Contents

Introduction

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 reasonable?

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?

Introduction

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 former employer. 

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 to compete.

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What is 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.

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Are they enforceable?

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.

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What are some examples of an employer's legitimate business interest?

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.

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What 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.

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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 for it.

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What 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.

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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.

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I 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.

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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 extent.

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What happens if I try to compete despite a valid agreement?

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.

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