Executive Summary: Pennsylvania is entertaining legislation to ban all non-compete covenants. Like other states concerned with the effects of restrictions on the mobility of the workforce, the prohibition on non-compete agreements, Pennsylvania House Bill 1938, is founded on the Commonwealth’s interest in lowering the unemployment rate, promoting innovation, entrepreneurship, and business expansion, improving existing business opportunities for qualified workers, and promoting unrestricted trade and mobility of employees in the workforce. 2017 PA H.B. 1938. Besides banning non-competes, the proposed law creates a private cause of action against any employer trying to enforce a non-compete covenant. Employers violating the law could be liable for compensatory and punitive damages and the former employee’s attorneys’ fees. The bill currently is before the House Labor & Industry Committee.
Employer’s Bottom Line: The Freedom to Work Act would completely outlaw non-competes, except in very limited circumstances. The only restrictive covenants to survive are those (i) in the sale of a business or the good will of the business; (ii) involving the dissolution or disassociation of a partnership or limited liability company; or (iii) in effect prior to the effective date of the bill—though non-competes pre-dating the Act cannot be renewed. On a positive note, the Act does not limit the use of customer or employee non-solicitation agreements or confidentiality agreements. Even if the Act passes, Pennsylvania employers can still rely upon those post-employment restraints to protect their customers and employees from poaching and to safeguard their confidential and proprietary information and trade secrets from unauthorized disclosure or exploitation by a departing employee. We will continue to monitor the bill closely.