If a Provision of a Non-competition Agreement is Overbroad, There is a Risk That the Entire Agreement may be Thrown Out

November 27, 2017
Posted in Litigation
If a Provision of a Non-competition Agreement is Overbroad, There is a Risk That the Entire Agreement may be Thrown Out

In Pittsburgh Logistics Systems, Inc. v. Ceravolo, et al., the Superior Court of Pennsylvania considered whether the geographic scope of a non-competition agreement was overbroad and whether the excessiveness of that provision rendered the non-competition agreement void in its entirety.

Employees of Pittsburgh Logistics worked within the trucking industry.  They were required to sign employment agreements, which included a non-competition clause.  That clause read as follow:

 “During the term of my employment with the Company and for a period of one (1) year thereafter, I shall not become an officer or director of, or consultant to or be employed by, or otherwise render services to or on behalf of, a Competing Business.  I acknowledge and agree that the Company is engaged in business throughout the world and that the marketplace for the Company’s products and services is worldwide, and thus, the geographic area, length and scope of this noncompetition provision are reasonable and necessary to protect the legitimate business interests of the Company. In the event that a court of competent jurisdiction shall determine that one or more of the provisions of Paragraphs 7 or 8 are so broad as to be unenforceable, that such provision shall be deemed to be reduced in scope or length, as the cay may be, to the extent required to make such Paragraphs enforceable. …”

In Pennsylvania, restrictive covenants, like this, are enforceable only if they are: 1) ancillary to an employment relationship between an employee and an employer; 2) supported by adequate consideration; 3) the restrictions are reasonably limited in duration and geographic extent; and 4) the restrictions are designed to protect the legitimate interests of the employer.

The employees in this case eventually went to work for a competitor and were promptly sued by their former employer.

Following a three day hearing, the trial court found that the non-competition clause, which forbade the employees from working for a competing business, worldwide, was geographically overbroad and, accordingly, unenforceable.  On appeal, the Superior Court of Pennsylvania affirmed.  Specifically, the Court amplified that “When a covenant not to compete contains an unlimited geographic scope, although the nature of the business was such that a relevant geographical area could have been specified, the agreement is void, and courts may not use their equitable power to alter the agreement.”  As many restrictive covenants provide, there was a savings clause in this case which provided that “Should any court find any part of this Agreement to be invalid, unenforceable, or overly broad to any extent, the Company and I intend that such court enforce this Agreement in such less broad or other manner as the court finds appropriate.”  Notably, despite that clause, the trial court, with which the Superior Court agreed, refused to “blue line” the agreement to correct the excessive geographic scope.  Instead, the Court found that the offending clause was indicative of an improper motive of the employer to oppress its employees, and determined that the proper manner of enforcing such an oppressive contractual term was simply to render it void.

Because non-competition agreements are disfavored because they limit one’s ability to work for whomever and wherever, they must be, among other things, reasonable as to duration and geographic scope.  If any provision is excessive, which all depends, there is a risk that a Court may choose to “throw it out with the bath water.”

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