With the integration of machinery and technology, the work that each of us does is becoming more and more specific. Even with advanced education, including college, many people receive specific training when starting a new job. Understandably, many businesses invest a lot of money training new employees.
Further, many businesses’ true value is in the relationships and reputation of the businesses instead of the physical assets of those businesses. Retail and marketing businesses in particular are valuable largely because of the personal connections and relationships that customers have with the businesses and their employees.
Understandably, therefore, businesses that invest in relationship-building or training desire to protect that investment. The primary tool used to protect investments made in building relationships and training employees is a non-compete agreement.
A non-compete agreement (also sometimes called a non-competition agreement) is a contract between a business and a person that precludes the person from working (or competing) in the business’s marketplace for a certain period of time.
Non-compete agreements are often also included as a part of a business purchase or sale. In those contexts, the person selling a business would agree to not compete with the business and its new owner for some period of time.
Non-compete agreements usually include language that empowers a judge to literally order a person to stop competing with the business. This is a powerful tool because it can literally force a person who violates the agreement to quit his or her new job, not just pay the business to terminate the contract.
A non-compete agreement is legal and enforceable if the agreement satisfies a few requirements.
First, a non-compete agreement must be limited to a reasonable geography and for a reasonable period of time. Reasonableness is a factual determination based upon the nature of the business and the locations of the business’s customers. For example, if a small machine shop that only does work for local customers in Lima requests a non-compete agreement that would preclude a person from working for any other machine shop in America, that geography would be too broad.
Second, a non-compete agreement must not preclude the person from being employed somewhere, doing something. A non-compete agreement can practically make a person move away if the person wants to do the same work. However, a non-compete agreement cannot stop someone from making a living somehow. For example, a carpenter, whose only skill is carpentry, should be able to accept a carpentry job in another state, even if the business has one or two customers in that remote state.
Finally, a non-compete agreement must not be against public policy. For example, non-compete agreements cannot be used to completely “buy out” the competition in a particular industry. In other words, non-compete agreements cannot be used as a tool to avoid America’s laws against business monopolies.
There are other, technical legal requirements that should be included in a non-compete agreement. Therefore, people and businesses are strongly encouraged to use attorneys to help negotiate and prepare non-compete agreements.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-523-5523. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.