Articles

TORTIOUS INTERFERENCE CLAIMS ARISING FROM VIOLATIONS OF RESTRICTIVE COVENANTS IN EMPLOYMENT AGREEMENTS

Thomas D. Rees, Esquire

INTRODUCTION

Courts in Pennsylvania have decided many cases in which a claim for tortious interference with an existing or prospective contract accompanies a claim for violation of a restrictive covenant. Relatively few reported decisions discuss the tortious interference claim in detail, however. Instead, the courts focus on the claim for breach of the restrictive covenant, particularly when deciding a motion for an injunction. The courts typically consider the tortious interference claim as an ancillary claim to the claim that the ex-employee has directly violated a restrictive covenant.

I. WHAT ARE THE ELEMENTS OF A CLAIM FOR TORTIOUS INTERFERENCE IN THE CONTEXT OF RECRUITING OR HIRING AN EMPLOYEE WITH A RESTRICTIVE COVENANT (e.g., NON-COMPETE, NON-SOLICITATION, OR NON-DISCLOSURE)?

In Prudential Ins. Co. of America v. Stella, 994 F. Supp. 318 (E.D. Pa. 1998), the United States District Court for the Eastern District of Pennsylvania laid out the four elements of a claim for intentional interference with contractual relations under Pennsylvania law, as follows:

In order to prevail on a claim for interference with contractual relations, the plaintiff must plead and prove four elements:

1. the existence of a contractual relation (i.e., the restrictive covenant);
2. the defendant's purpose or intent to harm the plaintiff by preventing the relation from occurring;
3. the absence of any privilege or justification on the part of the defendant; and
4. damages resulting from the defendant's conduct.

The court continued:

Of these elements, the one of threshold importance is intent. Thus, where a defendant's breach of his contract with the plaintiff has only an incidental consequence of affecting plaintiff's business relationship with third persons, an action lies only in contract for defendant's breaches. . . .

In an accompanying footnote, the court stated that the elements of an intentional interference claim under Pennsylvania law derived from § 766 of the Restatement (Second) of Torts, which provides:

One who intentionally and improperly interferes with the performance of a contract between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.

In Prudential Ins. Co. of America v. Stella, supra, the Prudential Insurance Company brought suit against an insurance agent who left Prudential to join a competing agency that sold Allstate insurance products. The agent took with him a variety of rate books, client files, financial information, and forms, and refused to return all of the forms. Prudential and the agent had entered into a restrictive covenant in which the agent agreed to turn over all Prudential property to Prudential at the close of his employment; agreed not to solicit services or products on behalf of any company that were similar to those sold by Prudential; agreed not to solicit Prudential customers to switch their policies to the agent's new firm; and agreed not to do anything to cause an employee to terminate his employment or solicit services on behalf of any other company. Prudential sued for violation of the restrictive covenant, tortious interference with contractual relations, breach of fiduciary duty, breach of contract, misappropriation of trade secrets, and unfair competition. Although the court refused in a separate opinion to enjoin the violation of a restrictive covenant preliminarily because of the absence of irreparable harm (Prudential Ins. Co. of America v. Stella, 994 F. Supp. 308 (E.D. Pa. 1998)), the court refused to grant the defendant summary judgment on the tortious interference claim. Prudential Ins. Co. of America v. Stella, 994 F. Supp. 318, 322 n. 1 (E.D. Pa. 1998).

The elements of a claim for intentional interference with proposed contractual relations are identical to the elements of a claim for intentional interference with an existing contract, except that in element (1) the contractual relationship is "proposed." Typically, a claim for intentional interference with an existing contract arises when the new employer interferes with the restrictive covenant between the old employer and the employee, or when the new employer and employee interfere with a contract between the old employer and a customer or other employee. A claim for intentional interference with proposed contractual relations typically arises when the new employer or employee interferes with a proposed customer relationship with the old employer or the old employer invokes the restrictive covenant to try to keep an ex-employee from obtaining new employment or customers.

A. Old Employer Versus New Employer for Tortious Interference With the Restrictive Covenant Itself

Courts in Pennsylvania have enjoined new employers from interfering with both non-competition agreements and non-solicitation and confidentiality agreements. In Mixing Equipment Co. v. Philadelphia Gear, Inc., 312 F. Supp. 1269 (E.D. Pa. 1969), aff'd in part, reversed in part, 436 F.2d 1308 (3d Cir. 1971), the United States District Court for the Eastern District of Pennsylvania dealt with an intentional interference claim arising from a non-competition agreement. The new employer had recruited an employee who was subject to a restrictive covenant prohibiting employment with a competitor in the industrial mixing field for one year after leaving plaintiff. The Eastern District held that the new employer's conduct was actionable as interference with contract. The District Court established a low threshold for liability for intentional interference, based on the new employer's actual knowledge or obligation to know of the employee's restrictive covenant; knowledge or reason to know, rather than malicious or destructive intent, was the benchmark for liability.

The court stated:

A corporation will be held to have induced the breach of a restrictive covenant when its conduct is integrally related to the breach. Albee Homes, Inc. v. Caddie Homes, Inc., 417 Pa. 177, 207 A.2d 768 (1965); Annot., 24 A.L.R.3d 821, 839 (1969). A showing of intent on the part of the defendant to cripple or destroy the plaintiff is unnecessary to a finding of inducement. Jacobson & Co. v. International Environment Corp., 427 Pa. 439, 235 A.2d 612 (1967); Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838 (1957). Philadelphia Gear's conduct in interviewing Leamy for employment, despite the fact it knew he was then working for plaintiff and either knew or should have known of his restrictive covenants, clearly constitutes inducement of Leamy's breach. National Chemsearch Corp. of New York v. Bogatin, 233 F. Supp. 802, 810 (E.D.Pa.1964), vacated on other grounds, 349 F.2d 363 (3d Cir. 1965).

1. using corporate officers to accompany the salesman on customer calls in his old territory;
2. sending the new employer's catalogs to the salesman's customers;
3. use of a corporate officer's name in place of the salesman's on sales into the old territory;
4. payment of expenses for the salesman's trips into his old territory;
5. obtaining the salesman's agreement to hold the new employer harmless from any suit by the ex-employer.

The court held:

The entire web of circumstances in this highly competitive business situation leads me to infer that the [new employer] wrongfully participated and continues to participate in the breach of a valid restrictive sales contract.

National Chemsearch Corp. of New York v. Bogatin, supra, 233 F. Supp. at 810. The Court of Appeals vacated the District Court's decision for abuse of discretion in enjoining the old employee's activities for one year, but did not overturn the District Court's rulings on tortious interference.

In First Health Group Corp. v. National Prescription Administrators, Inc., 155 F. Supp.2d 194 (M.D. Pa. 2001), the United States District Court for the Middle District of Pennsylvania addressed tortious interference claims in the context of an ex-employee's breach of non-solicitation and non-disclosure covenants. The plaintiff ex-employer and the defendant successor employer both administered Medicaid and other public assistance programs and were competitors for a contract from the Commonwealth of Pennsylvania. The defendant employee signed a three-part restrictive covenant containing (1) a customer non-solicitation agreement prohibiting the employee from calling upon, soliciting, or diverting any actual customer or prospective customer of the employer; (2) an employee non-solicitation agreement that prohibited direct or indirect soliciting or hiring of any of plaintiff's employees for one year after the ex-employee's termination; and (3) a confidentiality agreement prohibiting the use of confidential business information, and obligating the employee to return confidential materials to the employer on departure. The non-solicitation covenant provided for injunctive relief and liquidated damages on violation. After the employee left the plaintiff and joined the defendant, plaintiff moved for a preliminary injunction. The District Court considered the intentional interference claims against both the new employer and the former employee. The court applied Pennsylvania law to the intentional interference claim because the tort in question was committed in Pennsylvania, despite the application of Illinois law chosen by the parties in deciding on the enforceability of the restrictive covenant. See 155 F. Supp.2d at 215-216.

As against the new employer, the court addressed intentional interference with contractual relations with respect to each of the three components of the employee's restrictive covenant (155 F. Supp.2d at 233-234). The court applied the four factors discussed in Prudential Ins. Co. of America v. Stella, 994 F. Supp. 318 (E.D. Pa. 1998), and relied on Restatement (Second) of Torts § 767, which lists the following factors in determining whether the interference was improper:

In determining whether an actor's conduct in intentionally interfering with a contract or a prospective contract relation of another is improper or not, consideration is given to the following factors:

1. the nature of the actor's conduct;
2. the actor's motive;
3. the interests of the other with which the actor's conduct interferes;
4. the interests sought to be advanced by the actor;
5. the social interests in protecting the freedom of the actor and the contractual interest of the other;
6. the proximity or remoteness of the actor's conduct to their interference; and
7. the relations between the parties.

The court in First Health took pains to distinguish between proper and improper competitive tactics by competitors. The court held that a business that causes a loss of business to another merely by engaging in business would not be liable, despite knowing that the loss would result. The court also held that the defendant had a general privilege to bid on the renewal of the plaintiff's contract with the State of Pennsylvania. However, the court held that the new employer did not have a privilege to submit the bid that it submitted - "one replete with misappropriated trade secret information." 155 F. Supp.2d at 233. The court held that the new employer had intentionally interfered with the confidentiality agreement. The court noted that it was "undisputed" that a contractual relationship existed between the plaintiff and the employee, and that the new employer knew of this agreement since the employee had told the new employer during the interview about the agreement. First Health Group Corp., supra, 155 F. Supp.2d at 234. The court therefore upheld the plaintiff's request for a preliminary injunction against interference with the confidentiality agreement. 155 F. Supp.2d at 234.

As to the customer non-solicitation agreement, the court held that the plaintiff's customer relationship with the Commonwealth of Pennsylvania was impermanent, and therefore could not be the subject of an intentional interference claim. 155 F. Supp.2d at 234.

As to the employee non-solicitation agreement, the court also held that there was insufficient information to enjoin the new employer's conduct because there was no evidence that the new employer was aware of the employee non-solicitation agreement. Some evidence existed to support a claim that the new employer should have been aware of this situation, since the new employer required its own employees to sign such a contract, but there was not sufficient evidence to award a preliminary injunction in plaintiff's favor. 155 F. Supp.2d at 234.

In Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838 (1957), the Pennsylvania Supreme Court restrained conduct by the new employer and a group of ex-employees for inducing other departing employees to breach non-solicitation and non-disclosure contracts. The contracts required ex-employees not to divulge confidential information; not to solicit or compete for the ex-employer's customers; not to attempt to persuade customers to withhold patronage; and not to divert customer business. At the same time, the courts refused to enforce the restrictive covenant against competition for lack of consideration.

The business in Morgan's was the installment sale of household equipment through door-to-door salesmen-collectors. Each salesman received a confidential route of customers to whom he sold and from whom he collected weekly payments. A new owner bought the business and required current employees to sign a restrictive covenant for the first time. The restrictive covenant contained a one-year non-compete with a radius of 100 miles; a customer non-solicitation agreement; and a confidentiality agreement. One of the salesmen refused to sign the restrictive covenant. Instead, the salesman formed a new, competing business, and then recruited other salesmen who had signed the restrictive covenant to join the competing business. The salespeople then began to solicit plaintiff's customers and to use confidential customer information which the salespeople had acquired from plaintiff. The Pennsylvania Supreme Court upheld an injunction against this activity, both as a violation of and as intentional interference with the salesmen's restrictive covenants, and directed that the new employer representatives submit to an accounting for all profits from the customer solicitation and use of confidential information. Addressing the tortious interference claim, the Pennsylvania Supreme Court stated:

[The new employer] admits that he offered employment and ultimately hired the other defendants with knowledge that they had signed restrictive agreements, and that they would be acting inconsistently with the covenants contained therein in the course of their employment.

Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 633, 136 A.2d 838, 847.

B. Old Employer Versus New Employer for Tortious Interference With the Old Employer's Business Contracts or Expectancies.

An old employer's action against a new employer for tortious interference with the old employer's business contracts or expectancies can arise from either the new employer's piracy of the old employer's customers or the new employer's piracy of the old employer's employees. Such a claim may arise in conjunction with an enforceable restrictive covenant, or in spite of an unenforceable restriction.

Violation of the restrictive covenant itself can equate to liability for tortious interference with the former employer's business contracts or expectancies. In Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 633, 136 A.2d 838, 847 (1957), the Pennsylvania Supreme Court found that the violation of the enforceable elements of the ex-employees' restrictive covenants, coupled with the new employer's knowledge of these restrictions, gave rise to an intentional interference claim:

Defendant Morris Spiller admits that he offered employment and ultimately hired the other defendants with knowledge that they would be acting inconsistently with the covenants contained therein in the course of their employment. One who intentionally interferes with an existing contractual relation is subject to liability for the breach of the contract. Spiller asserts no privilege for inducing the breach of the covenants not to divulge confidential information, not to solicit or compete for the patronage of Morgan's customers, not to attempt to persuade customers to withhold their patronage, and not to divert Morgan's business, and he will be enjoined from continuing his unlawful conduct.

In Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 633, 136 A.2d 838, 847 (1957), the Pennsylvania Supreme Court upheld the claim for tortious interference with the former employer's business contracts or expectancies even though the Court invalidated a portion of the restrictive covenant that prohibited the ex-employees from engaging in a competing business within 100 miles.

An intentional interference claim can lie even if the customer relationship is at will if the ex-employee misuses confidential information. In First Health Group Corp. v. National Prescription Administrators, Inc., 155 F. Supp.2d 194 (M.D. Pa. 2001), the court dealt with interference with a contract at its point of expiration and possible renewal - a point at which even the decision to continue a term contract becomes at-will under Pennsylvania law. The court held that the new employer could submit a bid on the renewal period, but not a bid replete with misappropriated trade secret information.

In Prudential Ins. Co. of America v. Stella, 994 F. Supp. 318, 324 (E.D. Pa. 1998), the United States District Court for the Eastern District of Pennsylvania refused to grant summary judgment dismissing Prudential's intentional interference claim against an insurance agent. After leaving Prudential, the agent had written Allstate property and casualty insurance policies for former Prudential clients whose policies came up for renewal; had failed to return all client files and cards in a timely fashion to Prudential; and had removed certain property from the Prudential offices. The court held,

"[W]e believe there is sufficient evidence from which a jury could find that in so doing, [the agent] . . . tortiously interfered with Prudential's contractual relations with its customers. . . .

An intentional interference claim can also lie when the ex-employer has only a business expectancy with a prospective customer. In National Risk Management, Inc. v. Bramwell, 819 F. Supp. 417, 426 (E.D. Pa. 1993), the United States District Court for the Eastern District of Pennsylvania found that ex-employees with restrictive covenants intentionally interfered with the ex-employer's prospective contractual relationship with a hospital. The plaintiff was engaged in the business of marketing self-funded worker's compensation self-insurance programs. The plaintiff was awarded both compensatory and punitive damages for the breach, which the court held was "outrageous", even though the plaintiff was still able to secure a contractual relationship with the customer, but only at "added expense and inconvenience." National Risk Management, Inc. v. Bramwell, supra.

The U.S. District Court also upheld a tortious interference claim arising from attempted customer piracy in BIEC International, Inc. v. Global Steel Services, Ltd., 791 F. Supp. 489 (E.D. Pa. 1992). In BIEC, the plaintiff and defendant both provided and licensed technical information and services relating to 55% aluminum-zinc coating. The defendant's organization consisted of former employees of plaintiff from whom plaintiff had obtained a confidentiality agreement. Additionally, the corporate plaintiff had entered into a confidentiality agreement with licensees (customers). The ex-employer sued on multiple claims, including intentional interference with contractual relations arising from the ex-employees' approaches to plaintiff's licensees in an attempt to sell to the licensees or establish joint ventures with the licensees. The United States District Court for the Eastern District of Pennsylvania preliminarily enjoined defendants' solicitation of licensees on the following grounds:

Taken together, nothing in the common law prohibits Global Steel Services from lawfully competing with BIEC. Lawful competition includes soliciting business from licensees whose contracts with BIEC are about to expire and includes soliciting contracts with prospective licensees even if BIEC's exclusive territories will be upset. BIEC's common law claims will not prohibit healthy competition. To the extent that Global Steel Services cannot compete without disclosing BIEC's trade secrets, BIEC's remedy lies in the trade secret law and not the common law.

On the other hand, we believe that Global Steel Services' proposed joint venture to existing BIEC licensees under which Global Steel Services attempted to induce licensees to breach their confidentiality clause with BIEC is precisely the kind of interference with existing contractual relations and diversion of corporate opportunity the common law was designed to protect. Accordingly, we find that BIEC has established a likelihood of success on the merits of its common law claims.

The Third Circuit upheld a tortious interference claim arising from employee piracy in Franklin Music Co. v. American Broadcasting Companies, Inc., 616 F.2d 528 (3d Cir. 1979). In Franklin, the President of Franklin Music Company left to join ABC. Franklin operated a chain of retail music stores. Once at ABC, this employee then approached various Franklin employees and induced these employees to leave Franklin. Franklin began incurring losses and ultimately liquidated. The Third Circuit carefully explained the law of intentional interference with contractual relations when an employer lures away a competitor's employees, as follows:

1. The systematic inducing of employes to leave their present employment and take work with another is unlawful when the purpose of such enticement is to cripple and destroy an integral part of a competitive business organization rather than to obtain the services of particularly gifted or skilled employes.
2. So also, when the inducement is made for the purpose of having the employes commit wrongs, such as disclosing their former employer's trade secrets or enticing away his customers, the injured employer is entitled to protection.

616 F2d 528, 542-543.

The court then noted that Pennsylvania was moving away from analyzing whether a "privilege" existed to intentionally interfere with contractual relations and toward an analysis of the factors that constitute "intentional and improper" interference with the performance of a contract or prospective contractual relationship. This change drew on Restatement (Second) of Torts, § 767, which lists factors that may be used in determining whether the interference is "improper". See p. 7, supra.

The court noted that when the interference involves the activities of a present or former employee, the general standards of § 767 apply. The court also found that it was no longer necessary for actionable interference to be independently tortious; interference was actionable as long as it was improper. 616 F. 2d 544.

The court held that there was evidence on which the jury could have found the defendants resorted to improper means in interfering with the contract, including particularly the approach to plaintiff's employees and encouragement of plaintiff's employees to depart. The court continued, "Encouraging a breach of fiduciary duty and civil conspiracy are, after all, wrongs. If those wrongs are related to the interference with employment, as on this record they can be, the civil tort of interference with a prospective relationship with an at-will employee under Pennsylvania law has been made out." Franklin Music, supra, 616 F.2d at 545.

The departing President of Franklin Music had a non-compete with Franklin, but the court held that the non-compete did not apply. The non-compete prohibited the ex-employee from engaging in competition with Franklin for one year after his departure within a 50-mile radius of City Hall, Philadelphia. The court noted that ABC was not a competitor, in that ABC owned no music stores within the 50-mile radius; the fact that the ex-employee worked within the 50-mile radius was not material.

II. TORTIOUS INTERFERENCE IN THE CONTEXT OF THE RESTRICTIVE COVENANT ITSELF

Yes. Several key Pennsylvania cases stand for this proposition. In Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838 (1957), the Pennsylvania Supreme Court disposed of a number of issues arising in a non-compete case brought by a door-to-door "route sales" enterprise. Upon acquiring the business, the former employer had insisted that its employees enter into a general non-compete (prohibiting competition with the employer within a radius of 100 miles); a non-solicitation agreement (prohibiting solicitation, diversion, or taking away customers); and a confidentiality agreement (requiring the employee to keep confidential the names and addresses of customers). The employees' relationships with the former employer were at-will relationships. The new employer was a competing enterprise formed by one of the old employer's key salesmen who had refused to sign a non-compete after the old employer was acquired.

The court articulated the traditional threshold test for intentional interference in connection with a competitor's hiring of a predecessor employer's at-will employees:

1. The systematic inducing of employes to leave their present employment and take work with another is unlawful when the purpose of such enticement is to cripple and destroy an integral part of a competitive business organization rather than to obtain the services of particularly gifted or skilled employes.
2. When the inducement is made for the purpose of having the employes commit wrongs, such as disclosing their former employer's trade secrets or enticing away his customers, the injured employer is entitled to protection.

In Albee Homes, Inc. v. Caddie Homes, Inc., 417 Pa. 177, 207 A.2d 768 (1965), the Pennsylvania Supreme Court applied the rules set forth in Morgan's Home Equipment Corp. v. Martucci, and held that no liability existed for the offering of employment to at-will employees subject to a restrictive covenant if the new employer sought merely to hire skilled employees:

[T]he first question is whether the purpose of Caddie's offer of employment was to secure the services of 'particularly gifted or skilled' employees, or just to take them away from Albee. The record supports no other conclusion than that the purpose of Caddie was merely to get salesmen experienced in the business of selling pre-cut homes. There is no evidence whatsoever of an ulterior motive. The only testimony in this regard is that if Caddie is allowed to continue its course of inducing employees then Albee's business would suffer. The disruptive effect is the consequence, not the purpose, of the inducement.

In Albee Homes, the court partially enforced a restrictive covenant against salesmen of prefabricated homes. The court upheld the geographic restrictions prohibiting the salesmen from working within 50 miles of their former territory, but refused to prohibit the salesmen from working within 50 miles of any of plaintiff's offices. The court upheld the claim for intentional interference only to the extent that the restrictive covenant was enforceable. Albee Homes, Inc. v. Caddie Homes, Inc., supra, 417 Pa. at 186-187, 207 A.2d at 773.

After deciding Morgan's Home Equipment, supra, and Albee Homes, Inc. v. Caddie Homes, Inc., supra, the Pennsylvania Supreme Court decided Jacobson & Co. v. International Environment Corp., 427 Pa. 439, 235 A.2d 612 (1967). Jacobson dealt with a restrictive covenant for a salesman of radiant acoustical ceilings; the salesman had a month-to-month employment contract, not a pure at-will relationship but surely not one that promised much greater tenure. In Jacobson, the Pennsylvania Supreme Court interpreted Morgan broadly, so as to allow an action for intentional interference without a finding of a purpose to cripple and destroy one's competitor in the context of an enforceable restrictive covenant.

We do not agree with [the new employer's] contention that Morgan requires a purpose to cripple and destroy one's competitor before liability for inducing breach of contract can be found. On the contrary, we said there: 'Defendant Morris Spiller admits that he offered employment and ultimately hired the other defendants with knowledge that they had signed restrictive agreements, and that they would be acting inconsistently with the covenants contained therein in the course of their employment. One who intentionally interferes with an existing contractual relation is subject to liability for the breach of the contract.'

Similarly, in Certified Laboratories of Texas, Inc. v. Rubinson, 303 F. Supp. 1014 (E.D. Pa. 1969), the United States District Court for the Eastern District of Pennsylvania held that the new employer intentionally interfered with restrictive covenants in hiring at-will chemical salesmen who breached their restrictive covenants. The District Court held that the new employer's liability depended upon the new employer's knowledge of the restrictive covenants and the new employer's hiring the salesmen for the purpose of violating their covenants and capitalizing wrongfully on confidential information. The Court found that the purpose to "cripple and destroy one's competition" was not a predicate to liability. The Court concluded that new employer was liable for intentional interference on the basis of a key salesman's forwarding of the old employer's commission list to the new employer; the salesman's enticement of fellow salesmen to go to work for the new employer; and the new employer's failure to come forward and rebut inferences of guilty knowledge on its part. Certified Laboratories of Texas, Inc. v. Rubinson, supra, 303 F. Supp. at 1025.

In summary, it would appear that either recruitment and hiring of an employee while knowing of the employee's restrictive covenant, or the enticement of employees with the purpose of crippling and destroying a competitive business are key elements of liability when the new employer hires a competitor's at-will employees.

B. Will the Claim Against the New Employer be any Different if the Employee was Employed for a Definite Term by the Former Employer?

Although the existence of a contract for a definite term might appear to bolster an intentional interference claim, there is no evidence that a term contract is an essential element of such a claim. The only case found under Pennsylvania law in which an employer interfered with an existing term contract was Ecolaire Inc. v. Crissman, 542 F. Supp. 196 (E.D. Pa. 1982). In Ecolaire, the court noted, in passing, that the new employer had interfered with the old employer's "rights in Smith's employment agreements, and that this interference 'had and may continue to cause irreparable damage' particularly if others follow Smith's example." Ecolaire Inc., supra, 542 F. Supp. 196, 205.

In Ecolaire, the plaintiff and defendant both sold replacement parts for systems to transport waste products generated by the burning of fuels at utility and industrial plants. The new employer (Epic) began operations, with Smith as a principal, during the term of Smith's five-year employment agreement with an affiliate of Ecolaire. Post-term restrictions prevented Smith from competing with Ecolaire, divulging confidential information, contacting customers, and soliciting employees. The court preliminarily enjoined the defendants from selling or distributing competitive replacement parts, soliciting employees to break their employment agreements, and using confidential information. In addressing the intentional interference claim, the court addressed only the interference with the old employer's term employment contract. Therefore, it is possible to surmise that the court dealt more severely with the new employer's prohibited conduct because it occurred during the term of the contract. In First Health Group Corp. v. National Prescription Administrators, Inc., 155 F. Supp.2d 194 (M.D. Pa. 2001), the Federal Court dealt with a series of tortious interference claims against a new employer and an employee who had a term contract with the former employer. However, the term contract had expired, and the outcome of the case did not depend on the term contract.

C. What Defenses to this Type of Tortious Interference Claim Generally are Available?

1. Invalidity or Unenforceability of the Restrictive Covenant

The defense of invalidity or unenforceability of a non-compete covenant may constitute a partial defense to a tortious interference claim with the covenant itself. In Albee Homes, Inc. v. Caddie Homes, Inc., 417 Pa. 177, 207 A.2d 768 (1965), the Pennsylvania Supreme Court stated, "[A]n action cannot be maintained for inducing the breach of a restrictive covenant which is contrary to the public policy of the state." In Albee Homes, Inc. v. Caddie Homes, Inc., supra, the court enforced the restrictive covenant within a 50-mile geographic radius of the territory in which each employee served Albee. The court refused to enforce a restrictive covenant against competition within 50 miles of any of the plaintiff's sales offices, wherever located.

A claim for tortious interference will survive even if the non-compete is held to be unenforceable, if the new employer interferes with non-solicitation and non-disclosure covenants. In Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838 (1957), the Pennsylvania Supreme Court upheld an injunction against a new employer's hiring of individuals whom the employer knew were subject to restrictive covenants. The Supreme Court held, "One who intentionally interferes with an existing contractual relation is subject to liability for breach of the contract."

The court noted that the defendant asserted no privilege for inducing the breach of the covenants not to divulge confidential information, not to solicit or compete for the patronage of the plaintiff's customers, not to attempt to persuade customers to withhold their patronage, and not to divert plaintiff's business, and would be enjoined from continuing this unlawful conduct. Morgan's Home Equipment Corp. v. Martucci, 390 Pa. at 633, 136 A.2d at 847. In Morgan's Home Equipment, the court refused to enjoin the defendants from working with a competitor, and the objectionable conduct that the court found was limited to the areas in which the court entered an injunction against the defendants.

2. Breach of Contract by the Former Employer

In Durham Life Ins. Co. v. Evans, 1997 WL 535187 (E.D. Pa.), aff'd, 166 F.3d 139 (3d Cir. 1999), the United States District Court for the Eastern District of Pennsylvania, applying Pennsylvania law, held that an insurance company could not enforce a restrictive covenant against an ex-agent so as to prohibit the ex-agent from selling insurance to customers for a limited period of time. The District Court refused to allow the ex-employer to bring an action against the ex-agent for intentional interference where the ex-employer had repudiated the collective bargaining agreement containing the non-compete. After the expiration of the collective bargaining agreement, the ex-employer had unilaterally reduced the agent's commission rates, and the union refused to be bound by the restrictive covenant.

3. Unclean Hands, Estoppel or Other Equitable Defenses

In Durham Life Ins. Co. v. Evans, 1997 WL 535187 (E.D. Pa.), aff'd, 166 F.3d 139 (3d Cir. 1999), an insurance company was unsuccessful in seeking to enforce a restrictive covenant against an agent who had been subjected to severe sexual harassment. The court refused to hold the ex-employee liable for intentional interference with contractual relations. The District Court did not state that the harassment prevented enforcement of the restrictive covenant, but treated the ex-employer's litigation against the agent as part of a pattern of discrimination that damaged the ex-agent's health and prevent her from mitigating her damages. Durham Life Ins. Co. v. Evans, supra, 1997 WL 535187 (E.D. Pa.), aff'd, 166 F.3d 139, 156-158 (3d Cir. 1999). The ex-employer sued the female agent although the ex-employer had declined to sue a male agent who had transferred over ten times the number of policies that the ex-agent transferred. Durham Life Ins. Co. v. Evans, supra, 1997 WL 535187, *5. The Court of Appeals held,

Durham's conduct in filing suit against Evans for replacing sixteen policies while ignoring the conduct of a man who transferred 170 policies could support the inference that the lawsuit was filed for discriminatory, not simply retaliatory, reasons.

The District Court and Court of Appeals also held that the ex-employer's abrogation of the non-compete estopped the ex-employer from enforcing the restrictive covenant and excused the agent from the effects of the restrictive covenant. Durham Life Ins. Co. v. Evans, supra, 1997 WL 535187, *9; 166 F.3d at 158. The ex-employer's vice president and official labor negotiator had told the agents that the non-compete was abrogated and that the union contract containing the non-compete was not in effect. The Court of Appeals held that the ex-agent was entitled to rely on this representation that the covenant no longer bound her. Durham Life Ins. Co. v. Evans, supra, 166 F.3d at 158.