Covenants Not To Compete

Covenants not to compete are important from both the standpoint of the employer and the employee. An employee may wish to terminate employment and seek different employment or strike out on his own but is concerned about the rights of his former employer to prohibit or curtail his business activities. From an employer’s standpoint, the business may wish to minimize competition by preventing the employee from becoming a competitor after termination of the agreement – a signed covenant not to compete.

Employers and employees must be aware of two overlapping areas of law, the Ohio trade secrets law and the general common law dealing with contractual agreements between an employer and employee.

The trade secrets law, as codified by Ohio Revised Code Sections 1333.61 through 1333.69, creates a cause of action against the employee for misappropriation of the employer’s trade secrets. This statute, even without a written employment agreement between the employer and the employee, gives the employer a cause of action against a former employee for misappropriating trade secrets. An injunction may be obtained and/or damages may be found in favor of the employer.

The concept of “trade secrets” is quite broad meaning the improper disclosure or use of “information, including the whole or any portion or phrase 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” which have economic value (ORC 133.61). In layman’s terms, the disclosure of customer lists by a former employee to a new employer (or a new employee business) is covered under the statue.

In addition to the protection afforded by the trade secrets law, many employers take the extra step and establish contractual rights through employment agreements containing a covenant restraining an employee from competing with the employer after termination of employment. Under the general common law of Ohio, such a covenant is enforceable against the employee if it does not impose an undue hardship on the employee and is not injurious to the public.

The Trade Secrets Act focuses on an employee receiving “independent economic value” from the information and processes of the employer. Restrictive covenants in employment agreements focus on a former employee engaging in a business which is competitive to the employer. In the usual case the employment agreement will include time and territory restrictions on the former employee; for example, no competition within three years of termination of employment within 100 miles of the employer’s businesses.

Covenants not to compete will be upheld by the courts if not unreasonably restrictive. A major concern of the courts is the likelihood that the employee can still find other employment opportunities. The agreement’s restrictions cannot seek to stifle the inherent skill of the employee or act as a bar to the employee’s sole means of support.