Pulse Techs., Inc. v. Notaro, 2013 Pa. LEXIS 1097 (Pa. 5/29/13)

Pennsylvania Supreme Court holds that a non-compete provision contained in an employment agreement was enforceable, despite the fact that the non-compete provision was not expressly referenced in the employee's offer letter.

The Pennsylvania Supreme Court held that a restrictive covenant contained in an employment contract was valid and precluded the employee from continuing his employment with a competitor, even though the initial offer letter provided to the employee did not reference the restrictive covenant. The employer hired the employee through a search firm. Following several interviews, the employee was offered a position with the employer. The two-and-one-half page formal offer of employment letter contained a "summary" of the employee's "intended position with [Pulse]" and provided a description of the position, job responsibilities, location, base salary and effective date. The offer letter further stated that "[y]ou will also be asked to sign our employment/confidentiality agreement" and "[w]e will not be able to employ you if you fail to do so." The offer letter further noted that "[y]ou will be required to sign an Employment Agreement with definitive terms and conditions outlining the offer terms and conditions contained herein" on the first day of employment. The offer letter did not, however, make any reference to a restrictive covenant.

On the first day of employment, the employee was presented with the employment/confidentiality agreement, which contained a non-competition restrictive covenant. The employee read, understood and did not voice any objection to the non-competition provision. Several years later, the employee learned of an open position with a competitor of Pulse Technologies. The employee informed the competitor of his non-compete agreement and accepted the position with an agreement that the competitor would indemnify him for legal fees in connection with any litigation regarding his non-compete agreement. The trial court granted a preliminary injunction in favor of the employer, but the Pennsylvania Superior Court reversed, stating that "restrictive covenant [the employer] sought to impose on [the employee] after he had commenced employment is precluded by the express limitation in the formal offer letter that the employment agreement to be signed on the first day of employment would only 'outline the offer terms and conditions contained herein.'"

The Pennsylvania Supreme Court, however, reversed the Superior Court's decision and held that the non-compete provision was valid. In so holding, the Pennsylvania Supreme Court reasoned that the offer letter was part of the hiring process and was not the actual employment contract. As a result, the "offer letter was not intended as nor sufficient to comprise the employment contract" and that the language of the offer letter makes "clear references to future specific terms [that] show[s] the offer letter is not a contract, but only evidence of negotiation." Finally, as the restrictive covenant was contained in the employment agreement, it was ancillary to the employee's commencement of employment and, therefore, supported by consideration.

Case Law Alerts, 3rd Quarter 2013