The attorneys at Nardone Limited, in Columbus, Ohio, regularly assist our clients with labor and employment law issues, including employment disputes and litigation regarding non-compete and non-solicitation agreements, as well as defending administrative investigations by the Ohio Civil Rights Commission and the Equal Employment Opportunity Commission. Non-compete restrictions and other restrictive covenants—such as non-solicitation provisions and confidentiality provisions, to protect practice patient lists and other confidential data—are all important protections that businesses should implement with their employees. Simply put, a non-compete covenant is a clause in an employee agreement, which prevents the employee from competing with your business by working with any defined competitors that are within a set distance of your practice, for a defined period of time after termination. To protect your practice’s valuable business interests and hard-earned goodwill, practices can and should implement non-compete covenants and other restrictive covenants through employment contracts or through supplemental contracts, if necessary.
But, we have increasingly found that there are many common misperceptions about the enforceability and allowable parameters for non-compete covenants, which are essential employment contract restrictions. Thus, this article serves to shed light on the common myths and misperceptions about non-compete covenants, by identifying and correcting a number of common myths about non-compete covenants.
- Myth: Non-Compete Covenants Are Not Enforceable.
False. As long as non-compete and non-solicitation clauses impose reasonable restrictions and do not violate a recognized public policy interest, the provisions will generally be upheld. Non-compete agreements that are reasonable in duration and distance are absolutely enforceable and these agreements are generally upheld by the courts. Applying this standard, countless Ohio court rulings have enforced non-compete agreements. As an example, see Brentlinger Enterprises v. Curran, in which the Tenth District Court of Appeals held that a non-compete clause will be deemed reasonable as long as the clause: 1) is not greater than necessary for the protection of the employer’s legitimate business interest; 2) it does not impose undue hardship on the employee; and 3) it does not violate public policy. 752 N.E.2d 994 (10th Dist. 2001)
- Myth: The Geographic Scope of a Non-Competition Restriction is Measured By Driving Distance.
False. Actually, the courts have specifically ruled that distance for purposes of a no-compete agreement is determined by straight-line measurement of distance, or as some would say: ‘as the crow flies.’ See, e.g., Ginn v. Stonecreek Dental Care, 2015-Ohio-4452 (12th Dist.). In Ginn the trial court found that the non-compete distance “within thirty (30) miles” unambiguously “referred to a straight-line distance as opposed to a driving distance.” The Twelfth District then upheld the trial courts finding on appeal, and, in doing so, the Twelfth District made clear that “Ohio courts have consistently applied the ordinary meaning of the term ‘within’ when discussing distance requirements and found that the term refers to a straight-line distance as opposed to driving distance.”
- Myth: You Cannot Violate a Non-Compete Agreement Using Patient or Client Contact Information Maintained In Your Memory, So Long As You Don’t Take a Written Customer List.
False. Ohio law holds that customer information retained in a person’s memory through their work with a former employer is still protectable under the law, and may be just as much of a trade secret as a list written on paper or maintained in a computer. Ohio’s Trade Secret Act, which bars improper disclosure or use of protected trade secret information, certainly applies to data and tangible files. But, it may also apply to information that an employee memorizes, such as patient or client identities. The Ohio Supreme Court has ruled that patient lists and client lists are protected under trade secret law, and remain a trade secret even when the list is memorized. See Al Minor & Assocs. v. Martin, 117 Ohio St.3d 58, 881 N.E.2d 850 (2008). The Minor ruling may not apply, if the identity of certain patients is casually learned over time and independently known. But, Courts are very clear that merely memorizing patient or client information does not absolve an employee from being found liable for violating restrictive covenants and trade secret law.
- Myth: If Non-Competition Restrictions Are Not Enforced Against Every Employee, the Provisions Become Unenforceable.
False. This is a very common myth. This myth harkens back to a childhood playground belief that the rules are governed by one’s personal sense of fairness. The fact is that not bringing litigation for every former employee’s non-compete violation does not suddenly render all of the rest of your practice’s non-compete agreements invalid. There are numerous very good reasons why a business should be somewhat selective in choosing which non-compete violations justify and require the expense of litigation. The mere decision not to pursue litigation against every non-compete violation does not invalidate other agreements. A practice’s alleged lack of consistent non-compete enforcement may be raised as a defense by an employee being sued for violating a non-compete, but in most circumstances that defense will have little to no effect.
- Myth: Non-Compete Covenants Must Strictly and Narrowly Define What Will Amount to Competition with the Former Employer.
False. Recently, the Ohio Fifth District Court of Appeals released a decision that provides helpful guidance to companies about the enforceability of non-compete covenants with former employees. In Saunier v. Stark Truss Co., Inc., a former employee sued to argue that a non-compete covenant in the employee’s separation agreement with the employer was unenforceable. In Stark Truss, the employee argued that the non-compete was unenforceable because the clause allowed the employer to decide whether the future employment amounted to improper competition. The employee sued for a court ruling that the employee’s non-compete covenant was not enforceable because the employer had sole discretion to decide whether the employee’s new job improperly competed with the former employer. In Stark Truss, the trial court rejected the employee’s legal challenge and enforced the terms of the non-compete covenant that the employee voluntarily entered into. The employee then appealed to the Fifth District Court of Appels, which also rejected the employee’s argument and held that the employer’s discretion to decide whether the employee was competing with the employer did not make the non-compete unenforceable. Saunier v. Stark Truss Co., 2016-Ohio-3162, ¶16. Rather, the court in Stark Truss held that the non-compete agreement was enforceable under the plain terms to which the parties voluntarily agreed. Id. The Stark Truss case dispels the myth that non-compete covenants must always be specific and limited in favor of the employee to be enforceable. That said, it is advisable to not have open-ended criteria about what will constitute a violation of a non-compete covenant.
Parting Thoughts on the Importance of Having Well-Drafted Non-Competes
The main takeaway from the explanations above is that the courts are increasingly willing to enforce the unambiguous contract terms that are bargained for between employers and employees. But, enforcement of the plain terms of restrictive employment covenants is only as helpful as the contract’s terms, which underscores the need for precise drafting in non-compete and non-solicitation covenants. Employment covenants with vague and imprecise language can lead to costly disputes about the reach and enforceability of your employment contract and its restrictive covenants. If you have any questions about enforcing non-compete agreements or other restrictive covenants, or about implementing these restrictive covenants in your employee contracts, contact the employment attorneys at Nardone Limited.
Nardone Limited attorneys handle the full spectrum of employment law issues, including providing consulting advice, assistance with separation agreements, conducting internal employer investigations, defending EEOC or other administrative investigations, and handling litigation alleging wrongful termination or other employee claims. If you would like more information on the EEOC or the OCRC, or need advice or representation in an employment dispute, contact one of our employment attorneys.