We previously analyzed a Pennsylvania appellate court decision, which held that a non-compete agreement was unenforceable for lack of consideration. The case, Socko v. Mid-Atlantic Systems of CPA, Inc., is now before the Pennsylvania Supreme Court.
The Court must decide whether Pennsylvania law allows parties to waive the consideration requirement for non-competes through an express agreement.
On the one hand, Pennsylvania’s Uniform Written Obligations Act (“UWOA”) permits parties to a written agreement to waive their rights to challenge the validity of the contract based on lack of consideration. On the other hand, valuable consideration is necessary for a valid non-compete.
Both parties concede that valuable consideration was not exchanged for the non-compete at issue. But the non-compete explicitly states that the parties “intend to be legally bound” by the restrictive covenants.
The employer argues that the UWOA’s waiver provision should apply to non-competes. And because the agreement incorporates the waiver language — “intend to be legally bound” — the non-compete is enforceable despite the lack of valuable consideration. Conversely, the employee urges the Court to affirm the appellate court’s holding — that is, the consideration requirement for non-competes cannot be waived.
We will continue to monitor this case, and will post an update as soon as the Pennsylvania Supreme Court issues its ruling. But regardless of the Court’s decision, this case still serves as a reminder: employers need to be proactive and consistently ensure that their non-competes have the greatest chance of being enforceable.