Good News from the Ohio Supreme Court on Noncompetition Agreements

By Lawrence F. Feheley

The Ohio Supreme Court has resolved a long-standing and nagging issue about the enforcement of noncompetition agreements in Ohio. The decision was by a slim 4-3 majority of the Court. The Supreme Court ruled that an employer's decision not to discharge an at-will employee is sufficient consideration to support a noncompetition agreement.

Noncompetition agreements must be in writing. Assuming that the contract meets the other requirements for enforceability, such as reasonable time and geographic restraints, a noncompetition has always been enforceable if it was signed at the start of the employment. What the Supreme Court's decision means is that such a contract is similarly enforceable even if it is signed after the start of the employee's employment, and even though no new or additional consideration (such as a promotion, or raise, or monetary payment) is given to the employee at the time the agreement is signed.

In the case before the Supreme Court, the employee was hired in 1988 and he signed the non-competition agreement three years later in 1991. The agreement provided that the employee would not engage in any competitive business for three years, within a fifty-mile radius of Akron, upon the termination of his employment. The employee continued to work for the employer for ten years after signing the agreement. In 2001, after being discharged, he formed a corporation that engaged in a business similar to that of his former employer. When the employer sued to prohibit his competition, the employee argued that the agreement was not enforceable because there was no consideration for his signing the agreement – that he was not given anything additional, like a promotion or payment, in exchange for signing the agreement. The trial court and the appeals court both agreed with the employee and refused to enforce the agreement.

The Supreme Court disagreed with the lower courts. The Court concluded that "forbearance on the part of an at-will employer from discharging an at-will employee serves as consideration to support a noncompetition agreement." Essentially, the Supreme Court said that an at-will employee who objects to a noncompetition agreement can quit; alternatively, and employer can fire an at-will employee who refuses to sign a noncompetition agreement. The Court viewed the presentation of a noncompetition agreement as a proposal to re-negotiate the employment relationship. When the employee signs the agreement, and the employer does not exercise its right to fire the employee, the employee accepts continued employment on the new terms.

The Supreme Court reiterated that noncompetition agreements must still meet the requirement of reasonableness to be enforceable. The court therefore sent the case back to the trial court to decide that issue.

The case is Lake Land Employment Group v. Columber (2004), 101 Ohio St. 3d 242.