Employers Should Pay Attention to Offer Letters and Noncompetes

Posted by BAS - 08 August, 2013

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Many employers attempt to place restrictions on employees as to their ability to compete during and after employment. The validity of noncompetition agreements is often litigated, as is the timing of the noncompete- whether it is part of an offer letter, presented before an offer letter, or given after employment commences.

Some states hold that a covenant not to compete that is entered into after the start of employment is enforceable, but other states require the noncompete to be agreed upon before the start of work. States in the latter category generally find that continued employment is not sufficient consideration for the noncompete, and the employee must be offered some sort of additional consideration, not just continued employment.

Recently, the Pennsylvania Supreme Court addressed the issue of offer letters and noncompetes. In the case, a newly hired employee claimed that his offer letter was the start of employment, and a noncompetition agreement signed after the offer letter should not be enforceable. The Pennsylvania Supreme Court found that the offer letter was part of the hiring process and not an employment contract or a binding agreement. The particular letter at issue included language requiring the employee to sign a future employment/confidentiality agreement and indicated that the employment would not be effective without the signed documents. The offer letter also referenced a future employment agreement.

Pointing to the future signing obligations, the court found that the offer letter was not a contract but instead was part of negotiation. The noncompetition provision in the later employment agreement, therefore, had consideration and would be enforceable since it was ancillary to taking employment.

This case brings to light the importance of carefully crafting both offer letters and employment agreements (including noncompetition restrictions). Employers should be open at the outset about any noncompetition requirements and future obligations required for employment.

Topics: HR & Benefits Compliance


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