In 1988, Lee Columber began working for Lake Land Employment Group of Akron LLC, and in 1991, signed a noncompetition agreement with the company prohibiting him from competing with its business within a 50-mile radius for three years after he stopped working for Lake Land.
After signing the agreement, Columber received no increase in salary, benefits or other remuneration, and his employment status remained the same as it was before the agreement was signed.
In 2001, Columber left his job at Lake Land and soon formed a corporation that engaged in business similar to Lake Land within the area restricted by the noncompetition agreement. Lake Land promptly sued, alleging Columber violated the terms of the noncompetition agreement.
But was the noncompetition contract valid?
Three elements are necessary for an employment contract to be enforceable in a court of law — an offer, an acceptance of the offer and consideration, a bargained-for benefit or detriment. Whether Columber’s noncompetition agreement had sufficient consideration — the third element necessary to make a contract legally enforceable — was primarily at issue in the Lake Land case.
This case eventually wound up in the Ohio Supreme Court as Lake Land Emp. Group of Akron, LLC v. Columber, 101 Ohio St.3d 242 (2004). Before the trial court, and on appeal, Columber and Lake Land agreed that an offer was made and accepted. Columber, however, argued that there was not sufficient consideration because he did not receive any new value and Lake Land did not give anything up in exchange for his promise not to compete with it.
The Ohio Supreme Court disagreed and found for Lake Land, ruling in a 4-3 decision that continued employment is sufficient consideration to support a noncompetition agreement. The court’s rationale focused on the fact that either party in an at-will employment relationship — the employee or the employer — may terminate the relationship at any time, meaning the terms of the relationship are subject to constant renegotiation.
The court observed that presentation of a noncompetition agreement to an employee is essentially an offer to renegotiate the terms of the employment relationship. The consideration from the employee is a promise not to compete with the employer. In exchange, the employer agrees not to terminate the relationship, which could legally be done if the employee refused to sign the agreement. Thus, the majority determined, there is a bargained-for benefit and detriment sufficient to make the noncompetition agreement binding.
Three justices, however, disagreed with the majority’s decision, with two of them composing written dissents. Justice Alice Robie Resnick wrote that by determining that continued employment constitutes sufficient consideration, the majority was essentially holding that restrictive covenants can be exacted from at-will employees for no consideration.
Justice Paul Pfeifer concurred with Resnick’s dissent, calling an agreement not to terminate an employee in exchange for executing a noncompetition agreement “coercion” as opposed to consideration. Regardless, the majority’s argument prevailed and is now the law of the land in Ohio.
So what does this mean for your business?
Thanks to the court’s decision, employers can now rest assured that noncompetition agreements with their employees are binding, so long as the agreements are otherwise reasonable in terms of time and geographic scope, whether the employee signed the agreement before or after beginning employment.
Even after this decision, however, courts will still not enforce noncompetition agreements if they are unreasonable. Existing noncompetition agreements should be analyzed by an attorney to ensure that if the contract is breached, it will be enforceable.
In addition, employers should always have an attorney review any noncompetition agreements disclosed by potential new employees. Failure to do so may result in costly and time-consuming litigation. Hans A. Nilges is an associate with Brouse McDowell. Reach him at (330) 535-5711 or [email protected].
