Are Non-Compete Agreements Enforceable?

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The enforceability of non-compete agreements varies by state.  In a few states, an over-broad or burdensome non-competition agreement will be held to be unenforceable.  In other states, including Ohio, courts will rewrite non-competition agreements so as to scale back overly-broad provisions, while still protecting what the court believes to be the employer’s legitimate business interests.  Courts generally permit a non-competition agreement between a business and a former business owner to be of longer duration, cover broader territories and be more restrictive, than a similar agreement between the business and an employee.  For example, a non-competition agreement might only be enforced by a court against an employee for 12-18 months in a 25 mile radius of the business, while the court might enforce the non-competition agreement for 5 years or more anywhere in the United States if such restriction was necessary to protect the legitimate interests of the business from a former business owner. 

A good non-competition agreement should accurately describe the term, the restricted territory and the types of activities that would be considered competitive.  But a better non-competition agreement should also prohibit solicitation of customers, vendors, employees and others who have a business relationship with the business.  And the best non-competition agreement will also include a provision prohibiting use or disclosure of confidential or proprietary information.

A well-drafted non-competition agreement should provide that the business is entitled to use all equitable and legal remedies necessary to enforce the agreement, and that the business can collect attorney fees and other costs necessary to enforce the agreement.  In many situations it also makes sense for the non-competition agreement to include a liquidated damages clause which provides for monetary damages to be paid to the business if the former owner or employee uses or discloses confidential information, solicits a client or employee or otherwise violates the non-competition agreement.  Please call or email me if you would like to talk about non-competition agreements or need help in enforcing such an agreement.   Jsenney@pselaw.com or 937-223-1130.

AND ONE MORE THING.  Many small businesses share confidential information with their employees.  This confidential information can include client names, addresses and other client contact information, business methods, business practices and know-how.  This confidential information can be the life blood of the business.  Yet business owners often fail to adequately safeguard this information.  While state law provides some protection for “trade secrets”, such protection is limited and difficult to enforce.  Confidential information should be protected by a properly drafted and executed non-competition and/or non-disclosure agreement.  Call or email me if you would like to talk about protecting your confidential information at Jsenney@pselaw.com or 937-223-1130.