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Ohio Law on Covenants Not To Compete
Ohio courts can and do enforce “covenants not to compete”, also known as restrictive covenants. Covenants not to compete are paragraphs in an employment contract requiring employees to refrain from working for a competitor after termination. The fear is that the former employee, perhaps an assistant to the CEO for 15 months, will spill her guts about all of her previous employer’s business practices. This, in turn, will give the competitor an unfair advantage.
Ohio courts look fairly favorably on reasonably drafted covenants not to compete. Judges are encouraged to change or “blue pencil” an overbroad covenant not to compete instead of throwing it out. The whole idea is to make the contract fair – indeed, 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.
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.
Normally, courts do not uphold covenants not to compete for at-will employees, because at-will employees can be fired 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.
Also, 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.
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