Considerations for Employment Agreements Based on Recent Trends in Non-Compete Law

     The Columbus, Ohio employment attorneys at Nardone Limited regularly assist our clients with labor and employment issues, such as Department of Labor compliance, as well as guidance on preventing and responding to discrimination and harassment charging affidavits filed with the Equal Employment Opportunity Commission (“EEOC”) and the Ohio Civil Rights Commission (“OCRC”). As a part of Nardone Limited’s employment law practice, we are always following the current pulse of the law governing the use of non-compete clauses in employment agreements.

General Rule Regarding Non-Compete Clauses

     Generally, the law provides that non-competition agreements will be upheld by the courts, so long as the non-compete clause imposes reasonable restrictions and does not violate a recognized public policy interest. One caveat to the general enforceability of non-compete clauses, however, is that the State of California has completely barred non-competes under California law. But, in Ohio, and in most states across the country, non-compete agreements that are reasonable in duration and distance are enforceable and are generally upheld by the courts. Applying the above general rule, 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 broader 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). The prevailing standard continues to suggest that the non-compete agreements with employees will generally be upheld. But, there is a growing trend that employers should be aware of with respect to non-competes involving low-level employees.

Trend Towards Limiting Non-Competes for Low-Level Employees

     Increasingly, courts in Ohio and around the country have begun to interpret the undue hardship concept referenced above to place limitations on the scope of non-compete agreements entered into with low-level employees. No other state has gone as far as a California. But, there is a growing trend towards states placing greater scrutiny on non-competes clauses that effect low-level employees. As an example, Michigan has proposed legislation that would make non-competes against employees unenforceable if the employee’s annual wages were below a certain threshold of roughly $30,000.

     Do these trends mean that Ohio employers should simply give up on non-competes involving all low-level employees? To put it simply, the answer is no. Nardone Limited still recommends that employers use non-compete agreements in their employment agreements, as one component of sound business planning. But, what we would recommend is that employers take extra care to ensure that non-compete agreements involving non-management employees are no broader than necessary to protect the employer’s reasonable business purposes. If the non-compete clause regarding a low-level employee is much broader than reasonably necessary, employers take the risk of a court changing the clause, or altogether not enforcing the clause.

     Thus, employers should carefully evaluate whether the duration and geographic limitations on competition are no broader than necessary for the particular industry and type of employee involved. And, as part of the process, we would recommend that employers also carefully consider whether a non-compete actually serves a business purpose with respect to each type of low-level employee. For example, a company likely would not have many strong business reasons for imposing a non-compete on entry-level janitorial staff. On the other hand, there would be many good business reasons to have non-compete agreements with entry-level staff that have significant interactions with the employer’s customer base.

Employer Takeaways

     The takeaway here is that employers should not blindly apply the same non-compete agreement to all employees across the board. Employers also should not be using boiler plate agreements that they obtain off the internet or simply modifying prior agreements for new employees and circumstances. Rather, non-competes should be customized in each specific circumstance by someone familiar with the law. Employers should work with counsel to draft non-compete agreements that are proportional to the level of employee involved. Taking this step will help to ensure maximal enforceability of your company’s non-compete agreements with employees.

Contact Nardone Limited

     The Nardone Limited employment attorneys handle a full spectrum of employment law issues, including business disputes and litigation, drafting of employment and restrictive covenants, and consultation on all types of employment law issues. If your business needs advice or representation on an employment dispute before the EEOC, the OCRC, or regarding potential employment litigation, contact one of our employment attorneys. Further, feel free to contact Nardone Limited if you would like more information or consultation regarding any employment law issue.