Ohio Law on Covenants Not to Compete

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Ohio Law on Covenants Not to Compete

Ohio courts can and do enforce "covenants not to compete," which are also known as restrictive covenants.

What Are Covenants Not to Compete?

Covenants not to compete are writings contained within an employment contract requiring employees to refrain from working for a competitor after termination. These covenants are in employment contracts because employers fear that former employees may reveal trade secrets to their new employers. Essentially, employers fear their competitors hiring their employees for the purpose of obtaining their secret business practice to gain an unfair advantage.

Reasonably Drafted Covenants

Ohio Courts favor reasonably drafted covenants not to compete. The idea behind covenants not to compete is to make the contract fair; non-competition law is largely equitable. Judges aim to restrict employees’ mobility and freedom just enough to protect an employer’s legitimate business interests such as protecting its trade secrets and customer lists. Judges can factually determine whether the employee even knows any trade secrets. Moreover, judges tend to change or "blue pencil" an overbroad covenant not to compete instead of throwing it out.

Employees Starting Their Own Businesses

Employees are especially discouraged from quitting their employment and then going out and starting a similar business in the teeth of a covenant not to compete. In order to do so without avoiding court-ordered injunctions and monetary damages, aspiring entrepreneurs might have to move out of Ohio, to an area far away from their former employer’s place of business. It is much better if the employee needs the next job with the competitor in order to make ends meet.

"At-Will" Employees

Courts do not usually uphold covenants not to compete for at-will employees, because at-will employees can be fired or quit at anytime. Therefore, at-will employees who know trade secrets are discouraged from quitting their job when they know they will not be able to work somewhere else, as per a signed covenant not to compete. Such control over the economic future of the employee amounts to involuntary servitude. Nevertheless, like Texas, a recent Ohio Supreme Court decision upheld the use of covenants not to compete in at-will employment contracts.

What I Signed a Covenant Not to Compete after Starting Work?

Ohio Courts usually do not uphold covenants not to compete signed after employment has began, as there is no "consideration" supporting the contract after the promise to work has already been fulfilled. However, Ohio courts are split about whether such "mid-term" covenants not to compete are enforceable.

Consulting an Attorney

If you have a question about a covenant not to compete, you may wish to consult with an attorney. An attorney experienced in employment law can help you understand your rights and obligations whether you are an employee or an employer.

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Last Modified: 03-26-2014 04:01 PM PDT

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