USA – PENNSYLVANIA Trends and Developments Contributed by: Leigh Ann Buziak, Kevin Passerini, William Cruse and Timothy (“Timmy”) J. Miller, Blank Rome LLP
nants (eg, non-competition and non-solicitation obli - gations) – are valuable and typically a prerequisite to establishing that a company has taken appropriate and “reasonable” steps to protect the secrecy of infor - mation it contends should be treated as trade secrets under applicable law. Companies must, however, take care to draft and implement these agreements in a way that avoids common pitfalls while providing the strongest protections possible and the best footing should litigation be required. Starting strong: implementing agreements with key employees Agreements that limit activities post-employment (or post-transaction) are often the best way to prevent departing key employees or former business partners from being in a position that places a company’s trade secrets at risk. However, because these restrictions limit competitive activities, they are scrutinised more closely, and they are subject, particularly under Penn - sylvania law, to unique procedural requirements. As just one example, Pennsylvania has long enforced a bright-line, minority rule that leaves companies without the ability to restrict the competitive activi - ties of employees who either (i) failed to execute non- competes or non-solicitation obligations on or prior to the first day of employment or (ii) were not pro - vided additional valuable consideration after starting employment sufficient to support such an agreement. In Rullex Co., LLC v Tel-Stream, Inc. , the Pennsylva- nia Supreme Court recently recognised that “in the business world events can move faster than paper” and held that in order for restrictive covenants signed shortly after commencement of employment to be enforceable, the parties must have had a “meeting of the minds” such that they “agreed to its essential provisions as of the beginning of the relationship”. 232 A.3d 620, 626-27 (Pa. 2020). Practically speaking, the Supreme Court’s ruling in Rul- lex confirms that restrictive covenants in the employ - ment context must be signed before commencement of employment and should, as a best practice, be provided to a prospective employee with the offer of employment to avoid any dispute over the terms of employment and the enforceability of the restric - tive covenants. If a company fails to do so, separate
valuable consideration must be provided to ensure enforceability, just as has always been required for agreements presented to employees after the com - mencement of employment. Historically, these same procedural requirements have not applied to routine confidentiality and inven - tion assignment obligations under Pennsylvania law. But, as with courts across the country, Pennsylvania courts have started to consider whether the bright- line standard from Rullex also implicates confidenti - ality clauses used to protect trade secrets and other sensitive, confidential business information. In West Shore Home, LLC v Graeser , for instance, a federal court in Pennsylvania surveyed state and federal cas - es and found that confidentiality clauses are likely to be treated differently than non-competition and non- solicitation covenants under Pennsylvania law. 661 F. Supp. 3d 356, 368-71 (M.D. Pa. 2023). But this issue has not been clearly decided in Pennsylvania state courts as of this date, leaving the question of wheth - er the Rullex standard should also apply to standard confidentiality agreements unsettled – though West Shore provides helpful guidance. When an existing employee advances to a higher- level position in which the individual will have greater exposure to or control over a business’s trade secrets, protection through an agreement containing appropri - ately tailored confidentiality obligations and restric - tive covenants like non-competes and non-solicits is imperative. Given the bright-line standards discussed above, companies subject to Pennsylvania law must therefore ensure that distinct, additional valuable consideration is provided to support the covenants’ enforceability. It is beyond challenge that continued at-will employment or maintenance of the same com - pensation is inadequate alone to constitute sufficient consideration. Instead, a beneficial change in employment status, like a promotion, long-term incentive plan or other bonus eligibility, base compensation increase, equity or phantom equity award (vested or subject to a vesting schedule), severance, or other new terms favourable to an employee are commonly used as additional con - sideration to support restrictive covenants with exist - ing employees. As with any contract, the best practice
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