therefore, the FTC's proposed rule would impact millions of workers nationwide. The new rule would prohibit the use of non-compete clauses for most workers, including independent contractors. However, there are exceptions for highly paid executives and those with access to sensitive information. The rule would also require employers to disclose the use of non-compete clauses to workers before they accept a job offer. Specifically, this new rule would make it illegal for employers to:

• Enter into or try to attempt to enter into a non-compete with an employee.
• Maintain a non-compete with an employee.
• Represent to an employee, under certain circumstances, that the employee is vulnerable to a non-compete agreement.

The proposed rule reflects a growing concern about the negative impact of non-compete clauses on workers and the broader economy. Recently, a study by the Economic Policy Institute found that approximately one in five U.S. workers are subject to non-compete clauses, including many low-wage and entry-level workers. These clauses can limit workers' job options and depress wages, making it harder for them to advance in their careers and contribute to economic growth. The proposed rule has received support from labor advocates and business groups alike. The AFL-CIO, the largest federation of unions in the United States, has praised the rule as a "positive step toward ensuring that all workers can enjoy the freedom to seek employment opportunities that best suit their skills and experience." The U.S. Chamber of Commerce, a business lobbying group, has also expressed support for the rule, noting that it would "help level the playing field for small businesses and startups."

Pennsylvania State Developments

A key case related to the enforcement of non-compete agreements in Pennsylvania is Rullex Co. LLC v. Tel-Stream, Inc. This case was particularly significant because it addressed the adequacy of consideration required for non-compete agreements signed after the commencement of employment. The Pennsylvania Supreme Court clarified that a non-compete agreement needs to be supported by adequate consideration beyond mere continued employment if it is signed after the employee has started working. Essentially, the court held that the timing of when a non-compete agreement is signed is crucial, and any agreement signed after the first day must come with additional benefits to the employee, such as a promotion or pay raise, to be enforceable. The ruling underscores the importance of employers ensuring that non-compete agreements are discussed and ideally signed at the onset of the employment relationship. If the agreement is to be signed later, there must be clear, additional consideration given to the employee. This case serves as a crucial reminder for businesses to review their practices concerning the timing and consideration of non-compete agreements to ensure they align with current legal standards and are enforceable under Pennsylvania law.

Practical Implications for Pennsylvania Employers

Given these developments, employers in Pennsylvania should consider several practical steps:

• Review and Revise Agreements: Employers should review existing non-compete agreements to ensure they are narrowly tailored to protect legitimate business interests. This includes limiting the duration of the restriction and the geographical area covered.
• Consider Alternatives: Instead of relying solely on non-compete agreements, employers might consider using other types of restrictive covenants, such as non-disclosure agreements (NDAs) and non-solicitation agreements, which are generally viewed as less restrictive and more likely to be enforced.
• Stay Informed: Employers must stay informed about both state and federal legal developments regarding non-compete agreements. Changes in the law could require significant adjustments to employment practices.

Reach Out to Leeson & Leeson Today

The legal environment surrounding non-compete agreements in Pennsylvania is shifting, with a clear movement toward limiting their scope and enforceability. Employees need to be proactive in understanding these changes and adapting their employment contracts to meet legal standards while still protecting their business interests. At Leeson & Leeson, our Bethlehem employment attorneys are committed to helping our clients navigate these complex issues and adapt to the evolving legal landscape.