The Ultimate Guide to Non-Compete Agreements in Ohio
Companies big and small often employ noncompete agreements in order to protect company goodwill, confidential information and current employees. However, the enforceability of these agreements under Ohio law depends on a variety of factors. Often times, there are also other agreements beyond just a simple non-competition agreement that is involved in an employment contract. These can include agreements such as non-solicitation agreements, nondisclosure agreements, and trade secret protections. Let’s take a look at the enforceability and the law surrounding all of these agreements in this article from the business lawyers at Sawan & Sawan.
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Are Non-Compete Agreements Enforceable in Ohio?
As with many aspects of the law, the short answer is, it depends. In. general, Ohio subscribes to the idea that “”as in other cases, it is still believed to be good policy to let people make their own bargains and their own valuations.” As a threshold issue, all contracts require consideration to be enforceable. Consideration is generally defined as the quid pro quo of a deal, or in english, the “this for that.” Ohio courts have made clear that “all agreements in restraint of trade without consideration therefor were held presumptively void. Judy v. Louderman, 48 Ohio St. 562. Notably, Ohio Courts have clearly held that forbearance on the part of an at-will employer from discharging an at-will employee serves as consideration to support a non-competition agreement. Lake Land Emp. Group of Akron, LLC v Columber, 101 Ohio St. 3d 242.
Ohio Courts have also been swayed in some instances depending on the type of work retsrained. For example, as the Ohio Supreme Court explained in a non-compete case dealing with skilled tradesmen:
“Working men entered skilled trades only by serving apprenticeships. Mobility was minimal. Restrictive covenants either destroyed a man’s means of livelihood, or bound him to his master for life. Later, as the character of the work-a-day world became more flexible, courts sought a means to lift the blanket prohibition on employment restrictions.” Raimonde v. Van Vlerah, 42 Ohio St. 2d 21
As a result of this understanding of how onerous non-compete agreements can be for employees, as well as a balance of the important interests of employers throughout Ohio, the Ohio Supreme Court created a test to determine when a competition agreement is valid and enforceable. To begin, the Ohio Supreme Court made it clear that “each case must be decided on its own facts.” Thus, the Ohio Supreme Court has long recognized the validity of agreements that restrict competition by an ex-employee if they contain reasonable geographical and temporal restrictions. Briggs v. Butler, 140 Ohio St. 499. In short, the Ohio Supreme Court has stated that:
“A covenant restraining an employee from competing with his former employer upon termination of employment is reasonable if the restraint is no greater than is required for the protection of the employer, does not impose undue hardship on the employee, and is not injurious to the public.”.” Raimonde v. Van Vlerah, 42 Ohio St. 2d 21
While this statement of Ohio law leaves some ambiguity in the analysis of any individual scenario, there are a couple of best practices to consider when determining if a non-competition agreement is enforceable under Ohio law.
- How broad and reasonable are the time and space limitations?
- Do mulitple employees have contact with the same customers?
- Does the employee possess any confidential information or trade secrets?
- Does the non-compete agreement stifle the employees limited skill and experience?
- Is there a disproportionate benefit to the Employer versus the Employee?
- How long do the work restrictions last?
Trade Secrets and Litigation
Without a doubt, trade secret theft is one of the most harmful things that can happen to a business. This is especially true in newer businesses that have invested heavily in a proprietary process or product. “Ohio has adopted the widely relied-upon definition of a trade secret found at Restatement of Torts § 757, comment b (1939).” Al Minor & Assoc., Inc. v. Martin, 2008 Ohio St.3d 58. Early Ohio trade secret cases defined a trade secret as “a plan or process, tool, mechanism, or compound, known only to its owner and those of his employees to whom it is necessary to confide it, in order to apply it to the uses for which it is intended.” Natl. Tube Co. v. E. Tube Co, 69 Ohio St. 560. Ohio law has codified the definition of trade secrets in O.R.C. §1333.61. “[I]nformation, including the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, pattern, compilation, program, device, method, technique, or improvement, or any business information or plans, financial information, or listing of names, addresses, or telephone numbers, that satisfies both of the following:
- It derives independent economic value, actual or potential, from not being generally known to, and not beingreadily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.
- It is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” R.C. 1333.61(D).
- The extent to which the information is known outside the business; and
- the extent to which it is known to those inside the business, i.e., by the employees); and
- the precautions taken by the holder of the trade secret to guard the secrecy of the information; and
- the savings effected and the value to the holder in having the information as against competitors; and
- the amount of effort or money expended in obtaining and developing the information; and
- amount of time and expense it would take for others to acquire and duplicate the information.
Depending on the circumstances and the unique cost-benefit analysis of your situation, trade secret litigation can be extremely beneficial to prevent unfair competition. In may cases, investing in trade secret litigation can also send a strong message to other competitors about trying to steal proprietary information. However, as with all business decisions, the choice to sue a competitor should be made in conjunction with the counsel of your lawyer and with a clear mind.
What Terms Should be Included in an Ohio Non-Compete Agreement?
While every scenario will require a specific approach, there are some best practices that should be included in every non-compete agreement to ensure both the enforceability of it, as well as providing certainty as to its operation. Among these terms are the following:
- Choice of Law. Choice of law provisions dictate which State law applies. It’s important to remember that State law can differ widely, so you need to ensure that you are getting what you bargained for by explicitly asserting a certain State law. Ohio law has long recognized these provisions so long as there is some reasonable basis for the chosen law, the State chosen has a substantial relationship to the transaction and the enforcement of the terms would no be contrary to a fundamental policy of a state having a greater interest in the case.
- Forum Selection Clause. Businesses have both a financial and logistical interest in ensuring that litigation does not occur in a far off location. A forum selection clause seeks to ensure that a case be litigated in a certain location. This increases efficiency, while ensuring that a Court with a more vested interest in the outcome presides over the litigation.
- Confidentiality. Depending on your specific business, you may want to keep the terms of the non-compete agreement confidential. While this type of clause is fairly straight forward, you want to ensure that there are appropriate exceptions for disclosure to certain people – such as lawyers and accountants.
- Liquidated Damages. This may be one of the most important provisions to include in your non-compete agreements. By far, one of the most expensive and time consuming parts of non-compete litigation is valuation of damage. A liquidated damages provision sets an amount of damage in advance of breach, which saves untold thousands of dollars in expert fees should the agreement need to be enforced.
Dennis E. Sawan
Licensed in Ohio and Florida
Dennis P. Sawan
Licensed in Ohio and Georgia
Christopher A. Sawan
Licensed in Ohio and Michigan
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