USA – PENNSYLVANIA Trends and Developments Contributed by: Leigh Ann Buziak, Kevin Passerini, William Cruse and Timothy (“Timmy”) J. Miller, Blank Rome LLP
is to reference and memorialise the consideration that is being exchanged for the restrictive covenants in the document itself, and the consideration should not be provided unless and until the employee agrees to the restrictions at issue, establishing a “meeting of the minds” of the sort envisaged by the court in Rullex. Preserving rights to assign restrictive covenants In addition to considering an individual employee’s agreements, businesses also have to consider what happens to restrictive covenants during corporate transactions, such as acquisitions. Here, too, Pennsyl - vania has a unique requirement. Under Pennsylvania law, assignments of restrictive covenants to third par - ties are not generally enforceable without the consent of an employee. That is significant in the realm of cor - porate transactions because, in an equity transaction, the covenants generally flow automatically to the new buyer; but, if there is a change in the legal employer as a result of the transaction or a related corporate reor - ganisation, or if the acquisition is, instead, an asset purchase, there can be unintended enforceability risks. Even though a company may have acquired the trade secrets and other sensitive, confidential busi - ness information, intellectual property, and goodwill upon which the restrictive covenants are based – and may have even expressly acquired the restrictive covenant agreements – there is often a question over whether the relevant employees’ agreements permit assignment of rights to third parties. Pennsylvania courts have long held, unlike some other jurisdictions, that restrictive covenants, includ - ing non-competes in employment agreements, are not assignable to the purchasing entity unless there is an express assignability provision in the employ - ee’s agreement. See, eg, Hess v Gebhard & Co, Inc. , 808 A.2d 912, 922-23 (Pa. 2002). This standard has consistently been applied by Pennsylvania trial and appellate courts for years, and a new twist on the issue recently arose in McCarthy and Company, Inc. v Pollen , 343 A.3d 231 (Table), 2025 WL 1743726 (Pa. Super. Ct. June 24, 2025). In McCarthy , the restrictive covenants at issue were not contained in an employment agreement, but were instead incorporated directly into the asset purchase agreement pursuant to which the plaintiff purchased
the assets of another firm. The plaintiff subsequently planned to sell its assets to a third-party firm. Shortly before that third-party sale, employees from the firm whose assets plaintiff had previously acquired were offered employment with the third-party firm. But days after the sale was executed, those employees resigned, formed their own company, and allegedly took dozens of clients with them. Applying the rationale of Hess , the Pennsylvania Superior Court found that the plaintiff, which had sold its goodwill as part of the asset purchase agree - ment to the third entity, did not have rights to enforce the restrictive covenants with that group of former employees because the plaintiff’s right to retain the “goodwill, revenues, and profits from existing clients” was “too attenuated” to be protectable. McCarthy , 2025 WL 1743726 at *8. Since that decision, the Supreme Court granted the petition for appeal and will take up the issues. See McCarthy and Company, Inc. v Pollen , 2026 WL 111839 (Pa. Jan. 15, 2026) (per curiam). Time will tell whether the Pennsylvania Supreme Court will alter the law in this area on appeal. Had the restrictive covenant agreements been expressly assignable and assigned by the plaintiff, or had the third-party purchaser signed new agreements with the employees in connection with the asset pur - chase, there likely would have been a different out - come. Although we await clarity on appeal, that dif - ference in approach illustrates the care that should be taken by companies seeking to “acquire” and enforce restrictive covenants in connection with an asset pur - chase transaction, reorganisations, or other corporate transactions resulting in a change in the individual’s legal employer. Building teams, practices, and policies to protect trade secrets and support remediation and, if necessary, litigation Contractual protections of trade secrets, ranging from confidentiality provisions to non-competition and non- solicitation covenants, provide a wide array of pro - tections for companies if properly scoped and imple - mented. However, a central issue in trade secrets litigation (and other cases concerning sensitive, con - fidential business information) is whether the informa -
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