According to the Pennsylvania Superior Court, an employer cannot enforce a covenant not to compete against its employee who it has terminated for poor performance. Many employers enter into non-compete agreements with key employees. Essentially these key employees are paid a consideration in exchange for a promise that they will not compete against their former employer upon leaving the company for a specific period of time and within a specified geographic range. The case which gave rise to the Superior Court's decision involved a manufacturing company's attempt to enforce a covenant not to compete, also known as a restrictive covenant, against one of its salespeople following the company's termination of that employee. The employee enjoyed a ten year employment relationship with the company during which he was privy to substantial proprietary information. The company stated as its reason for firing the employee, the employee's poor sales performance. The employee was hired by a competing company shortly after his termination by his previous employer. The previous employer, seeking to protect its proprietary information and customer base, sought a court injunction preventing its former employee from working for its competitor.
The trial court awarded the previous employer its requested injunction. However, on appeal the Pennsylvania Superior Court reversed the award of the injunction. In so doing, the Superior Court stated that there is a significant distinction between the hardship imposed by the enforcement of a restrictive covenant on an employee who voluntarily leaves his employer and that imposed upon an employee who is terminated for failing to do his job. The Superior Court further pointed out that the circumstances under which the employment relationship is terminated are an important factor to consider in assessing both the employer's protective interests and the employee's ability to earn a living. The Superior Court stated that restrictive covenants will only be enforced to the extent that it is reasonable to do so and that the trial court, in its decision to enforce the covenant, erred in failing to consider the circumstances under which the employee was terminated.
The Pennsylvania Superior Court stated that when an employer fires an employee for failing to perform adequately for the employer, the employer has essentially discarded the employee as worthless. The court went on to say that permitting the employer to retain control over the former employee under such circumstances was unreasonable. As such, the non-compete agreement, the court said, cannot be enforced.
This decision raises interesting questions which have, as of yet, not been considered by Pennsylvania courts. For example, what would happen in a scenario where the employee seeks and obtains an offer of employment with a competitor company and then, in order to be relieved of the non-compete agreement, purposely performs poorly or acts in a way that will force his current employer to fire him? Stay tuned . . . .