Seven Myths Regarding Non-Competition Agreements
Kegler Brown Litigation Newsletter April 1, 2009
Non-competition restrictions limit an employee's ability to compete with his or her former employer. Such restrictions may be as broad as a direct prohibition against working in a particular business for a defined period of time in a defined geographic area, or as a narrow as a restriction against soliciting the former employer's customers for a short period of time.
The test for determining whether a non-competition restriction is enforceable is based upon reasonableness and includes a variety of factors that courts consider in determining whether a restriction is reasonable. Such factors include, among other things: (1) the temporal and geographic scope of the restriction; (2) whether the former employee was exposed to confidential information during employment; (3) whether the restriction precludes the former employee's sole means of support; (4) whether the former employee's talents suppressed by the restriction were developed during the employment with the former employer; and (5) whether the benefit of the restriction to the former employer is disproportionate to the detriment to the employee.
The reality of the law is often quite different from what people generally believe to be the case regarding the enforceability of non-competition restrictions. In that regard, here are seven common myths regarding Ohio law with respect to non-competition agreements:
MYTH #1: NON-COMPETITION RESTRICTIONS ARE NOT ENFORCEABLE.
REALITY: Well-drafted non-competition restrictions that are reasonable in temporal length and geographic scope are typically enforced by the courts.
MYTH #2: A NON-COMPETITION RESTRICTION THAT COVERS THE ENTIRE UNITED STATES IS UNENFORCEABLE.
REALITY: Whether or not a restriction that covers the entire United States would be unenforceable would likely depend upon the geographic reach of the former employer and the duties of the former employee. If a former employee was national sales manager for a company that sold goods or services throughout the entire United States, a broad restriction covering the entire country may well be enforceable.
MYTH #3: NON-COMPETITION RESTRICTIONS ARE UNENFORCEABLE IF THERE IS NO PAYMENT IN EXCHANGE FOR THE RESTRICTION.
REALITY: For employees-at-will (i.e., can be terminated at any time, with or without cause), continued employment is considered sufficient contractual consideration for entering into a non-competition agreement/restriction.
MYTH #4: NON-COMPETITION RESTRICTIONS ARE UNENFORCEABLE IF THE CUSTOMERS SEEK OUT THE FORMER EMPLOYEE.
REALITY: Whether a non-competition restriction prohibits providing services or products to customers of the former employer who seek out the former employee depends upon the wording of the restriction. If the restriction prohibits the former employee from providing services or products to a particular customer for a period of time, the restriction is typically enforced, whether or not the customer sought out the former employee. On the other hand, if the restriction only prohibits solicitation of customers, whether the customer sought out the former employee may be important to determining whether a violation occurred.
MYTH #5: IF NON-COMPETITION RESTRICTIONS ARE NOT ENFORCED AGAINST EVERY EMPLOYEE THAT LEAVES, THEY BECOME UNENFORCEABLE.
REALITY: While a lack of consistency of enforcement may weigh against enforcement in a particular instance, a non-competition restriction may be enforceable against an employee, even if the employer did not enforce it the last time an employee left the company.
MYTH #6: THE GEOGRAPHIC SCOPE OF A NON-COMPETITION RESTRICTION IS MEASURED BY DRIVING DISTANCE.
REALITY: Geographic distance restrictions are measured as straight-line distances or "as the crow flies." Such measurements are now readily available from Google Earth or other GPS measurement services.
MYTH #7: IT'S OKAY TO USE CUSTOMER INFORMATION MAINTAINED IN YOUR MEMORY, SO LONG AS YOU DON'T TAKE A WRITTEN CUSTOMER LIST.
REALITY: The law in Ohio holds that customer information retained in a person's memory through their work with a former employer is just as much of a trade secret as a list written on paper or maintained in a computer. To the extent that enforcement of a restriction turns upon exposure to confidential information or trade secrets, a former employee is not immune from restriction just because he or she did not take any written or computerized information when they left.