BUSINESS LAW CINCINNATI: What You Need to Know About Non-Compete Agreements

BUSINESS LAW CINCINNATI: What You Need to Know About Non-Compete Agreements Posted on – 07/14/2017 by PJK Whether you are an employee who has signed a non-compete agreement, or an employer who requires your employees to sign a non-compete agreement, it is important to understand how they are created and enforced in today’s business world.  Employees must understand how a non-compete agreement can impact their future opportunities, while employers must be confident their agreements are enforceable and that they have been crafted to protect their legitimate business interests. A non-compete agreement is a contract that prohibits a former employee from competing against his or her former employer.  Like all contracts, in order for it to be enforceable, there must be an offer, acceptance of the offer, consideration, that is, a legal benefit to each party, mutual agreement, and the contract must not be against public policy. The offer and acceptance elements of a non-compete agreement are usually pretty easy to identify.  The employer presents the non-compete agreement to its employee – the offer, and the employee signs the non-compete agreement – the acceptance.  Where matters get a little more complicated is when the elements of consideration and public policy questions are in dispute. In an ideal situation, the employer will present a non-compete agreement to an employee for signature on the day he or she is hired.  In this scenario the employer’s consideration is the job offer and the employee’s consideration is the agreement not to compete.  But what about a situation where an employer asks an employee to sign a non-compete after the employee has already been working for the employer for an extended period of time.  If the employee already has the job, the job offer can’t serve as consideration.  Does this make the non-compete agreement void or unenforceable?  The short answer is, no. Many employees and employers are under the misconception that if a non-compete is not signed when the employee is hired, or shortly thereafter, the non-compete is not binding.  When in actuality, the courts have ruled that an employer’s decision to continue the employment of an employee, who the employer could have otherwise terminated without cause but didn’t, acts as sufficient consideration to support the signing of a non-compete agreement. In more simple terms, the presentation of a non-compete agreement by an employer to an at-will employee is, in effect, a proposal to renegotiate the terms of the parties’ at-will employment relationship.  If the employee is not an at-will employee, and has an employment contract that prohibits his or her termination, a different form of consideration may have to be provided to the employee. When evaluating the public policy issues involved in a non-compete agreement the particular facts and circumstances of the relationship must be considered.  Since non-compete agreements by their very nature act as a restraint on trade, they will only be enforced by the courts to the extent the restraints are reasonably necessary to protect the employer’s legitimate business interests.  In order for a non-compete agreement to be considered reasonable, the restrictions contained in the agreement must (1) be no greater than necessary to protect the employer’s legitimate business interest, (2) not impose undue hardship on the employee, and (3) not be injurious to the public. There are many factors that must be considered in determining whether a non-compete agreement is reasonable.  Some of these factor include, the geographic limits of the non-compete (i.e., within 100 miles of the employer), the time limit of the non-compete (i.e., for a period of 6 months), whether the employee represents to the sole customer contact, whether the employee possesses confidential information or trade secrets, whether the agreement stifles a pre-existing skill, and whether the clause restricts the employee’s sole means of support. Non-compete agreements come in many shapes and sizes, and can vary a great deal from industry to industry.  Before a non-compete agreement is signed, employees should be certain they fully understand its terms and how it could impact future employment opportunities, while employers should make certain their agreements are enforceable and that that they protect their legitimate business interests. Paul Kellogg is an attorney in Cincinnati with the Phillips Law Firm, Inc. Paul’s practice focuses on providing comprehensive estate planning and probate services to families and business owners, as well as serving as outside general counsel to entrepreneurs and businesses where he provides guidance and advice on a wide variety of transactions and disputes.  He can be reached at (513) 985-2500 or via email at [email protected].   Please explore Paul’s other articles on estate planning and business on the Phillips Law Firm Blog page.  The article is for educational and informational purposes only and does not constitute legal advice. Anyone contemplating taking legal action is urged to obtain proper legal advice from an attorney licensed in your particular jurisdiction.     For an initial consultation contact us at (513) 985-2500 or email us or click Chat Now!® to get started immediately.