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Non-Compete Agreements Face Difficult Tests in Ohio

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© 2002, Gallagher & Dawsey Co., LPA
November 2002

Non-compete agreements are contracts, often between an employer and employee, in which the employee agrees not to go into business in competition with his or her former employer, after the termination of that employment. These agreements can present a delicate balancing problem, with businesses wanting protection from former "insiders," and employees wanting freedom to practice their trades or professions. In contrast to employer claims over inventions made on the job, where employers are given considerable rights, courts are traditionally quite exacting in their examination of non-compete agreements and often favor the employee's position.

In a recent case from the Columbus area, Brentlinger Enterprises v. Curran, an Ohio Appeals Court upheld a narrow interpretation of a non-compete clause that an employer sought to enforce against a former employee. Ohio therefore continues to show considerable deference to employee rights in this area. A non-compete agreement will only be enforced in Ohio against a former employee if the agreement meets all three prongs of the test laid out by the Ohio Supreme Court in the case Raimonde v. Van Vlerah. Raimonde requires that for a non-compete clause to be enforceable, an employer must show reasonableness, in that (1) it has a legitimate business interest sufficient to justify enforcement of the non-compete clause; (2) that the clause does not cause the former employee undue hardship; and (3) that enforcement of the clause will not be harmful to the public.

Factors considered in this analysis of reasonableness include the clauses' geographic and time limits, if any; whether the employee represents the sole customer contact; whether the employee possesses confidential information or trade secrets; whether the clause seeks to restrain ordinary, rather than unfair, competition; whether the clause stifles the pre-existing skills of the employee or only those skills that were developed while working for the employer; the balance of the clause's detriment to employer and employee; whether the clause restricts the employee's sole means of support; and whether the restricted employment is merely incidental to the main employment.

In the Brentlinger case, appellee Curran, who had been employed in the field of selling of European automobiles since 1984, left the employ of appellant after three months work as a middle-level manager, and began working for a nearby, competing, auto dealership. He allegedly had access to various sales and other business information of his first employer, the economic value and trade secret nature of which was disputed at trial. The employer sought to enforce a non-compete agreement that barred Curran form working for a competing European auto dealership in a two county area for 18 months after termination.

The appeals court upheld the trial court's finding that the employer had not met the first prong of the Raimonde test, in that it did not show sufficient legitimate business interest in enforcement of the agreement. On appeal, the appeals court gave deference to the trial court's finding of fact, after hearing conflicting evidence, that Curran had not taken any confidential or proprietary documents with him upon his departure, that much of the allegedly protected information was either public knowledge or known to Curran from his past work in the field, and that any proprietary information that Curran possessed was of limited usefulness to other competitors. The appeals court rejected appellant's argument that Curran was a "key" employee, and therefore subject to more exacting non-compete standards, noting that the "key employee" doctrine is restricted to rare cases where an employee is so "special, unique, or extraordinary" that employment termination might cause the employer irreparable injury. The test is basically, "Is this employee so critical to the business that his or her departure could sink the firm?"

While the employer was able to meet the second and third prongs of the Raimonde test, its failure to meet the burden of showing sufficient legitimate business interest in the agreement's enforcement was fatal to its case.

Ohio is an "employment at will" state, meaning that employers have very great latitude in dismissing employees. And likewise, employees have great latitude in leaving their employment. Generally, the "employment at will" doctrine tends to favor employers, who as a practical matter have the right to hire and fire. For employees, the silver lining of that particular cloud remains Ohio's unwillingness to restrain ex-employees from practicing their skills. From an intellectual property law point of view, the court in this case put great weight on Curran's lack of access to important trade secrets. Both employers and employees need to look at the amount of confidential information that an employee has access to very carefully, when deciding how to interpret a non-compete clause. The bottom line-without proof that a former employee has possession of valuable trade secrets, it will be difficult for an employer to keep that former employee from working for a business competitor. Even with such a showing, non-compete clauses need to be carefully tailored in geographic scope and limited in time to pass judicial scrutiny.

© 2006 Gallagher & Dawsey Co., L.P.A. - Cincinnati, Columbus, Dayton, Ohio

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