Wednesday, November 18, 2015

One Spot Where "Mumbo Jumbo" Doesn't Cut it Any More

In an old television commercial for a law firm whose name I cannot recall, two lawyers are standing at a judge's bench, chatting seriously with the robed judge.  "Mumbo jumbo mumbo jumbo," chatters on one of the lawyers, met with their opponent's "Mumbo jumbo, mumbo jumbo" followed by the court's chiming in, "Mumbo jumbo" at which point the voice over announcer says, "We take the 'mumbo jumbo' out of the law."  

An effective commercial?  Guess not.  Like I said; I can't remember the name of the firm.

What has this got to do with employment law?

Pennsylvania statutory law has long provided that any document which simply recites that the signer intended to be legally bound did not require consideration to be enforceable.  This was under the "Uniform Written Obligations Act," 33 Pa. Stat. Section 6.  Specifically that statute says that a written promise "“shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement, in any form of language, that the signer intends to be legally bound.” 

For years, lawyers have routinely been putting language at the end (or the beginning) of Pennsylvania contracts stating that the signer is "intending to be legally bound" to avoid a challenge to enforcement of the contract for lack of consideration.  Heck, I've done it myself.

What is "consideration," you say?  Consideration is something of value, bargained for and exchanged between parties in exchange for a promise.  (There, Professor Siskind, I remember my first year contracts law.  Would that I had remembered more of it during finals, but that's another story).

When you pay a cab fare (or an Uber fare), you're paying consideration for the ride.  When you collect your paycheck, you're getting consideration for your labor.  When I pay Wawa my $1.49, I'm giving consideration for their agreement to provide me coffee.  And so it goes.

So what happens when the contract says that "you can't work for anyone else in the business for which you're working for me?"  Pennsylvania law has always required consideration for such agreements, known more generically as "non-compete agreements."

But once upon a time an employee's non-compete covenant simply provided that he "intended to be legally bound," and therefore, his former employer argued, they didn't need to give him consideration because the Uniform Written Obligations Act said so.

The Pennsylvania Supreme Court today handed down its decision in Socko v. Mid-Atlantic Systems of CPA, Inc. (142 MAP 2014), rejecting mere OWOA language as a substitute for consideration.  As Justice Todd put it so elegantly in closing the opinion:

[W]e hold that an employment agreement containing a restrictive covenant not to compete may be challenged for a lack of consideration even though the agreement, by its express terms, indicates that the parties “intend to be legally bound” pursuant to the UWOA.
So, employers, if you want that non-compete to stick, make sure you "pay" for it with some form of consideration.  Mumbo jumbo just won't cut it any more.