What are covenants not to compete?
Are they enforceable?
What are examples of an employer's legitimate business interest?
What if I cannot work anywhere else?
What should I ask for when negotiating a covenant not to compete?
What if the employer is not
I signed my non-competition agreement after I started my employment.
Is it valid?
I signed an agreement but now want to go into business for myself.
Can I get out of it?
What if the agreement restricts my employment more than is necessary
to protect my employer? Do I get out of it?
What happens if I try to compete despite a valid agreement?
Today more employees than ever find a
promising career path blocked by an agreement that meant little to
them when they signed it. In Ohio and many other states, courts
will enforce agreements by employees not to compete against their
Fortney & Klingshirn provides
answers to frequently asked questions about covenants not to compete
to help you evaluate your options. These answers are not a
substitute for legal advise. You must consult counsel liscensed
to practice in your state before signing or negotiating a covenant not
a covenant not to compete?
A covenant not to compete is a promise
by an employee not to compete with his or her employer for a specified
time in a particular place. A covenant not to compete, which is
also known as a non-competition agreement, may be a clause in an
employment agreement or a separate contract standing by itself.
Generally speaking, yes. Courts
have traditionally frowned upon restrictions placed by employers on
their employees' right to find and make a living. However,
courts will enforce non-competition agreements if:
- the employer proves that it has a
legitimate business interest to protect by restricting its
employees' right to compete against it;
- the restriction on the employee's
right to compete is no greater than that necessary to protect the
employer's business interest; and
- the covenant not to compete is
supported by consideration, meaning that the employee received
something in exchange for it.
are some examples of an employer's legitimate
An employer has a legitimate interest
in preventing an employee from taking advantage of relationships or
information acquired as a result of his or her employment. If an
employer gives a new employee its customer list, for example, the
employer can enforce an agreement that prevents the employee from
contacting those customers on behalf of a competing business.
As another example, an employer can
protect its investment in training an employee by preventing the
employee from taking the knowledge acquired on the job to compete
against the employer.
if I cannot work anywhere else?
If the employer's restriction against
competition prevents you from working anywhere for anyone, it is
probably too broad. Few employers will be able to convince a
court that their business interest is important enough to
prevent an employee from working for anyone else.
I am in the process of
negotiating a non-competition agreement. What
should I ask for?
First, you should ask to limit the
agreement to that which is necessary to protect the employer.
Second, if it is necessary to prevent you from working for a period of
time in a highly specialized industry or occupation, ask for severance
payment in the event of an involuntary termination that is not for
cause. If the employer really needs this protection, it can pay
if the employer is not reasonable?
Consider working elsewhere.
Before you sign away your freedom to find other work, make sure that
you receive fair compensation, such as training and new contacts or
severance pay. If the exchange for the restriction on your right
to compete is not fair, find other employment.
I signed my non-competition
agreement after I started
my employment. Is it valid?
Maybe. The law is unsettled in
Ohio on such "mid-term" non-competition agreements. If
your employer attempts to enforce a non-competition agreement for
which you received nothing new, you can argue that you did not receive
"consideration" for it. Consult your legal counsel on
this subject for additional information.
signed an agreement before but now want to go into business
for myself. Can I get out of it?
Not if it is otherwise valid, as
discussed above. The lesson here is that you must negotiate a
non-competition agreement before you start your employment, not when
you are ready to end it. Otherwise, you may not be able to make
your next career move.
Keep in mind that the law of
non-competition agreements tries to do what is fair:
restrict the employee's freedom to compete just enough to enable the
employer to protect its business interest. In other words, if it
would not be fair for you to take advantage of an employer's
training or investment, a court will allow the employer to protect
that training or investment.
What if the agreement restricts
my employment more than is necessary to protect
my employer? Do I get out of it?
Not necessarily. In Ohio, courts
have the right to redraw non-competition agreements so that they are
no broader than what is necessary or lawful. Therefore, unless
the employer fails to prove the existence of any legitimate business
interest, the court will likely restrict the employee at least to some
happens if I try to compete despite a valid
Plenty, and not much of it good.
First, your employer can file suit against you for an injunction and
money damages. If the employer can point to a facially valid
agreement and reasonable restrictions, most courts will grant an
injunction while the lawsuit is pending. You will have to hire
an attorney to defend the suit and, when it is over, you not only may
owe the money damages sought by the employer, but may be prevented
from competing for a period of time following the lawsuit.