Court Opinion

ID: 9696705
Source: CourtListenerOpinion
Date Created: 2023-08-25 18:55:40.025601+00
Date Added: 2024-06-11T18:20:25.687542
License: Public Domain

*331Concurring Opinion by
Mr. Chief Justice Jones:
Although I agree with the majority opinion, I feel that amplification is necessary in this area of increasing litigation. The enforcement of restrictive covenants has been the subject of litigation for centuries. At earliest common law all restrictive covenants were considered as restraints of trade and therefore were unenforceable.1 However, as part of the development of modern commercial law, courts began to recognize that under certain limited circumstances covenants not to compete were both permissible and enforceable.2 The law in this Commonwealth for more than a century has been that in order to be enforceable covenants in restraint of trade must satisfy three requirements: (1) the covenant must relate to either a contract for the sale of goodwill or other subject property or to a contract of employment; (2) the covenant must be supported by adequate consideration; and (3) the application of the covenant must be reasonably limited in both time and territory. Jacobson & Co. v. International Environment Corp., 427 Pa. 439, 235 A. 2d 612 (1967); Capital Bakers, Inc. v. Townsend, 426 Pa. 188, 231 A. 2d 292 (1967); Barb-Lee Mobile Frame Co. v. Hoot, 416 *332Pa. 222, 206 A. 2d 59 (1965); Morgan’s Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A. 2d 838 (1957); Cleaver v. Lenhart, 182 Pa. 285, 37 A. 811 (1897); Gompers v. Rochester, 56 Pa. 194 (1867) ; Keeler v. Taylor, 53 Pa. 467 (1866) ; Markson Bros. v. Redick, 164 Pa. Superior Ct. 499, 65 A. 2d 440 (1949). See also Restatement of Contracts §515 (e) (1932).
All three requirements must coalesce before a restrictive covenant is enforceable. The necessity of the first element is stated in Morgan’s Home Equipment Corp. v. Martucci, 390 Pa. at 629, 136 A. 2d at 845, “It has long been the rule at common law, that contracts in restraint of trade made independently of a sale of a business or contract of employment are void as against public policy regardless of the valuableness of the consideration exchanged therein.” Although the covenant not to compete must be ancillary to a contract of employment, it need not necessarily be executed simultaneously with the initial taking of employment. E.g., Jacobson & Co. v. International Environment Corp., 427 Pa. 439, 235 A. 2d 612 (1967). Where a covenant not to compete is executed subsequent to the initial employment, however, its performance will not be enforced unless the employee who restricts himself receives a corresponding benefit or change in status. Without such a change of status, the new contract will not qualify as a “taking of employment,” nor will there be adequate consideration to support the additional covenant of the employee. “In Capital Bakers, we held that a covenant in an employment contract executed some twelve years after the initial taking of employment was not ancillary to the taking of employment. However, we emphasized that the new contract was ‘without any change in his employment status.’ Thus it did not qualify as ‘taking of employment’.” Jacobson & Co. v. International Environment Corp., 427 Pa. at 449, 235 A. 2d at 618. The new contract in the instant case like*333wise creates no change in employment status and therefore the covenant should not be enforced under the rule set forth in Morgan’s Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A. 2d 838 (1957).
As noted above, our prior case law also requires the presence of valuable consideration to support a covenant not to compete. Analysis reveals that there are two types of consideration which will support a; restrictive covenant in an employment contract. When the restrictive covenant is contained in the initial contract of employment, consideration for the restrictive covenant is the job itself.3 When the restrictive covenant is added to an existing employment relationship, however, it is only enforceable when the employee who restricts himself receives a corresponding benefit or change in status. An employee’s continued employment is not sufficient consideration for a covenant not to compete which the employee signed after the inception of his employment, where the employer makes no promise of continued employment for a definite term.4
*334In Jacobson & Co. v. International Environment Corp., 427 Pa. 439, 235 A. 2d 612 (1967), this Court did find such a change of status as to support the addition of a restrictive covenant to a pre-existing employment relationship.5 In the lower court proceeding in Jacobson the situation of a co-worker of Jacobson, however, presented the precise facts of this case. The restrictive covenant there was struck down. In distinguishing that ruling from the case then at bar, we stated: “[T]he findings were that Kassner [the co-worker] was permanently hired in February, 1962, under an oral contract without a restrictive covenant, and in June required to execute a written employment contract identical to that under which he had been working, except that it contained a restrictive covenant. Clearly, here is a case of no consideration for the covenant.” Id. at 451, 235 A. 2d at 619.
In Markson Bros. v. Redick, 164 Pa. Superior Ct. 499, 66 A. 2d 218 (1949), the Superior Court was also *335presented with a case practically identical to the case at bar. An employee who had been working for five months under an oral contract as a saleswoman and floor manager in a clothing store signed a written contract which provided her with the same salary, responsibility and benefits as her oral contract, but contained a covenant restricting her right to work for competitors after termination of her employment. The only change in the employment relationship to support this covenant was the creation of a week-to-week employment where there had previously been employment at will. The Superior Court held that the covenant contained in the written contract was not supported by consideration and refused to enforce the restrictive covenant.6
The continuation of employment, under the same terms has also been held to be insufficient consideration to support a restrictive covenant in cases before our courts of common pleas. See National Starch & Chemical Corp. v. Snyder, 34 Pa. D. & C. 2d 533 (Phila. C. P. 1964); W. N. O. W., Inc. v. Barry, 32 Pa. D. & C. 2d 514 (York C. P. 1963); Voss Machinery Co. v. Norris, 82 Pa. D. & C. 368 (Allegheny C. P. 1952); Consolidated Home Furnishing Co. v. Getson, 80 D. & C. 488 (Phila. C. P. 1951). The law with regard to the quality of consideration required to support a restrictive cov*336enant is clear and well-settled. The principles upon which such rule is based are sound and appellant has presented no reason why this salutary policy should not be followed here. I therefore concur with the majority in affirming the decree of the lower court.
Mr. Justice Eagen, Mr. Justice Pomeroy and Mr. Justice Nix join in this concurring opinion.

 In Morgan’s Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A. 2d 838 (1957), Mr. Justice Cohen detailed the English common law background of restrictive employment covenants, including the following excerpt from The Dyer’s Case, Y. B. 2 Hen. V, PI. 26 (1415). A plaintiff brought an action against a dyer upon a bond whereby the dyer promised not to practice his craft in a certain village for a brief period of time. As soon as the bond was read, the Court declared, “The obligation is void because the condition is against the common law, and by God, if the plaintiff were present he should rot in the gaeol till he paid a fine to the King.” (Translation from the French by the Court.) Morgan’s Home Equipment Corp v. Martucci, 390 Pa. at 627, n. 9, 136 A. 2d at 844, n. 9.

 The historical development of contracts in restraint of trade is treated in Carpenter, Validity of Contracts Not to Compete, 76 U. Pa. L. Rev. 244 (1928).

 For example, in Barb-Lee Mobile Frame Co. v. Hoot, a restrictive covenant contained in a contract which accompanied the taking of employment was upheld. We stated: “It must be obvious that the consideration upon which the restrictive covenant in this case was based was the employment itself. In consideration for plaintiff’s employing the defendant, the latter agreed not to compete with the plaintiff in accordance with the terms of the restrictive covenant. Where the restrictive covenant is ancillary to a contract establishing an employment relationship, where none existed previously thereto, the employment constitutes consideration supporting the covenant. . ..” 416 Pa. 222, 225-26, 206 A. 2d 59, 61 (1965).

 This position has been taken by courts from other jurisdictions, but generally only where it appears that the employee otherwise would have been discharged, or where he actually remained employed for a substantial time after the execution of the covenant. See, e.g., Roessler v. Burwell, 119 Conn. 289, 176 A. 126 (1934) (employment continued four years after execution of the covenant); Breed v. National Credit Association, 211 Ga. 629, 88 S. E. 2d 15 (1955) (employment continued two years after execution of the *334covenant); Frierson v. Sheppard Building Supply Co., 247 Miss. 157, 154 So. 2d 151 (1963) (employment continued four years after execution of the covenant and trial court found that the employee would have been discharged had he not signed the covenant); McAnally v. Person, 57 S. W. 2d 945 (Tex. Civ. App. 1933); and Bettinger v. North Ft. Worth Ice Co., 278 S. W. 466 (Tex. Civ. App. 1925) (cases in which the trial court found that the employees would have been discharged if they had not signed the covenants). See generally Annot. 51 A. L. R. 3d 825 (1973).

 The employee in Jacobson had been hired under an oral contract in 1957 which provided a $10,000 salary and contained no restrictive covenant. In 1959 the employee signed a written contract which contained a restrictive covenant not to compete with his employer after termination of his employment. The 1959 contract also changed the employee’s compensation scheme to a $9,000 salary plus a share of the profits. As a result of this new contract, the employee’s salary increased dramatically. In 1963 the employee earned in excess of $24,000. Clearly the modified compensation arrangement was consideration for the execution of the restrictive covenant.

 For the same reason the fifteen-day notice provision in the written contract is not sufficient consideration to support the restrictive covenant in this ease. This is particularly true since closer examination of the contract reveals that the notice provision is illusory and cannot be considered as consideration for anything. Glause 7(b) of the contract provides that the company may dispense with the fifteen-days’ notice if “in the sole judgment of the COMPANY, Konald Gottus has been guilty of a breach of trust, neglect of the COMPANY’S interests, or of other acts detrimental to the COMPANY’S interests, or by failure to follow faithfully the instructions given to him by the COMPANY or its authorized representative.”