- Non-compete Ruling Good News for Employers
- June 4, 2004
- Law Firm: Squire, Sanders & Dempsey L.L.P. - Cleveland Office
On March 10, 2004, the Ohio Supreme Court decided Lake Land Employment Group of Akron v. Columber, giving employers a tool to enforce non-compete agreements. In Columber, the Court finally resolved competing decisions from Ohio's appellate courts by holding that the continued employment itself, of an at-will employee, constitutes sufficient consideration for that employee's promise to be bound by a non-compete agreement.
Lee Columber had been an at-will employee of Lake Land, an Akron temporary employment agency, for three years prior to the company asking him to sign a written non-compete agreement. The agreement expressly provided that, should Columber's employment with Lake Land end for any reason, he would be barred from competing with Lake Land for three years after his separation. Notably, the company did not threaten Columber with any negative consequences -- such as termination -- if he failed to sign the agreement, nor did it offer any positive inducements -- such as monetary compensation, increased benefits or promotion -- to encourage him to sign the agreement. Columber signed the agreement and remained a Lake Land employee for the next 10 years until he was fired in May 2001.
In July 2001, Columber and a partner opened their own temporary employment agency in the Akron area. In response, Lake Land sued to enforce the non-compete agreement. Columber asserted that the agreement was unenforceable because he received no consideration from Lake Land in exchange for executing the agreement.
The Supreme Court held that there was sufficient consideration to support the non-competition agreement. Specifically, the Court reasoned that an employer's presentation of a non-compete agreement to an at-will employee is a "proposal to renegotiate the terms of the parties' at-will employment." Where the employee has agreed to that proposal, the employee has accepted continued employment under new terms in exchange for the employer's not exercising its right to terminate the employee.
From a practical standpoint, employers can now approach current at-will employees not otherwise bound by restrictive covenants and require them to enter into a non-compete agreement without fear that the agreement will be unenforceable in the absence of providing some additional benefit to the employee.
While the decision is certainly favorable for employers seeking to enforce non-compete agreements, employers operating in multiple states must recognize that jurisdictions throughout the country are split on this issue. Furthermore, employers also must bear in mind that consideration is really just a threshold issue and must not lose sight of other issues related to the enforceability of such agreements. Primary among these concerns is whether the agreement is reasonable - that is, whether the agreement imposes restrictions upon the former employee only to the extent necessary to protect the former employer's business interests and ensure fair competition, and preserves the individual's ability to pursue a livelihood. Ultimately, the duration, geographic coverage and scope of the activities sought to be precluded by the agreement will determine whether the restriction is reasonable under applicable law.