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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. |
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