On November 27, 2018, the Pennsylvania Superior Court decided Amquip Crane Rental, LLC v. Crane & Rig Services, LLC, 2018 Pa. Super. 315 (2018). In Amquip, a group of employees left their employer after a merger to join a start-up company. Three of the employees were subject to a noncompete agreement; one had never signed the agreement. Prior to leaving the first company (Amquip), the employees had contacted clients with whom they had worked, stating that they were leaving Amquip because they did not believe they would be able to provide the quality of service provided before the merger, and offering to assist clients with a move to their new employer.
After review, the court held that these actions violated the employees’ noncompete agreements, and upheld the provision of a preliminary injunction against them, enjoining them from engaging in the same business within the appropriate geographic area, among other things. The employees had argued that the court should have balanced the employer’s protectable interests against the employees’ interest in earning a living and against the public interest in allowing an employee to move freely from one place of employment to another. The court held that, using the balance test, the employer prevailed. The employees argued that the loss to such a large company was miniscule compared to the difficulty the employees would face trying to obtain new employment within their noncompete agreements’ strictures. The court was not sympathetic, stating that the employees had brought the problem on themselves by breaching their noncompete agreements.
With respect to the employee who had not signed the noncompete agreement, the court held that he had violated his duty of loyalty to his former employer (Amquip) by diverting the employer’s customers to the new business while he was still working for the employer, and by inducing the other employees to breach their noncompete agreements.
What Does This Mean For You? Courts generally disfavor noncompete agreements, and this decision does not change that fact. However, when a noncompete agreement is reasonable in the geographic area covered, the timeframe involved, and the businesses covered, and the employee received adequate consideration for his or her forbearance, a court will enforce noncompete agreements in certain circumstances, particularly where, as here, the employees had engaged in egregious breaches. The purpose of a noncompete agreement is to protect the employer from unfair competition and the loss of goodwill that could occur when an employee who is privy to inside knowledge of a company resigns or is terminated. Therefore, you should only have noncompete agreements with employees who could harm your company upon leaving. Rank and file employees generally cannot do so, and therefore should not be given noncompete agreements to sign. You should examine any noncompete agreements that you use to make sure they are reasonable in scope so that a court may find them enforceable. If you have an employee who leaves, keep in mind that, even with a reasonable noncompete agreement, a court is going to balance the potential of loss to the company against the employee’s ability to obtain other work, and the public interest in free competition. Your counsel can help you decide if filing a lawsuit to obtain a preliminary injunction makes sense in any particular circumstance.
If you have any questions about this case or any other employment or labor law matters, please contact Whitney Rahman at 717-509-7237 or firstname.lastname@example.org, or Grace Nguyen Bond at 717-509-7226 or email@example.com.