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Enforcement of Non-Competition Clauses

A common issue in the workplace is that employers are uncomfortable simply relying on an employee’s word of promise to adhere to a duty of loyalty to the employer. Employers are concerned with protecting their investment in their workers. Thus, they often pursue noncompetition clauses with future employees.

What is a noncompetition clause?

A noncompetition clause is likely to involve the employer negotiating a deal with a potential employee, where the employee agrees to not compete against the employer in the event that the employee leaves the company. As a result, the employer feels more secure in hiring the individual. It also serves as an indirect way of protecting the employer’s time and money spent in training its workers. This is often a concern incompanies where trade secrets are an important commodity to the company. Here, it is crucial for the employer to protect its decision to reveal these trade secrets to its workers.

Overly Broad Noncompetition Clauses.

Courts do not always look so favorably on overly broad noncompetition clauses. Thus it is important to carefully think throughwhat criteria you want to protect in a noncompetition clause.

If a court finds that the clause is overly broad, there are several options it may take. First, it may rewrite the clause. For instance, if the employer uses a three-year noncompetition clause, the court may reduce it to a one-year requirement. A second option is for courts to simply refuse to rewrite portions even if they are argued to be overly broad. The reasoning is that it would simply encourage the employer to write overly broad sections and use the courts to cut them down. Other courts may only accept a part of the clause as being enforceable and deem other parts as invalid. Thus, while writing a very broad noncompetition clause may seem like a good idea at first, the employer should consider the consequence of a court finding the entire clause invalid and unenforceable. To sum it up: Be Reasonable.

Reasonableness Inquiry.

Another part of a court’s analysis for noncompetition clauses is whether the clause is in fact reasonable. A court out of New York once stated that the outcome of a case dealing with a “do-not-compete” clause strictly depends on the facts. This makes it more difficult for attorneys to determine whether a noncompetition clause will be enforceable. However, based on the state’s individual laws, it becomes a little easier to predict. For instance, the Ohio Supreme Court found in the case Hamilton Ins. Services v. Nationwide Ins. Cos. that a noncompetition clause is considered reasonable “if the restraint is no greater than necessary for the protection of the employer.” An employer must also avoid placing any undue hardships on an ex-employee merely to protect its interests. Undoubtedly, one cannot force an ex-employer to leave the country entirely in order to protect his or her business.

Keep in mind that courts retain the power to modify employment agreements. This means that a noncompetition clause or parts of it can be deemed unenforceable. Thus, be extra careful in drafting these clauses by first reviewing what you as an employer specifically want protected and as always, be reasonable!

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