What is a Non-Compete Agreement?
A non-compete agreement, also known as a non-compete clause or covenant not to compete, is an agreement between two parties (often between an employer and employee) whereby one party agrees not to compete with the other party for a specific amount of time or in a certain geographical area. Essentially, a non-compete agreement will restrict you from engaging in a competing business during your employment, and for a certain period of time after you leave your employment. This agreement can be entered into either at the beginning of the business relationship or at the end.
Why Should I Have a Non-Compete Agreement in Place?
A non-compete agreement is designed to decrease the possibility that an employee, who gains knowledge regarding their employer’s business while working for them, will be able to use that knowledge to the disadvantage of the employer.
Requirements Governing a Non-Compete Agreement in Ohio
While employers may require a non-compete agreement for a variety of reasons, courts generally disapprove of the use of such agreements. This is because such agreements limit the ability of a person to earn a living. Thus, courts closely scrutinize non-compete agreements and will refuse to enforce them if they place too great a burden on the employee. Therefore, three legal requirements must be met:
- The non-compete agreement, as with most contracts, must be supported by consideration;
- It must protect a legitimate business interest of the employer; and
- It must be limited in scope, duration and geographic area.
Other information that must be included within the agreement include the effective date of the agreement, the names and addresses of the parties, and the reason for the non-compete agreement. Recommended provisions include prohibiting the employee from soliciting the employer’s customers as clients, hiring the employer’s other employees, or disclosing the employer’s confidential information. Finally, the agreement must be signed by both parties.
Consideration is the exchange of something of value. In this context, the employee must be given something of value (i.e., employment) in exchange for signing the agreement. This exchange, prior to employment, is perfectly fine. However, if the employer wishes for an employee to sign a non-compete agreement after employment has occurred, continued employment will not suffice as consideration. New value must be given, such as a work benefit or promotion.
Legitimate Business Interest
A legitimate business interest is a vague term, but it includes ideas such as confidential information and company goodwill. If the company takes reasonable steps to ensure the information is kept secret, and the information gives the employer a competitive advantage in the marketplace, the information can be protected as a legitimate business interest. Additionally, company goodwill developed with customers is an asset to the business and can be protected.
Scope, Duration and Geographic Area
Courts balance the legitimate business interest of the employer against the burden imposed on the employee in weighing whether a non-compete agreement is enforceable. The scope, duration and geographic area limitations within a non-compete agreement are fact specific, but they cannot impose too great a burden on the employee. These provisions are judged on a reasonableness standard. If the provisions are too broad, the court could narrow the scope of the provisions or refuse to enforce the agreement in its entirety.
Columbus and Delaware, Ohio Small Business Attorney
If you wish to create a non-compete agreement to protect your small business in Columbus or Delaware, Ohio, contact Johnson Legal, LLC and speak with an experienced small business lawyer. Attorney David Johnson of Johnson Legal, LLC will discuss your small business needs. Call (614) 987-0192 or send an email to schedule a consultation.