It goes without saying that many employers have trade secrets to safeguard. Noncompete clauses offer notable protections for companies and entrepreneurs, and their legal precedent dates back centuries. Recently, the Federal Trade Commission (FTC) has proposed a rule, which would ban the use of noncompetes almost completely and require existing noncompete agreements to be rescinded. This comes with inherent legal challenges and has a broad implication for employers in the business community and their litigators.
Noncompete laws have developed as the United States expanded. Noncompete clauses are most frequently used in the employer-employee context. Most states permit noncompetes to varying extents, to protect companies from unfair competition. Only a few states ban employee noncompetes entirely. Pennsylvania law specifies that any “restrictive covenant”—noncompetes, nonsolicitations, etc., must meet a standard of reasonableness. As the court in Mallet and Co. v. Lacayo, (W.D. Pa. Nov. 23, 2020) describes, a “restrictive covenant is valid under Pennsylvania law if it is ancillary to an employment relationship, supported by adequate consideration, reasonably limited in time and geographic scope and reasonably designed to safeguard a legitimate interest of a former employer.” Such a standard is narrowly tailored, requiring that an employer have a legitimate business interest to protect.
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