Late last year, the Pennsylvania House of Representatives introduced legislation to ban non-compete agreements between employers and their employees, citing the Commonwealth’s “strong interest in promoting unrestricted trade and mobility of employees in the work force as well as promoting businesses’ abilities to seek the best qualified candidates for employment.”
A non-compete agreement, or covenant not to compete, is an agreement between an employer and employee that is designed to impede the ability of the employee to seek employment with another employer. At present, covenants not to compete are generally enforceable under Pennsylvania law.
Pennsylvania House Bill 1938, aptly titled the “Freedom to Work Act,” would prohibit “covenant[s] not to compete” as illegal, unenforceable and void as a matter of law with very limited exception.
House Bill 1938 does not address non-disclosure or non-solicitation agreements, would not prohibit covenants not to compete arising out of the sale of a business or the dissolution of or dissociation from a partnership or limited liability company, and would not apply retroactively.
Notably, House Bill 1938 provides that any non-compete litigation involving a Pennsylvania resident must be decided in Pennsylvania state court and under Pennsylvania law.
Employees who prevail in a suit against an employer related to the enforcement of a covenant not to compete would receive attorney’s fees and be entitled to damages, including punitive damages.
We will continue to monitor developments and provide updates as they are available.