In Ohio, Continuing Employment Is Sufficient Consideration To Enforce A Non-Competition Agreement

March 2004

The Ohio Supreme Court recently found that continued employment is sufficient consideration to enforce a non-competition agreement. Lake Land Employment Group, LLC v. Columber (1994), 101 Ohio St. 3d 242, 2004 Ohio 786. This means that employees can be held to reasonable non-compete agreements where the only thing the employee receives in return is another day on the job.

Background

Lee Columber began his employment with Lake Land in Akron, Ohio in 1988. Columber, like most employees in Ohio, was at-will, i.e., he could quit or be fired at any time, absent a contract of employment or an illegal reason for the termination. In September 1991, Lake Land required Columber to sign a non-competition agreement prohibiting him from engaging in competitive employment within a 50 mile radius of Akron for three years after his employment ended. Although Columber could not recall whether he was told at the time he was presented with the non-competition agreement that his employment was dependent on his signature, it was undisputed that he signed the agreement. No other payment or benefit was provided to Columber as an incentive to sign the agreement.

Lake Land terminated Columber’s employment in 2001, and Columber then formed a company that competed with Lake Land. Lake Land filed suit to enforce its non-competition agreement with Columber. In the litigation, Columber admitted that he signed the agreement and that he started the new competing business. His defense was that Lake Land’s agreement lacked consideration, i.e., that he received nothing in exchange for signing the agreement.

The trial court found that because there was no increase in salary or benefits, no consideration was given for his signature. Without consideration, the agreement was unenforceable. The appellate court affirmed the trial court, but asked the Ohio Supreme Court to decide whether continued at-will employment, without more, is sufficient consideration to support a non-competition agreement. Previously, Ohio courts had split on this issue.

Legal Analysis

Consideration – a bargained-for legal detriment – is required for a binding contract to exist in Ohio. In an at-will employment relationship, the employee agrees to work for the employer, and the employer agrees to pay the employee – but either party can end the relationship at any time.

In this case, the Supreme Court of Ohio held that "forbearance on the part of an at-will employer from discharging an at-will employee serves as consideration to support a non-competition agreement." When an employer presents a non-competition agreement to an employee, the employer is offering to continue the at-will employment. By signing the agreement, the employee is accepting those terms. The continuing mutual promises act as consideration.

The Ohio Supreme Court went on to note that non-competition agreements may be unenforceable for other reasons. The Court reaffirmed its decision in Raimonde v. VanVlerah which held that a non-competition agreement must be reasonable in order to be enforceable. A reasonable non-competition agreement is one that "is no greater than is required for the protection of the employer, does not impose undue hardship on the employee, and is not injurious to the public." A non-competition agreement that does not meet these reasonableness standards will be enforced only to the extent necessary to protect an employer’s legitimate interests.

Courts around the country are divided on the issue of whether continued at-will employment is sufficient consideration for a non-compete. Ohio law, however, now answers this issue affirmatively, just as Kentucky has.

Practical Applications

Under this decision, an Ohio employer that wishes to enter into a non-competition agreement with a current at-will employee may do so without offering that employee any specific incentive. However, it is important to remember that a non-competition agreement in Ohio must meet other legal requirements, such as the reasonableness standard in Raimonde. If you have questions about non-competition agreements, please feel free to contact us.

Practices

Top