Non-Compete: The Real Story (in Ohio)
An in-depth guide to non-competes in Ohio
Is the Non-Compete Agreement I Signed Enforceable?
You have been working for your current employer for several years. As a requirement for employment, you signed a non-compete agreement that prohibits you from working for a competitor of your current employer, either with another company or on your own, for a certain period of time after you leave the employer. You are tired of working for someone else and want to start a business doing the same sort of work you are currently doing. Is the non-compete agreement that you signed enforceable?
Non-compete Agreements are Valid in Ohio
Ohio generally recognizes the use of non-compete agreements. A few states, such as California, prohibit them in all but a few limited instances. Non-compete agreements are a way for employers to protect themselves from employees taking what they have learned while working for the employer, especially customer contacts and proprietary business information, and using that information against the employer. Armed with the non-compete agreement, the employer may be able to get monetary damages and possibly an injunction ordering the employee to stop using the information.
However, not all non-compete agreements in Ohio are enforceable. A non-compete agreement will only be enforceable if it is reasonable.
What is Reasonable?
Reasonableness sounds like a very hard thing to determine. After all, what is reasonable to you might not be reasonable to someone else. Thankfully, the Ohio Supreme Court took up this issue in Raimonde v. Van Vlerdah (1975), 42 Ohio St.2d 21. In Raimonde, the Court set out a three-part test for us to use to help determine whether a non-compete restriction is reasonable.
A non-compete restriction is reasonable if it satisfies all of the following:
The restriction is no greater than what is required for the protection of the employer’s legitimate business interest.
The restriction does not impose undue hardship on the employee.
The restriction is not injurious to the public.
Id. at 25-26. From an employee standpoint, I’m sure that the restriction, no matter what it is, seems to be an undue hardship on you. And how exactly do you determine whether a restriction is “not injurious to the public?”
The Supreme Court, in the Raimonde case, set out a list of factors to use to help determine whether a non-compete agreement satisfies those conditions. The factors include: 1. the absence or presence of limitations as to time and space; 2. whether the employee represents the sole contact with the customer; 3. whether the employee is possessed with confidential information or trade secrets; 4. whether the covenant seeks to eliminate competition which would be unfair to the employer or merely seeks to eliminate ordinary competition; 5. whether the covenant seeks to stifle the inherent skill and experience of the employee; 6. whether the benefit to the employer is disproportional to the detriment to the employee; 7. whether the covenant operates as a bar to the employee’s sole means of support; 8. whether the employee’s talent which the employer seeks to suppress was actually developed during the period of employment; and 9. whether the forbidden employment is merely incidental to the main employment. Id. at 25.
Just When You Thought You Had It Figured Out
With a laundry list of factors to look at, whether your non-compete agreement is reasonable and therefore enforceable against you will depend on the circumstances of your employment and the specific language of the agreement. Most of the time, there will be some factors that lean towards the restriction being reasonable and others towards it being unreasonable. In the end, it is balancing game of all the factors, and it may come down to the courts ultimately deciding which way the scale tips.
Let’s say for argument sake that the non-compete agreement you signed with your employer is unreasonable. That means it is unenforceable, you can tear the agreement into celebratory confetti, and you are free to start your business without worry, right? Well, not quite. Because Raimonde added one little wrinkle into non-compete analysis.
Even if a non-compete agreement is found to be unreasonable as written, a court can modify or amend the restriction so that is satisfies the three-part test and becomes reasonable. Id. at 26. You signed an agreement not to compete against your employer. Even if the terms the employer put into the agreement were too restrictive, you still made a promise not to compete. The courts can enforce that promise by re-writing the non-compete restriction to make it reasonable. Well, at least reasonable to them – you may, of course, disagree.
What Does It All Mean?
Is the non-compete that you signed with your employer enforceable? Well, it is possible that the agreement you signed is in fact unreasonable and therefore unenforceable. That is the good news. The bad news is that the courts can re-write the agreement to make it reasonable and enforceable. Assuming the agreement is otherwise valid, if it is possible to make the restriction against you reasonable, they will. If, no matter what the court does, it is impossible for a non-compete restriction against you to be reasonable, then odds are good you can quit your job and start designing your new business cards without worrying about the non-compete.
From a practical standpoint, the factor most likely to be re-written in a non-compete agreement is the time and space restriction. If the other factors tend to weigh towards reasonableness, but the time and space factors do not, courts will usually not hesitate to add less restrictive time and space language to make the non-compete reasonable. If the other factors tend to weigh towards unreasonableness, regardless of the time and space factor, then the restriction will probably be completely stricken and unenforceable.
Bottom line: if you sign a non-compete agreement with your employer, don’t be surprised if it ends up being enforceable against you to some extent; if you don’t want a non-compete restriction to be enforced against you, then don’t agree to one in the first place.