Most lawyers learn during their first year in law school that courts won’t inquire into the adequacy of consideration for a contract and that, as a result, a “mere peppercorn” can constitute consideration. It’s important to remember, though, that in many states, restrictive covenants are an exception to that rule.

The recent decision in the Pennsylvania Superior Court case of Socko v. Mid-Atlantic Systems of CPA, Inc. (2014 PA Super 103) illustrates this principle. The case involved a salesman in the basement waterproofing industry. He signed a noncompete agreement during his at-will employment. Continued at-will employment doesn’t constitute consideration for a noncompete signed under those circumstances under Pennsylvania law. However, the company argued that there was sufficient consideration for the salesman’s non-compete because: a) the Pennsylvania Uniform Written Obligations Act, 33 P.S. 6, provides that “[a] written…promise…shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement…that the signer intends to be legally bound”; and b) the salesman’s noncompete stated that the parties “intend[ed] to be bound” by its terms.

The court determined that the Act was designed to apply where the adequacy of consideration is not a factor to be considered in determining a contract’s validity or enforceability. The court then observed that restrictive covenants are different than other contracts because the Pennsylvania Supreme Court has held that it is appropriate to inquire about the adequacy of consideration for restrictive covenants. As a result, the court determined that the Act is inapplicable to restrictive covenants, and that the Act could not rectify the lack of consideration for the salesman’s noncompete. The court reiterated that in Pennsylvania, “when the restrictive covenant is added to an existing employment relationship,…to restrict himself the employee must receive a corresponding benefit or a change in job status.”