By Eric B. Meyer
You’re hiring for an engineer position. To assist, you engage a search firm, which finally locates an ideal candidate.
After a telephone conversation, and a subsequent tour and in-depth interview, you know that you have the right person for the job. So, you prepare and send an offer letter.
The offer letter includes a summary of the position, responsibilities, location, base salary, benefits, effective date, and confidentiality.
The letter also states: “You will also be asked to sign our employment/confidentiality agreement. We will not be able to employ you if you fail to do so. In addition, the first day of employment you will be required to sign an Employment Agreement with definitive terms and conditions outlining the offer terms and conditions contained herein.”
Will a non-compete done after hire be enforceable?
The offer letter does not contain any mention of a non-competition agreement.
Your candidate signs and returns the offer letter. On his start date, you ask the candidate to sign an employment/confidentiality agreement, which does contain a non-competition restrictive covenant. The candidate reads and understands the non-competition covenant, signs it without objection, and goes to work for you.
If, a few years later, this employee decides to leave to work for a competitor, will that non-competition agreement be enforceable? Or will you be out of luck because the offer letter said nothing about it?
According to this recent opinion from the Pennsylvania Supreme Court, you’re A-OK.
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Why the non-compete will stick
That is, there are enough elements to the offer letter to show that the letter is evidence of negotiation and not a contract itself:
- It was intended to summarize the position;
- It references a subsequent employment/confidentiality agreement; and,
- It confirms that the definitive terms in the employment agreement will control.
Plus, because the restrictive covenant at issue was contained within the employment agreement, it was ancillary to the taking of employment and therefore supported by consideration.
The Pennsylvania employer here got lucky. Don’t make the same mistake.
If you’re in Pennsylvania and you want an employee to enter into a non-competition agreement as a condition of initial employment, reference it in the initial offer letter and have that employee sign a separate non-competition agreement immediately upon commencing employment with the company.
Also, don’t overreach. Make sure that the restrictive covenant is carefully tailored in time and geographic scope to protect your legitimate business interests.
This was originally published on Eric B. Meyer’s blog, The Employer Handbook.