If you are a business owner, you may be considering implementing a non-compete agreement for your employees. An effective agreement protects the employer and prevents an employee from leaving and using information gained through previous employment to set up a competing business. You do not want your employees to take client lists or proprietary recipes to your competitors. However, some employers make the mistake of trying to cover every base and creating agreements that are so overreaching that courts refuse to enforce them. In this context, more is not better.
The key to coming up with a valid non-compete is making sure to protect your interests while limiting the scope of the provisions. Unlike some other states, Ohio does not demand a non-compete agreement meet a list of highly specific requirements. The agreement must be simply reasonable; several court decisions have defined what this term is likely to mean.
Protecting the employer’s interests while remaining fair to the employee
One essential factor that courts will examine when it comes to enforcing a non-compete is whether it is fair to the employee. If an agreement leaves the employee with no way to work, it is not fair. Typically, enforceable agreements include the following characteristics:
- Geographic restrictions to the areas where the employer does business
- Targets prohibiting the use of proprietary information employees actually possess
- A reasonable time limit (usually between one and two years)
- Only limits employment with direct competitors
Reducing disputes with a well-drafted agreement
An important point to consider when drafting a non-compete agreement is the goal of minimizing ensuing disputes. If you have to go to court over the agreement and the court ultimately does enforce it, you will still have spent time, money and energy that could have gone into developing your business. For this reason, it is important to start out with agreements that are not open to attack. An agreement too restrictive of your former employees’ prospects is more likely to lead to a dispute than one allowing them a reasonable chance to find employment elsewhere.
Employers should also be aware that Ohio courts will sometimes but not always modify an invalid agreement. The courts have the power to replace an unreasonable provision with one that is valid. However, the court has no obligation to do that and can simply rule that the entire document is unenforceable. If your company does business in other states, you will also need to consider the likelihood of enforcement there, as many states, such as Illinois, continue to restrict the scope of non-compete agreements.
As an employer, you want to protect your business and safeguard proprietary and confidential information. The best way to create an effective, enforceable non-compete agreement is to consult an experienced business attorney.