Non-competition agreements, also known as covenants not to compete or restrictive covenants, are employment contracts used by employers to limit the ability of an employee to compete with the employer by stealing customers or trade secrets. Enforceable agreements must strike a balance between protecting the employer’s legitimate business interests from an unfair competitive advantage with the employee’s right to work in a field for which he or she is trained.  In general, decide what is considered reasonable or not reasonable by examining the type and size of the business, how long and over what geographic area the restrictions apply and whether adequate consideration, or benefit, was given the employee at the time the agreement was signed.

The Law In Ohio

Ohio courts have determined that restrictive covenants are enforceable if the terms are reasonable and necessary to protect certain business interests of the employer such as customer lists and trade secrets. Factors considered when determining reasonableness include the hardship an agreement puts on the former employee, its effect on the general public and the restrictions placed on time, territory and activity of the former employee.

Consideration

With any contractual arrangement, both parties must be giving and receiving something of value, also known as consideration. Ohio courts have determined that the offer of initial or continued employment is sufficient consideration or benefit to the employee in exchange for agreeing to not compete with the employer should the employment relationship terminate.

Reasonableness in Time and Geographic Scope

Agreements may be deemed unenforceable if a court finds that they are unreasonable in terms of duration, geographic scope and the type of employment or line of business being restricted. Other factors courts will consider include:

• whether the employee was the sole contact with the customer;
• whether the employee possessed confidential information or trade secrets;
• whether the agreement seeks to eliminate unfair or merely ordinary competition;
• whether the agreement seeks to stifle the inherent skill and experience of the employee;
• whether the benefit to the employer outweighs the detriment to the employee;
• whether the agreement bars the employee’s sole means of support;
• whether the employee’s talent was developed while working for the employer; and
• whether the forbidden employment was merely incidental to the main employment.

If a court finds an agreement is unreasonable, it may modify the agreement so that it does not unduly infringe on the former employee’s ability to work.

Examples of non-compete agreements that Ohio courts have found to be reasonable include:

• A 1-year, 25-mile radius restriction against a registered nurse anesthetist from competing with the former employer medical clinic where the nurse had the option to buy out the non-competition agreement for $50,000.
• A 3-year restriction against the marketing manager of a hair care products company from employment with a direct competitor of the former employer.
• A 1-year restriction against the regional sales manager of a consumer label and fastener materials manufacturer from using confidential customer information.

The courts have found restrictive covenants unreasonable or used the “blue pencil” rule to modify agreements in these situations:

• An 18-month, 2-county restriction against the former sales manager of a car dealership because the manager had no proprietary information and the disruption caused by his resignation was not a legitimate business interest.
• A 1-year restriction with no geographic limitation against a former insurance salesman because the employer had no legitimate interest outside the six-state territory in which the salesman had worked.
• A 2-year restriction against the former employee of a commercial janitorial firm from accepting employment with commercial janitorial firm that competed directly or indirectly with the former employer in any county in which the employer had a customer or prospective customer.

Employers need to keep these issues in mind when asking employees to sign restrictive covenants. It is also important to know if potential new hires have a non-compete agreement with a former employer. In some cases, the new employer can be liable to the former employer if hiring the employee would put him or her in violation of the agreement. Different rules may apply to situations in which all or part of a business is being sold and a restrictive covenant is agreed to by the buyer and the seller.