On November 18, 2015, a 4-1 majority of the Pennsylvania Supreme Court (Justice Eakin, dissenting) held in Socko v. Mid-Atlantic Systems of CPA, Inc., No. 142 MAP 2014, that a post-employment covenant not to compete entered into by an employee after the start of his employment was void for lack of consideration, despite the fact that the agreement containing the non-competition covenant included language that the parties “intend to be legally bound.” In so doing, the Court affirmed the Pennsylvania Superior Court’s May 13, 2014 order which, in turn, had affirmed the trial court’s grant of partial summary judgment to the plaintiff/employee. Socko v. Mid-Atlantic Systems of CPA, Inc., 99 A.3d 928 (Pa. Super. 2014).
The issue on appeal was whether the Uniform Written Obligations Act, 33 P.S. section 6 (the “UWOA”), which provides that a written promise “shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement, in any form of language, that the signer intends to be legally bound,” in effect trumped the longstanding requirement under Pennsylvania law that a post-employment restrictive covenant entered into after the start of employment must be supported by new and valuable consideration beyond just continuing employment. Applying the General Assembly’s principles of statutory construction, specifically the principle cautioning that a statute should not be interpreted in such a way to lead to an absurd or unreasonable result, and the “unique treatment in the law” of covenants not to compete, the Pennsylvania Supreme Court concluded that “a construction of the UWOA which would vitiate the need for new and valuable consideration when entering into an agreement containing a restrictive covenant after the initiation of employment would be unreasonable.”
The Pennsylvania Supreme Court’s decision in Socko makes clear that under Pennsylvania law the parties’ “intent to be legally bound” is no substitute for new and valuable consideration required to support a post-employment restrictive covenant entered into after the start of employment.