Most Ohio businesses place a high premium on protecting their confidential information and ensuring that valuable employees do not leave for a competitor. One of the most effective methods of enforcing both policies is by having employees sign enforceable noncompete agreements. Noncompete and nondisclosure agreements are technically separate types of legal agreements, but in this post, the term “noncompete” agreement includes “nondisclosure” or “confidentiality agreements.”
The basic rule for enforcing a noncompete agreement
The basic rule for determining the enforceability of a noncompete agreement is a factual finding that the agreement is reasonable, that is, the agreement is no greater in scope than is reasonably necessary for protection of the employer’s legitimate business interests. Specific examples of a legitimate business interest is protection of trade secrets and information designated as confidential.
What is a reasonable scope?
A noncompete agreement must be limited to the geography in which the employee operated. For example, a salesman whose territory included only Ohio, Michigan and Indiana can be required to sign a noncompete agreement that applies to all 50 states.
The reasonableness of the scope of a noncompete is a factual determination that is based on evidence submitted at trial. While professionals such as attorneys, physicians and accountants cannot be parties to a noncompete agreement, except that a contract for the sale of a professional practice may contain a clause restricting the professional’s right to practice in a certain area or for a stated period of time.
“Consideration” is a legal concept that means that a contract is not enforceable unless both parties received some form of compensation. The compensation need not be monetary, but it must have value. In the employment context, consideration can be the offer of employment.
If an employer asks an employee to sign a noncompete agreement after the beginning of the term of employment, the request must be accompanied by consideration, usually a signing bonus of some type. Noncompete agreements signed without consideration from the employer are generally thought to be unenforceable.
Solid legal advice
Any individual who is asked to sign a noncompete agreement may wish to consult an experienced business attorney for an opinion concerning the agreement’s validity.