Noncompetition agreements are crucial in businesses where it is inevitable that an employee will have access to sensitive, confidential and proprietary information and have the ability to create long-standing relationships with valued clients whom they only met because of their relationship with the company. Noncompetition agreements are designed to protect a company from employees who try to leave with such information and relationships, and unfairly compete against the company.
Ohio has accepted a definition of “reasonableness” to determine whether noncompetition agreements will be enforceable against former employees.
In Raimonde v. Van Vlerah (1975), a court ruled that “a noncompete clause will be found to be reasonable only where the employer can show by clear and convincing evidence that the restrictions imposed by the noncompete clause (1) are no greater than necessary for the protection of the employer’s legitimate business interests, (2) do not impose undue hardship on the employee and (3) are not injurious to the public.”
Below, we list nine factors that a court considers in determining whether a noncompetition clause is reasonable.
- The absence or presence of limitations as to time and space.
- Whether the employee represents the sole contact with the customer.
- Whether the employee is possessed with confidential information or trade secrets.
- Whether the covenant seeks to eliminate competition which would be unfair to the employer or merely seeks to eliminate ordinary competition.
- Whether the covenant seeks to stifle the inherent skill and experience of the employee.
- Whether the benefit to the employer is disproportional to the detriment to the employee.
- Whether the covenant operates as a bar to the employee’s sole means of support.
- Whether the employee’s talent which the employer seeks to suppress was actually developed during the period of employment.
- Whether the forbidden employment is merely incidental to the main employment.
A company must maintain good records and documentation on employees, such as his or her access to confidential information, corporate training, relationships with customers and job duties. All of these things will assist the company in obtaining relief against any employee for breaching a noncompetition agreement.
In addition to requesting relief from the employee, a company will also want to consider whether to bring a cause of action against the new employer. A claim for tortious interference with business relations may be asserted against the new employer if it knew of the employee’s noncompetition agreement but still hired the employee.
In order to recover for a claim of intentional interference with a contract, one must prove (1) the existence of a contract, (2) the wrongdoer’s knowledge of the contract, (3) the wrongdoer’s intentional procurement of the contract’s breach, (4) the lack of justification, and (5) resulting damages. The added pressure on the new employer may lead the employer to terminate its relationship with the employee to avoid the lawsuit or may assist in obtaining a quick settlement.
Another cause of action that has just recently come to light is under the Computer Fraud and Abuse Act (CFAA).
The CFAA may be asserted by a company when an employee leaves for a competitor but continues working for his current company, and continues to access his current employer’s computer system. Both the employee and the new employer may be sued under CFAA if they use unauthorized information from the current employer’s computer system in order to gain an advantage. The CFAA allows employers to bring their actions in federal court because CFAA imparts federal question jurisdiction. As a result, a claim under the CFAA may allow an employer to bypass restrictive state noncompetition laws. In addition, employers may bring CFAA claims without proving the information wrongfully accessed was a trade secret, constituted confidential or proprietary information or breached a noncompete agreement. This is particularly important if the employer failed to have an employee execute a noncompetition agreement.
In summary, every company should ensure that key employees with access to confidential information and customer relationships execute an enforceable, reasonable noncompetition agreement. If the employee has done so, the company has a much better chance of prevailing in any action brought against the employee in a court of law. Nonetheless, even if the employee has not executed a noncompetition agreement, employers may still have a remedy against the employee under federal or state laws.
TONY DELLIGATTI is an attorney with Carlile Patchen & Murphy LLP. For more information regarding litigating and drafting noncompetition agreements, reach him or Mary Menkedick at (614) 228-6135.