Using Non-Compete Agreements to Protect Business Interests

When you’ve worked hard to build a successful company, it is very disheartening to see your best manager, salesperson, vice-president of marketing or other key employee walk out the door and take your best trade secrets, customers or proprietary information to a direct competitor. More than that, though, such an event can lead to loss of competitiveness, loss of business and decline in the profitability and value of your company. Fortunately, there is a way to prevent this from happening to your company.

Smart business owners use non-compete agreements and related employment agreements to restrict important employees from taking your trade secrets, intellectual property, customer relationships, skills learned at your company and going to work for a competitor where they are likely to divulge that information to your competitor. In a non-compete agreement, an employee agrees not go to work for a competitor directly after leaving your company or to start a business competing with yours for a certain period of time, usually no more than two years.

The best time to have an employee sign a non-compete agreement is when they are initially hired, when you can make it a condition of employment. Signing a non-compete agreement can also be a condition of continued employment if you did not previously have non-compete agreements and make the decision to institute them. They can also be a condition for accepting a promotion to a new position within the company.

Requiring existing employees to sign a non-compete agreement can be a little tricky, especially if they hold an important position and already have access to company secrets or customer information. If you think a key employee may potentially resign if required to sign a non-compete agreement, you may want to offer more than just continued employment as an incentive. Shares of company stock may be a good option for some employees as they then have an interest in seeing the company continue to grow rather than betray secrets to a future employer.

Non-compete Agreements in Ohio

In some states it is difficult to enforce non-compete agreements except under very specific circumstances. In Ohio, however, the courts generally uphold non-compete agreements as long as they are “reasonable.”

So what makes a non-compete agreement reasonable? There have been several Ohio Supreme Court rulings on non-compete agreements from which lower courts take their cue. In general, to meet the criteria for being reasonable, a non-compete agreement must do all the following:

  • Protect genuine business interests
  • Protect against unfair competition, not protect against ordinary competition
  • Apply to an employee who was the company’s sole contact with the customer or who possessed confidential information or trade secrets
  • Not stifle the employee’s inherent skill and experience
  • Not benefit the employer to an extent that outweighs the detriment to the employee
  • Not prohibit the employee’s only means of support
  • Limit forbidden employment to companies that are in direct competition for the former employer’s industry, market and/or geographical area as relevant to the employee’s position, i.e. if the former employer only does business in three states, the agreement cannot forbid employment with competitors nationwide
  • Endure no longer than necessary to protect against unfair competition, usually measured by how long the protected information would provide a competitive advantage
  • Not contain restrictions that would injure the public

Non-compete agreements that are too broad in scope are difficult to enforce. Having an experienced employment and business planning attorney draft or review your non-compete agreements can help ensure that your trade secrets, customer information and other critical secrets are protected effectively from competitors.

In Ohio, the business planning attorney’s office of Gudorf Law Group, LLC, can assist in drafting and reviewing non-compete agreements and other employment-related contracts and agreements to ensure your business interests are protected. Call our office at 1-877-483-6730 to schedule a free consultation.