The Importance of Proper Drafting in a Noncompete Agreement and Other Restrictive Covenants

for-cause termination

There are certain terms in an employment agreement that are more important than others. An example of one term is the noncompete agreement. The noncompete agreement is designed to protect an employer, including the protection of: (i) an employer’s confidential information/trade secrets and its relationships with clients/customers (aka “goodwill”) and (ii) a former employee from working with, or for, an employer’s competitors for a designated time period. When the noncompete agreement is properly drafted, it can help to do the following:

  1. clarify what an employee/former employee is, and is not, allowed to do during or after the employment relationship;
  2. prevent an employee/former employee from violating the noncompete agreement;
  3. prevent an employee from raising noncompete issues;
  4. be instrumental in convincing a court to grant a temporary restraining order (“TRO”) and preliminary injunction if an employer wishes to temporarily prevent an employee/former employee from working for a competitor or performing some other act in violation of the noncompete agreement; and
  5. decrease the likelihood of a lengthy and expensive lawsuit involving a dispute over an alleged violation of: (a) a noncompete agreement or (b) other restrictive covenants.

Within the past six months, there have been two important Ohio cases that have demonstrated the importance of a properly drafted noncompete agreement. We will summarize and discuss the Alloy Bellows case today, and in a future article, we will discuss the Stark Truss case.

In April 2016, Alloy Bellows—an Ohio company that provides its customers with bellows and related products, and other related services—sought to obtain a TRO and preliminary injunction against a former employee, Jason Cole (“Cole”), because Cole took a job with one of Alloy Bellows’ top competitors, performing the same job he performed for Alloy Bellows. Alloy Bellows argued that Cole violated the noncompete agreement that he signed with Alloy Bellows. The specific language of the noncompete agreement at issue was:

Either during your working relationship with Alloy Bellows, or for a period of two (2) years after your working relationship and/or severance period ends with Alloy Bellows, you agree and accept that you shall not, (I) directly or indirectly engage in any business that competes (sic) with Alloy Bellows in any way in North America…”

It was Cole’s position that the word “or” in the first line of the language above should be read as disjunctive rather than conjunctive—as was argued by Alloy Bellows. Interpreting the word “or” as conjunctive would mean that Cole was prohibited from competing against Alloy Bellows during the time he worked for the company “or” for two years after his employment with Alloy Bellows ended but not both. The U.S. District Court for Northern Ohio indicated that the parties’ intent was critical in interpreting the above, disputed language of the noncompete provision. Further, the Court determined that additional facts would need to be obtained to determine the parties’ intent when drafting the noncompete. Thus, at this time, the Court ruled that it could not grant the TRO and the preliminary injunction that Alloy Bellows originally sought in this case, because Alloy Bellows could not show that it could prove a likelihood of success on the merits of the case. Again, if the noncompete was properly drafted, Alloy Bellows would have been able to obtain a TRO and preliminary injunction at this stage of the case. For additional details on the case see Alloy Bellows & Precision Welding, Inc. v. Cole, No.1:15CV494, 2016 WL 1618108 (N.D. Ohio, Apr. 22, 2016).

The lesson to be learned with the Alloy Bellows case is the importance of having experienced legal counsel draft your employment agreements, including a clear and concise noncompete agreement that clearly spells out the employer’s intent.  The employment attorneys at Nardone Limited have drafted and reviewed numerous employment agreements and can assist you in ensuring your employment agreement clearly aligns with your intent.  If you would like more information, advice or representation in an employment matter or dispute, contact one of our employment attorneys, Tanya Nardone or Christopher Tackett.