Non-Compete Agreements: What is Reasonable?
Modern employment or franchise contracts often include a noncompetition clause or agreement which restricts an employee’s ability to compete with the employer after ending his employment. These provisions are designed to prevent a former McDonald’s franchisee from launching a new Burger King franchise down the street or prohibit a paper salesperson from soliciting his former employer’s clients from a competing company in the same building.
For example, a noncompetition clause might include language such as:
“For a period of one year following the termination of the employment relationship, Employee agrees not to engage in any way in a similar or competing business within fifty miles of the business location.”
“For a period of two years following the termination of the employment relationship, Employee agrees not to directly or indirectly solicit any person or entity who are or have been customers of the Employer.”
These clauses are valid to protect the legitimate business interests of the employer. However, the restrictions, particularly the time and geographic restrictions must be reasonable.
In Ohio, this means that the restrictions are 1) no greater than required to protect the employer; 2) do not impose undue hardship on the employee; and 3) do not injure the public. (Raimonde v. Van Vlerah, 42 Ohio St. 2d 21, 26 (Ohio 1975)).
When determining reasonableness, a court can examine a variety of issues such as the duration and distance restraints; whether the employee has confidential information; whether the employer receives a disproportionate benefit from the agreement; and whether the covenant eliminates ordinary competition or unfair competition. (Raimonde v. Van Vlerah, 42 Ohio St. 2d 21, 26 (Ohio 1975)).
If a court determines that the restrictions are unreasonable, it can modify the employment agreement. For example, a contract prohibiting court reporters from engaging in court reporting or stenography anywhere in Franklin County for two years was reduced by the court to a one year restriction within the city of Columbus. (Rogers v. Runfola & Associates, Inc., 57 Ohio St. 3d 5, 565 N.E.2d 540 (1991)).
Noncompetition clauses are important to include in an employment contract, but employers should ensure that their agreements are narrowly tailored, reasonable in scope, and well-drafted.