Restrictions against competition are frequently included in employment agreements and agreements for the sale of business assets or stock.  The restriction against competition is designed to secure a time period for the employer or buyer of business assets, as the case may be, during which the employer/buyer is free from competition for a departed employee or seller so as to facilitate the transition and better protect their own business assets and customer relationships.  If properly drafted and implemented, restrictions against competition are enforceable under Pennsylvania law.

The primary method of enforcement in the event of breach is a preliminary injunction in equity.  In order to prevail on a petition for preliminary injunction, a petitioner must demonstrate several factors including (1) the need to prevent irreparable harm which cannot be compensated by money damages, (2) that more harm will result from the denial of the preliminary injunction than from granting same, (3) that the injunction will restore the parties to the status quo, (4) the likelihood of success on the merits, (5) that the injunction is designed to abate the offending activity, and (6) that the injunction will not negatively impact public policy.   In most cases the issues of likelihood of success on the merits and irreparable harm incapable of compensation with money damages represent the contested issues.

In Bucks County, the petition for preliminary injunction must be accompanied by a verified complaint and an order for hearing.  The petition is often, though not always, heard by the initial pre-trial judge assigned to the case at the time of filing.  Court administration reviews all petitions for preliminary injunction and assigns the presiding judge, courtroom and date for evidence to be taken.  The order for hearing is an essential aspect of the petition; without it, no hearing will be scheduled.

The petitioner in any injunction matter bears a heavy burden.  Adequate evidence as to the need for enforcement of the covenant, the potential irreparable harm and right to relief must be presented.  Because the entry of injunctive relief is an extraordinary remedy, the evidence must be clear and persuasive.  In employment and business asset transfer cases, the language of the restriction in the applicable agreements must be constrained to those aspects of competition which are reasonably necessary for the protection of the employer/buyer.  For example, a covenant which is overbroad in terms of geography, time or scope will not be enforced.

Preliminary injunctive relief may be acquired in the Bucks County Court of Common Pleas if supported by the underlying agreement and if properly perfected under the practices and procedures employed in the County.

Often, in the business context, agreements contain representations and warranties of the parties to the agreement.  The representations and warranties can range from general items such as business forms and the payment of taxes, to more specific items, such as the accuracy and reliability of financial information.  While such representations and warranties are commonplace in business agreements, their importance should not be overlooked.

Under Pennsylvania law, when performance of a duty under contract is due, any non-performance is a breach.  If a breach constitutes a material failure of performance, the non-breaching party is discharged from its duties under the contract.  A party who has materially breached a contract may not complain if the other party refuses to perform.  In other words, a material breach of contract may excuse performance by the non-performing party.

In the context of representations and warranties contained in a business agreement, should the representations and warranties contained in the agreement prove to be false, the party to whom the representations and warranties were made may raise the falsity of the representations and warranties to excuse further performance of any contractual obligations under the agreement.  Such a circumstance could spell disaster in the business context – particularly in a case where the payment of money is due at some time after closing.

Pennsylvania courts impose an element of materiality to the breach of a representation or warranty.  The elements of materiality under Pennsylvania law include the extent to which an injured party will be deprived of the benefit which he reasonably expected, the extent to which the injured party may be adequately compensated for that part of the benefit of which he will be deprived, the likelihood that the party failing to perform or offer to perform will cure, and the extent to which the party failing to perform comports with the standards of good faith and fair dealing.

Accordingly, representations and warranties contained in an agreement should not be taken lightly, but should be made with any eye toward the potential ramifications in the event of breach.