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D. What are the Parameters of the Affirmative Defense of Justification or the Competitor's Privilege?

A competitor has a right to submit a bid either to a former employer's customer whose contracts with the former employer are about to expire or to a prospective customer of the former employer. A competitor may not induce existing customers whose contracts are not about to expire to abandon the old employer for the competitor. BIEC International, Inc. v. Global Steel Services, Ltd., 791 F. Supp. 489 (E.D. Pa. 1992) outlines these parameters of justifiable competition. 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 employees of plaintiff from whom plaintiff had obtained a confidentiality agreement. Additionally, the corporate plaintiff had 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 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.

A competitor does not have a privilege to submit a bid that includes misappropriated trade secret and confidential business information. 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 discussed these limitations on the privilege. The court stated that the new employer had the right to submit a proposal for the contract at the time that the contract expired and was renewable. The court enjoined the competitor's actions in submitting a proposal that included trade secret information purloined from the ex-employer, however.

The Restatement (Second) of Torts § 774A defines "actual damages" for interference with a contract as follows:

One who is liable to another for interference with a contract or prospective contractual relation is liable for damages for

1.  
   1. the pecuniary loss of the benefits of the contract or the prospective relation;
   2. consequential losses for which the interference is a legal cause; and
   3. emotional distress or actual harm to reputation, if they are reasonably to be expected to result from the interference....

In Certified Laboratories of Texas, Inc. v. Rubinson, 303 F. Supp. 1014, 1025-1026 (E.D. Pa. 1969), the United States District Court for the Eastern District of Pennsylvania examined with care the damages available to a specialty chemicals business in an action against ex-salesmen and a new employer for intentional interference and for violation of 18-month restrictive covenants, consisting of non-competes governed by the salesmen's territories and non-solicitation and non-disclosure agreements. The court held that the defendants had violated both the non-solicitation agreement for employees and customers sold or called upon and the non-disclosure agreement, but that the non-compete was not enforceable. The Court held that the ex-employer either could obtain an accounting or could recover damages in the following areas:

1. Lost profits on sales made in violation of the covenant not to sell to former accounts - Although the court refused to award damages, the court ordered an accounting to the plaintiffs for profits from wrongful conduct, in the amount of profits for the new employer, and commissions or overrides to the new employees who had breached the restrictive covenant with the employer. Certified Laboratories of Texas, Inc. v. Rubinson, supra, 303 F. Supp. at 1025-26.
2. Orders wrongfully cancelled and diverted - The court held that the plaintiff was entitled to an accounting on any profits obtained by the defendant employer from orders wrongfully cancelled and diverted, together with any commissions by the ex-employees. Certified Laboratories of Texas, Inc. v. Rubinson, supra, 303 F. Supp. at 1027.
3. Attorney's fees - The court awarded "fair compensation" for attorney's fees because the action included a claim to restrain the breach of restrictive covenants; attorney's fees would not have been awardable on a simple claim for damages. Certified Laboratories of Texas, Inc. v. Rubinson, supra, 303 F. Supp. at 1027-28.
4. Punitive damages - The court awarded punitive damages in twice the amount of compensatory damages for the defendant employer's ratification of a breakaway employee's conduct, including "flagrantly inducing breaches of contract, concealing their violations . . ., destroying and altering subpoenaed documents to conceal these breaches." Certified Laboratories of Texas, Inc. v. Rubinson, supra, 303 F. Supp. at 1028-29.

Other cases in which the courts awarded the former employer damages are set forth below.

(1) Actual loss - In Franklin Music Co. American Broadcasting Companies, Inc., 616 F.2d 528, 546 (3d Cir. 1979), the Third Circuit reinstated a $677,000 jury award for "all actual losses incurred by Franklin Music Co. in fiscal years 1974 through 1977", reversing the award of a judgment notwithstanding a verdict.

(2) New employer's profits - In Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A.2d at 838 (1957), the Pennsylvania Supreme Court ordered the defendants to account for all profits earned through improper solicitation of the old employer's customers who became known by reason of employment with the old employer. Morgan's Home Equipment Corp. v. Martucci, supra, 390 Pa. at 626, 136 A.2d at 843 (1957).

(3) Punitive damages - National Risk Management, Inc. v. Bramwell, 819 F. Supp. 417, 426 (E.D. Pa. 1993), in which the court awarded $25,000 in punitive damages (for various acts of wrongful conduct by the defendants, but did not tie any part of these punitive damages to the intentional interference).

2. What Type of Injunctive Relief is Available?

a. Immediate Pre-Hearing Relief - Pennsylvania state courts allow immediate injunctions to restrain tortious interference. Pa. R.C.P. 1531(a) provides for entry of a special injunction without notice or hearing if it appears to the satisfaction of the court that immediate and irreparable injury will be sustained before notice can be given or a hearing held. Pa. R.C.P. 1531(d) automatically dissolves any injunction granted without notice unless a hearing on the continuance of the injunction is held within five (5) days after the granting of the injunction, or within such other time as the parties agree or the court may direct. NOTE: The Pennsylvania Rules of Civil Procedure do not recognize a "temporary restraining order", only a pleading named "special injunction." Mislabeling a "special injunction" as a "temporary restraining order" in Pennsylvania courts often leads to treatment of the request for a special injunction as a request for a "preliminary injunction." This treatment results from confusion of the adjectives "temporary" and "preliminary." The mislabeling can lead to adverse consequences for the plaintiff's attorney if the court denies a request for special injunction and refers to a "temporary" injunction, because the court may consider it unnecessary to hold a hearing on any further injunction request.

The Federal Rules of Civil Procedure govern proceedings for immediate relief in the federal courts in Pennsylvania. F.R.C.P. 65(b) authorizes the entry of a temporary restraining order upon motion if it clearly appears from specific facts shown by affidavit or verified complaint that immediate and irreparable harm will result to the applicant before the adverse party can be heard in opposition, and the applicant's attorney certifies to the court in writing the efforts that have been made to give proper notice.

b. Preliminary Injunction - In state courts in Pennsylvania, a preliminary injunction may be granted if:

(1) the rights of the plaintiff are clear (i.e., plaintiff has a strong likelihood of success on the merits);

(2) an injunction is necessary to prevent irreparable harm which cannot be compensated by damages;

(3) greater injury would result by refusing the injunction than by granting it; and

(4) the preliminary injunction properly restores the parties to the status that existed immediately prior to the alleged wrongful conduct. (Albee Homes, Inc. v. Caddie Homes, Inc., 417 Pa. 177, 207 A.2d 768 (1965)).

Pennsylvania courts treat a special or preliminary injunction as a drastic remedy, tantamount to a judgment and execution before trial. Therefore, courts will grant injunctions sparingly, and only in the strongest cases.

In federal courts, the showings required under F.R.C.P. 65 for a preliminary injunction and for a temporary restraining order are essentially identical. The moving party must demonstrate:

(1) a likelihood of success on the merits;

(2) the probability of irreparable harm if the relief is not granted;

(3) granting the relief will not result in greater harm to another party; and

(4) granting the relief is consistent with the public interest.

Since a tortious interference claim for breach of a restrictive covenant in Pennsylvania will depend in part on the enforceability of the covenant, it is worth note that the plaintiff does not have the burden to prove that the restrictive covenant is reasonable. It is the defendant's burden to prove that the restrictions are not reasonable. See Jacobson & Co. v. International Environment Corp., 427 Pa. 439, 235 A.2d 612 (1967).

Irreparable harm must be pleaded and shown; it is not sufficient to establish irreparable harm by stipulating in a contract that the ex-employer will suffer irreparable harm or by showing merely that a defendant is working for a competitor. Interference with client or customer relations or use of trade secrets may constitute irreparable harm, to the extent that such action is not ascertainable and not capable of full compensation for money damages.

In Ecolaire Inc. v. Crissman, 542 F. Supp. 196, 205 (E.D. Pa. 1982), the United States District Court for the Eastern District of Pennsylvania cited the defendant's interference with the ex-employer's contractual rights in employment agreements as a factor that had caused, and threatened to continue to cause, irreparable damage. For this reason and others, the court entered a preliminary injunction. In Mixing Equipment Co. v. Philadelphia Gear, Inc., 312 F. Supp. 1269 (E.D. Pa. 1969), the Eastern District of Pennsylvania issued injunctive relief including an absolute prohibition against the ex-employee's working for the new employer. The court believed that it would be too difficult for the court to supervise and enforce a decree enjoining limited employment with the successor employer. 312 F. Supp. 1269, 1275.

At the preliminary injunction stage, it is apparent that both federal and state courts may consider whether the new employer has tortiously interfered with the former employer's restrictive covenant in weighing the strength of the plaintiff's case for an injunction, particularly when considering the ex-employer's probability of success on the merits or the existence of immediate and irreparable harm. Alternatively, the court may simply defer the tortious interference claim until a later stage of a case, when the claim may be heard by a jury. For example, in Healthcare Affiliated Services, Inc. v. Lippany, 701 F. Supp. 1142 (W.D. Pa. 1988), the United States District Court for the Western District of Pennsylvania granted a preliminary injunction against the former employee's theft of trade secrets and confidential business information in violation of a confidentiality/non-disclosure agreement. Plaintiff ex-employer and defendant ex-employee were hospital management consultants. Plaintiff sued the ex-employee after the ex-employee formed a management consulting business and began marketing computer software programs, and included a tortious interference count in the suit. In deferring the tortious interference and other damage claims, the court held:

The Court's factual findings on the issues presented in the context of the motion for a preliminary injunction will not be binding in the final outcome of this matter; the defendant has demanded a jury trial and the jury eventually will be making the final determination on the merits. Therefore, the Court finds it necessary to address only plaintiff's claims regarding copyright infringement and misappropriation of trade secrets and confidential information.

Similarly, in Harsco Corp. v. Klein, 395 Pa. Super. 212, 220, 576 A.2d 1118, 1122 (1990), the Pennsylvania Superior Court affirmed a decision denying a preliminary injunction against violation of a non-compete by a scaffolding salesman, rejecting the ex-employer's claim that the trial court erred in failing to acknowledge the new employer's common-law duty not to interfere with the contractual relationship between the old employer and the ex-employee. The Superior Court stated simply, "It remains to be adjudicated whether [the new employer] tortiously interfered with the contractual relationship between Harsco Corporation and Klein." Harsco Corp. v. Klein, supra.

3. Are There Circumstances Where Attorneys Fees are Recoverable?

Yes. In Certified Laboratories of Texas v. Rubinson, 303 F. Supp. 1014, 1027 (E.D. Pa. 1969), the Eastern District of Pennsylvania awarded compensatory damages to the ex-employer for the cost of pursuing its rights against the individual defendants who breached their covenants as a result of the corporate defendant's tortious conduct. In the absence of any evidence of the extent or nature of the legal services, the court arbitrarily awarded fees in the amount of $5,000.

F. What Similar Claims Does the State Recognize (e.g., Unfair Competition, Conspiracy, etc.)?

1. Unfair Competition - Unfair competition claims arise in restrictive covenant/ trade secret contexts under the Federal Lanham Act, when an ex-employee passes off goods and services as those of the ex-employer by virtue of substantial similarity, leading to confusion on the part of potential customers. See Prudential Ins. Co. of America v. Stella, 994 F. Supp. 308, 322 (E.D. Pa. 1998). Unfair competition involves conduct which is contrary to honest industrial and commercial practice. Ecolaire Inc. v. Crissman, 542 F. Supp. 196, 207 (E.D. Pa. 1982). The District Court elaborated in Ecolaire Inc. v. Crissman, supra, on the acts that constituted unfair competition by a new employer in the business of selling replacement parts for waste systems:

1. passing off the new employer's goods as the former employer's goods;
2. use of trademarks and parts numbers belonging to the former employer;
3. use of the employee's name to solicit customers on behalf of the new employer in violation of the employee's contract and to obtain opportunities for the new employer that the employee's name would bring to the old employer.

The Court held that "[t]his manner of doing business must tend to create the impression that its goods are derived from another actually unrelated source and may properly share such good will as plaintiff has earned for that source under its mark." Ecolaire Inc. v. Crissman, supra.

In Morgan's Home Equipment Corp v. Martucci, 390 Pa. 618, 136 A.2d 838 (1957), the Pennsylvania Supreme Court affirmed an injunction against a new employer and former employees for unfair competition for using deceptively similar cards, order books and forms to those used by the old employer. The court held as follows:

The trading on another's business reputation by use of deceptive selling practices or other means is enjoinable on the grounds of unfair competition. If the particular use in question is reasonably likely to produce confusion in the public mind, equity will restrain the unfair practice and compel an accounting of the profits gained thereby.

The defendants admit that the customer cards of Variety Corporation were similar in general arrangement, color and form to those used by Morgan. The court en banc, who had the opportunity of viewing the documents in question, found that the cards were misleading. Nothing in record moves us to upset their finding. We note that no great hardship is imposed upon the defendants to change their documents so that they are less similar to those employed by the plaintiff.

In Boyce v. Smith-Edwards-Dunlap Co., 398 Pa. Super. 345, 360-362, 580 A.2d 1382, 1390 (1990), the Pennsylvania Superior Court affirmed the entry of a non-suit against a claim for unfair competition arising from the inducement of employees to leave plaintiff and go to work for the defendant. The old employer and the new employer were engaged in the printing business. After the employee left the old employer, a number of employees also left. Many of these employees started work at the new employer as maintenance and construction workers. The court held that the plaintiff had not submitted any evidence that the employees had been induced to work for a competitor in order to cripple and destroy the ex-employer. Id. The court found it entirely plausible that such employees were hired in order to assist in the startup of the new employer's business.

2. Conversion - Conversion, under Pennsylvania law, is the deprivation of another's right to property, or use or possession of property, or other interference with property without the owner's consent, and without legal justification. In Prudential Ins. Co. of America v. Stella, 994 F. Supp. 318, 323 (E.D. Pa. 1998), the Court held that a departing employee's removal of, and failure to return, client files and documents and computer equipment constituted conversion.

3. Conspiracy - A claim for conspiracy is an ancillary tort claim when a departing employee acts improperly. Under Pennsylvania law, a "conspiracy" requires (a) a combination of two or more persons acting with a common purpose to do an unlawful act by unlawful means for an unlawful purpose; (b) an overt act done in pursuant of the common purpose; and (c) actual legal damage. See generally Homenexus, Inc. v. Directweb, Inc., 1999 WL 959823 (E.D. Pa. 1999). In Certified Laboratories of Texas, Inc. v. Rubinson, 303 F. Supp. 1014, 1025 (E.D. Pa. 1969), the United States District Court for the Eastern District of Pennsylvania held that the new employer and the old employer's former employees conspired to solicit former accounts of the old employer in violation of covenants and through unlawful use of confidential customer information. The Court stated, "Each individual defendant joined in assisting in the violation of these covenants, knowingly accepting and using information wrongfully divulged in an effort to divert and appropriate the trade of the plaintiffs." Certified Laboratories of Texas, Inc. v. Rubinson, supra.

4. Breach of Fiduciary Duty - An employee who competes with an employer during the term of employment breaches the fiduciary duty that each agent owes to the agent's principal. In Prudential Ins. Co. of America v. Stella, 994 F. Supp. 318, 321 (E.D. Pa. 1998), the United States District Court for the Eastern District of Pennsylvania denied a motion for summary judgment dismissing a breach of fiduciary duty claim by Prudential against a departing agent who took rate books, files, client information, and forms at or before the time of his departure from Prudential to join a competing agency. The court held:

A fiduciary duty arises when the relationship between parties is one of trust and confidence such that the party in whom trust and confidence is reposed must act with scrupulous fairness and good faith in his dealing with the other and refrain from using his position to the other's detriment and his own advantage. Fiduciary duty demands undivided loyalty, prohibits conflicts of interest and its breach is actionable. An employee, as an agent of his employer, is considered a fiduciary with respect to matters within the scope of his agency and is subject to a duty not to act or to agree to act during the period of his agency for persons whose interests conflict with those of the principal in matters in which the agent is employed. Prudential Ins. Co. of America v. Stella, supra (citations omitted).

III. MISCELLANEOUS ISSUES

A. What, if Any, Hiring Measures Should be Adopted by a New Employer For Screening New Employees With Restrictive Covenants?

1. Is a Potential Employer Better Off Not Asking Whether a Prospective Employee Has a Restrictive Covenant?

Answer: Not necessarily. In Mixing Equipment Co. v. Philadelphia Gear, Inc., 312 F. Supp. 1269 (E.D. Pa. 1970), the court found the new employer liable simply on the basis that the new employer should have known of the non-compete, regardless of whether the new employer actually knew of the non-compete.

2. If a New Employer Hires a New Employee Without Knowledge of a Restrictive Covenant, is the New Employer at Risk if it Continues to Employ the New Employee After Learning of the Restrictive Covenant?

Answer: Only if the new employee's conduct violates the restrictive covenant. In many cases, the courts will allow the new employee to be employed in an area outside the area specified in the restrictive covenant, or restrain the new employee from performing specific acts, but not from employment with the new employer.

3. Does Consultation With Outside Counsel Provide a Defense to a Claim of Tortious Interference?

Answer: No cases have been found on this subject.

The new employer should establish a condition of employment that the employee will fully disclose the existence of any restrictive covenant, upon penalty of discharge if the employee does not do so. Additionally, the new employer may wish to condition the hiring upon the employee's entry into a restrictive covenant with the new employer. This action may be prudent, but may also be interpreted by courts as putting the new employer on notice as to the possibility of a non-compete with the old employer. See e.g., First Health Group Corp. v. National Prescription Administrators, Inc., 155 F. Supp.2d 194, 234 (M.D. Pa. 2001); 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), in which the District Court upheld the new employer's tortious interference claim on the ground that the new employer "knew or should have known, of [the employee's] restrictive covenants." Mixing Equipment Co. v. Philadelphia Gear, Inc., 312 F. Supp. at 1275.

Answer: There is no absolute right to indemnity by a Pennsylvania business corporation, unless the employee is successful in the litigation. Under the Pennsylvania Business Corporation Law, 15 Pa. C.S. § 1743, there is an absolute right to indemnity if the defense of the litigation is successful.

The Pennsylvania Business Corporation Law governs a corporation's ability to obtain payment of expenses for the legal defense of corporate employees, officers, and directors. Under 15 Pa. C.S. § 1741, unless restricted by corporate by-laws, a corporation may indemnify any person who is a party to any action or proceeding by reason of the fact that he or she was a representative of the corporation. The indemnification permitted by § 1741 covers both liabilities to opposing parties and legal fees. To qualify for indemnity, the individual must have acted in good faith and in a manner that the individual reasonably believed to be in, or not opposed to, the best interests of the corporation. The corporation may allow indemnity in specific cases by a majority vote of disinterested directors. 15 Pa. C.S. § 1744. The corporation may agree to pay all legal expenses in advance of the final disposition of any suit upon receipt of a promise by the individual to repay the corporation if it is determined that the individual is not qualified to be indemnified. The undertaking need only be a promise to pay; financial security is not necessary. 15 Pa. C.S. § 1745.

In summary, the only circumstance in which the individual will not receive indemnity is an unsuccessful result in which the individual has acted in a manner opposed to the best interests of the corporation.

2. Can the New Employer Indemnify the New Employee?

Answer: Yes. In Harsco Corp. v. Klein, 395 Pa. Super. 212, 221 n. 5, 576 A.2d 1118, 1122 n. 5 (1990), the employment contract between the new employer and the new employee provided as follows:

[T]here may be difficulty caused by your present employer relevant to a restrictive employment covenant that you have signed. In the event that legal actions are taken against you because of this covenant, Burke Scaffolding will underwrite all costs of defending your actions and our own. You shall be held harmless of any consequence of such actions, and the terms of this employment agreement shall apply regardless of any adverse outcome of such actions.

In Harsco v. Klein, supra, the Pennsylvania Superior Court affirmed the trial court's denial of preliminary injunction, but treated the indemnification clause as a possible indicator of liability on the tortious interference claim. Harsco dealt with a 2½-year restrictive covenant containing a non-compete, non-solicitation clauses for both the old employer's customers and employees, and a non-disclosure clause. The trial court denied a preliminary injunction on the ground that the old employer had shown no likelihood of irreparable harm.

The courts deferred the question of tortious interference. The Pennsylvania Superior Court noted that the hold harmless clause showed that the new employer was aware of the restrictive covenant - a key factor in establishing intentional interference.

Answer: Yes. It would appear that indemnification, whether by the new employer or the new employee may increase the likelihood of a finding of liability but will not be dispositive. In Harsco Corp. v. Klein, supra, the Pennsylvania Superior Court noted that the new employer's agreement to indemnify the new employee showed the new employer's knowledge of the restrictive covenant.

In National Chemsearch Corporation of New York, Inc. v. Bogatin, 233 F. Supp. 802, 810 (E.D. Pa. 1964), the United States District Court for the Eastern District of Pennsylvania (per Higginbotham, J.), held the new employer in the specialty chemicals field liable for intentional interference with a salesman's non-compete with his former employer. The court recited a number of actions by the new employer that gave rise to liability:

(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.

E. When May the Former Employer be Found Liable for Tortious Interference With the Former Employee's Relationship With His New Employer?

To state a claim for intentional interference, an ex-employee must allege that the ex-employer's conduct caused the ex-employee to sustain actual damages by interfering with the prospective relationship between the ex-employee and the new employer. It is not enough to simply state general damages such as limitation of employment opportunities.

In Ruffing v. 84 Lumber Co., 410 Pa. Super. 459, 600 A.2d 545 (1992), and Collincini v. Honeywell, Inc., 441 Pa. Super. 166, 601 A.2d 292 (1992), the Pennsylvania Superior Court held the former employer liable for intentional interference with the ex-employee's contractual relations with a new employer. In both cases, the old employer misled the new employer about the existence, validity, or extent of a restrictive covenant.

In Ruffing, supra, the former employer, 84 Lumber, had obtained a restrictive covenant from the employee after the commencement of employment, without additional consideration. When the employee left 84 Lumber to obtain a job with a competitor, 84 Lumber wrote to the competitor threatening to obtain an injunction to prevent the competitor from employing the former employee. As a result, the competitor did not hire the employee. The former employee sued 84 Lumber, alleging both tortious interference with contract and fraud. A jury found in favor of the ex-employee, and awarded both compensatory and punitive damages. On appeal, the Pennsylvania Superior Court upheld the jury award. The Superior Court held that the ex-employer did not have a legally protectible interest because the non-compete was invalid, since it lacked consideration. The Pennsylvania Superior Court evaluated the ex-employer's action under § 767 of the Restatement (Second) of Torts. The court noted that the ex-employer had misled the prospective employer on the geographic extent of the non-compete: the ex-employer stated that the non-compete prohibited competition within 25 miles of any 84 Lumber location, when in actuality the non-compete restricted work within 25 miles of a specific 84 Lumber store. Upholding the punitive damages award, the Pennsylvania Superior Court held that the ex-employer had engaged in "malicious, wanton, reckless, willful, and oppressive conduct" in the following respects:

1. ignoring the employee's statement that he had signed a contract and that the second contract (with the non-compete) was therefore unnecessary;
2. sloppy paperwork resulting in the loss of the original contract that contained no non-compete; and
3. misrepresenting the extent of the non-compete.

In Collincini v. Honeywell, Inc., 411 Pa. Super. 166, 601 A.2d 292 (1992), appeal denied, 530 Pa. 651, 608 A.2d 27 (1992), cert. denied, 506 U.S. 869, 113 S. Ct. 199 (1993), the Pennsylvania Superior Court upheld a $500,000 damage award, including $400,000 in punitive damages, against a former employer for interference with an employee's contractual relations. Like Ruffing, the Collincini case arose because of the misstatement of the right to restrict the former employee's actions. In contrast to Ruffing, however, in Collincini, the former employee had already begun work with the new employer, and the new employer dismissed the employee in response to threats from the former employer. The employee had never signed a non-compete clause with the former employer. The former employer's communications did not refer specifically to a non-compete clause, but only addressed "unfair competition" and "wrongful interference with . . . contractual relations" with third party customers. At trial, evidence was introduced to show that the former employer knew that it had no cause of action against the former employee, and that the employee had never signed a non-compete contract. Additionally, the information in question was not proprietary information. On this basis, the jury awarded substantial damages for intentional interference with the former employee's new employment relationship, and the Superior Court upheld this award.

An ex-employer may also be held liable for intentional interference for making disparaging remarks about a former employee who has a non-compete, in an attempt to force the new employer to discharge the employee. In Total Care Systems, Inc. v. Coons, 860 F. Supp. 236 (E.D. Pa. 1994), the United States District Court for the Eastern District of Pennsylvania dealt with a rift between a management organization and a chain of nursing homes, and a senior management employee of both the management company and the nursing home chain. The employee had a contract including a non-compete with the management company, and an employment relationship with the nursing home chain. The employee became harshly critical of the management company's conduct. The management company, in turn, disparaged the management employee, in an attempt to get the nursing home company to discharge the ex-employee. The management company and the employee sued each other for intentional interference. The court refused to dismiss the employee's intentional interference claim.

On the other hand, an ex-employee's action for intentional interference will generally fail if a valid restrictive covenant exists, and the ex-employer seeks to protect a valid interest. In Gresh v. Potter McCune Co., 235 Pa. Super. 537, 344 A.2d 540 (1975), the Pennsylvania Superior Court refused to hold that an ex-employer was liable for intentional interference when the ex-employer had informed the new employer accurately of the existence and validity of a restrictive covenant. The employee attempted to argue that the restrictive covenant was not a legally protected interest because it was unenforceable. The court refused to entertain this issue, holding that this issue only could be raised in an equity action to enjoin the ex-employer from enforcing the covenant. This decision seems somewhat at odds with Ruffing v. 84 Lumber Company, supra, in which the court allowed the ex-employee to sue for damages for intentional interference on the basis that the non-compete was not enforceable. Other cases in which courts have upheld ex-employers' rights to interfere with an ex-employee's contractual relations in actions for tortious interference by ex-employees are Hess v. Gebhard & Co., Inc., 769 A.2d 1186 (Pa. Super. 2001), appeal granted, ______ Pa. _____, 784 A.2d 118 (2001); Kademenos v. Equitable Life Insurance Society of the United States, 513 F.2d 1073 (3d Cir. 1975) (both involving insurance agency's right to compete for issuance of policies with former employee's new employer).

In Hess v. Gebhard & Co., Inc., supra, the old employer wrote a letter to an insurance agency interested in hiring the plaintiff threatening legal action over the violation of the plaintiff's non-compete. The agency decided not to hire the agent, who sued the old employer for intentional interference with prospective contractual relations. The trial court sustained the old employer's preliminary objections to the complaint and dismissed the complaint on the ground that the old employer had a privilege to send the letter to assert rights under the non-compete. The Pennsylvania Superior Court affirmed. Hess v. Gebhard & Co., Inc., supra, 769 A.2d 1186, 1195. NOTE: The Pennsylvania Supreme Court has granted a petition for allowance of appeal in Hess v. Gebhard, ______ Pa. _____, 784 A.2d 118 (2001).

In Kademenos, the plaintiff insurance agent sued the old employer for commissions on a policy cancelled by the insured. The plaintiff had secured the policy with a competitor of Equitable while plaintiff was an agent for Equitable under contract not to submit any policies to any other companies. The Third Circuit held that the agent had violated his duty to the principal and that Equitable had a privilege to cause the customer to terminate the contractual relationship with the competitor when the contract was the result of the agent's breach of duty to the principal.

The pleading of a restrictive covenant may, by itself, disclose a privilege that allows an ex-employer to pursue an ex-employee for violations of restrictions. In Bahleda v. Hankinson Corporation, 228 Pa. Super. 153, 323 A.2d 121 (1974), the Pennsylvania Superior Court upheld the dismissal of an ex-employee's intentional interference claim arising from the ex-employer's attempt to enforce a two-year non-compete. The old employer had notified the new employer that the employee was not free to take on the new employment because of the non-compete, with a resultant loss of the employment opportunity. The Superior Court dismissed the tortious interference claim in Bahleda because the plaintiff ex-employee had failed to allege an absence of privilege for the old employer's interference. The Court held,

By incorporating the contract in its complaint [ex-employee] has shown, contrary to his burden, the presence of a privilege on the part of [Hankinson], thus defeating his own cause of action.

Bahleda v. Hankinson Corp. supra, 228 Pa. Super. 153, 158, 323 A.2d 121, 122-123 (1990). The Court stated that the absence of a privilege was an essential element of the cause of action for intentional interference. The presence of a privilege was not an affirmative defense to an intentional interference claim. The Court quoted the definition of "privilege" Restatement (Second) of Torts, § 773

One is privileged purposely to cause another not to perform a contract, or enter into or continue a business relation, with a third person by in good faith asserting or threatening to protect properly a legally protected interest of his own which he believes may otherwise be impaired or destroyed by the performance of the contract of transaction.

A plaintiff ex-employee bringing an intentional interference claim against an ex-employer must focus on specific damages. "Delay" damages, because of the slower process of hiring an employee whose ex-employer had given negative comments, are not recoverable. See St. Luke's Hospital of Bethlehem v. O'Leary, 1994 WL 672629 (E.D. Pa.). A plaintiff must also claim some actual monetary damage from the interference with the relationship with a new employer, e.g., the actual loss of a prospective employment opportunity. In ATX Telecommunications Services v. U.S. Wats, 1993 WL 30076 (E.D. Pa.), the United States District Court for the Eastern District of Pennsylvania granted an ex-employee's counterclaim for intentional interference with a prospective contractual relationship with her new employer because the ex-employee had actually gone to work by the new employer and did not allege that the new employer threatened to terminate her employment. The court held that general claims of costs of litigation and impairment of credit are not adequate, and limitations on lost employment opportunities were not damages of the sort required in order to support an intentional interference claim. ATX Telecommunications Services v. U.S. Wats, 1993 WL 30076, *3 (E.D. Pa.)