South-Western Legal Studies in Business

Covenant Not to Compete Could Not Be Assigned to New Business Owner
Description Pennsylvania high court held that while an employment agreement that contained a covenant not to compete was valid, since the contract lacked an assignment clause the employer/business could not assign the agreement to the buyer of the business.
Topic Contracts
Key Words Covenant Not to Compete; Employment Agreement; Assignment
C A S E   S U M M A R Y
Facts Hess worked for Hoaster, an insurance agency. His employment agreement with Hoaster included a covenant not to compete in the area for five years should he leave that employment. After Hess had worked there for over 20 years, the agency was sold to Gebhard. The new management fired Hess, who was offered a job by a competitor agency. The competitor decided not to hire Hess when Gebhard sent a letter noting that Hess was subject to a non-competition agreement and that Gebhard would sue if Hess worked for the competitor. Hess sued Gebhard, contending that the covenant not to compete was invalid. The trial court held for Gebhard. Hess appealed.
Decision

Reversed. Covenants not to compete are enforceable in Pennsylvania so long as they are reasonably limited in time and geographic coverage. However, the non-competition agreement was not enforceable by the buyer of the business. It could not be assigned by the previous business owner to the new owner, because the covenant did not include an assignability provision. Hess did not consent to the assignment, so the covenant was extinguished upon the sale of the business. The failure to include such a provision in the contract "will not be judicially forgiven or corrected."

Citation Hess v. Gebhard & Co., --- A.2d --- (2002 WL 31318802, Sup. Ct., Pa., 2002)

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