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Non-compete agreement FAQs

By Neil E. Klingshirn

Contents


Unlock Non-Compete Agreements: Keys to Escape

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 most states, courts 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 before you sign one or after you find your chosen career path blocked.  These answers are not a substitute for legal advise.  To protect your rights fully, you must consult counsel licensed to practice in your state.

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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 or in a particular way. 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 once did not enforce non competition agreements, viewing them as unlawful restraints on trade.  Today, 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.

Every case turns on its own facts. Judges who enforce a non-competition agreement must balance the protection of the employer's business interest against the employee's right to earn a living, as well as other factors, such as whether the restrictions will harm the public.

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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, information or skills acquired as a result of his or her employment.  If an employer gives a new employee its customer list, for example, most courts will 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?

Yes, at least in Ohio. At one time Ohio courts questioned whether a non-competition agreement that you signed after you began your employment and for which you received nothing new had enough "consideration" to be enforceable. However, the Ohio Supreme Court recently held that, in the case of an at-will employee, continued employment was enough consideration to make the agreement enforceable.

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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 balance restrictions on the employee's freedom to compete just enough to enable the employer to protect its business interest.  In other words, if you are seen to be taking unfair 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.

Another tactic for the former employer is to threaten your new employer with a lawsuit for "tortious interference" with the non-competition agreement between you and your old employer. If your non-compete is valid, then a third party who induces you to break it can face the same liability as you, and possiby more.  To avoid this liability, the new employer will often terminate the new employee, which it is free to do.

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Where can I find more answers about this topic?

Mel has collected Questions and Answers, Wiki articles and Blog articles about non-competition agreements. Articles on non-competition agreements include:

If you still cannot find the answer to your question, Ask mel and we will send your question to attorneys in your state.

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I want to consult an employment attorney to discuss my non-competition agreement. Do you have any suggestions?

You can schedule a consultation with Neil Klingshirn if you are in Northeast, Central or Southeast Ohio (that is, near Akron, Canton, Cambridge, Cleveland, Columbus, Lorain, Marietta, Youngstown or Wooster Ohio).

If you live live elsewhere, we suggest that you:

  • search for a lawyer on My Employment Lawyer;
  • search the National Employment Lawyer's Association's (NELA) attorney directory;and
  • search the attorney directory of a state affiliate NELA, such as the California Employment Lawyer's Association. To find an affiliate in your state, search for "[State] Employment Lawyer's Association"; or
  • consult the general "Bar Association" in your area, which is a trade association of local attorneys.  It will probably have an attorney referral service. Ask for attorneys who practice employment law.

Most attorney directories and referral services provide only the attorney's name and contact information. Therefore, you may need to do some more research. As a general rule, the best employment attorneys:

  • Write and speak on employment law topics;
  • Are recognized by their peers (for example, are listed in Super Lawyers or have "AV" ratings); and
  • Are Board Certified in employment law in those states that offer specialty certification.

On mel, you can see who has contributed articles and answers to mel, as well as the quality of that work.

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