Employer Best Practices: Focus on Jobs
Q&A: Joseph Blum, partner with Deeb Blum Murphy Frishberg & Markovich
Joseph Blum on how Pennsylvania courts are changing how they enforce noncompete agreements
Philadelphia Business Journal
January 13, 2012

Name: Joseph Blum

Title: Partner.

Firm: Deeb Blum Murphy Frishberg & Markovich.

Education history: St. Joseph's University, BA in criminal justice (1978); Temple University Beasley School of Law, JD night program (1982).

Career history: Blum was a police officer in Lower Merion until 1982. After completing a law degree in night courses at Temple, he practiced commercial and employment litigation at Montgomery McCracken. He joined his present firm 20 years ago.

Q: With unemployment persistently high, Pennsylvania courts began in 2010 to take a harder look at noncompete agreements. What changes have you noticed?

Pennsylvania has always somewhat disfavored the enforcement of noncompetes, but the trend we have noticed is they have become more difficult to enforce for employers specifically if the employer has laid off or let the people go.

Q: Why is this changing?

In Pennsylvania they use a balancing test. They look at the rights of the employer and the rights of the individual. They're trying to keep people employed but at the same time keep the employer in a position where it can be competitive. The courts have been injecting more and more factors on the side of the employee such as looking at the job market and how employable is this person with that restrictive covenant in place. And as a result of looking at those factors and with the downturn of the economy at the same time, it has tipped the situation more in favor of the employee rather than the employer.

Q: Can you point to specific cases?

I can give examples but they are just examples. I wouldn't want to say these are the cases that pushed it over because there are a lot of these decisions out there so I wouldn't call them landmark decisions. One is Colorcon Inc. v. Lewis, which is a case in which the court placed an emphasis on the fact that the employer had been terminated as one of the reasons for not enforcing the noncompete. That court also looked at the market as playing a factor in its decision, looking at such things as the employees' ability to obtain employment, to pay off personal obligations, and can they get similar compensation elsewhere. Those are the new factors that have tipped in favor of the employee. In another one, Shepherd v. Pittsburgh Glass Works, the court upheld the preliminary injunction where the employee filed to prevent the enforcement of the noncompete, and the court there noted that the employee had been searching for employment for more than a year, he was in his late 50s, the job market was “abysmal,” and employees were hiring only individuals who fit a precise set of needs so again using the balancing factors they found weighed in favor of not enforcing the agreement.

Q: What are the key factors courts are using in deciding which agreements to enforce?

No. 1 is, who ended the employment relationship? In other words, if the employer is the one ending the relationship, the courts see that as a sign that you have decided this employee is not necessarily that valuable to you. And therefore it becomes harder for the court in a balancing test to say OK, there is a reason to keep this person from competing, versus a situation where the employee decides he wants to leave and take the knowledge he gained and go someplace else to work.

Q: Is this a permanent change in how the courts view noncompetes, or is it something that will go away when the economy normalizes?

I think there is a permanent change in what the court will look at, but as the economy comes back some of those factors will not have as much of an impact. So in other words, if the court continues to say, we're going to look at the factor of how employable this person is otherwise, and the economy has come back and there are more jobs available, it would then not be as significant of a factor. But I think there is a permanent change in the list of factors that courts are going to look at.

Q: What does this mean for employers that use noncompete agreements?

Even before you start drafting the noncompete, hire judiciously and don't hire people when there is a substantial risk that they are not going to work out or there will be an economic change that's going to make you let them go. The second thing, is that employers who have confidential information they are trying to protect should have very clear steps to protect that information beyond the noncompete such as written policies about confidential information, and making sure their computer network is secure and that all the information on there is treated properly. Then when you get to the noncompete itself it has to be narrowly and specifically drafted to protect the information that you as the employer are really concerned about.