Ohio Appeals Court Finds Statewide Noncompete Agreement Unenforceable

What Does This Mean for Independent Agency Noncompete Agreements?

A recent decision by the Ohio First District Court of Appeals, Kross Acquisition Co. v. Kief (2024), found that a noncompete agreement preventing a former employee from working for a similar business in Ohio for two years was unenforceable. The court upheld a lower court ruling that the employer’s noncompete agreement with its salesperson, who had left to work for a competitor, was overly broad and invalid.

The unanimous appellate court ruling struck down a two-year noncompete agreement covering all of Ohio and Kentucky, even though the former salesperson’s service area was confined to a smaller section of southwest Ohio and half of Kentucky. The employer filed suit, alleging breach of contract, tortious interference with business relations, violation of the Ohio Trade Secrets Act, and civil conspiracy to protect its customer lists and pricing strategies. However, the court concluded that the restriction was unnecessarily wide-ranging and imposed undue hardship on the employee.

In Ohio, non-compete agreements are enforceable only if they are not overly restrictive and do not cause undue hardship to employees or harm the public interest. The seminal case, Raimonde v. Van Vlerah, established several factors to evaluate the enforceability of noncompete agreements, including time and geographic limitations, whether the employee has confidential information or trade secrets, and whether the covenant seeks to stifle the employee’s inherent skills and experience.

Current Status of Noncompete Agreements

Noncompete agreements are under intense scrutiny, not just by the Ohio court system but also in many state legislatures and at the federal level. The Federal Trade Commission (FTC) is considering rules that would ban any “contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker’s employment with the employer.” The proposed rule aims to prevent agreements from unfairly restricting workers’ job mobility and could significantly alter the landscape of non-compete agreements.

While the FTC’s proposed rule has a limited exception for noncompete clauses between a seller and buyer of a business, it is clear that noncompete agreements must be crafted carefully to avoid being deemed unenforceable. The Ohio Insurance Agents Association (OIA) is collaborating with the Big I National to secure exemptions for insurance agencies and their employees from the proposed rule.

The Golden Rule for Insurance Agency Protection

Even if noncompete agreements face increased scrutiny, they are still legal under specific conditions. Regardless of your agency’s stance on noncompete agreements, having employment agreements with licensed employees that contain other critical elements, such as confidentiality requirements, non-piracy/non-solicitation covenants, and severability clauses, is essential. These elements help protect your agency’s business interests without overstepping legal boundaries.

In conclusion, while non-compete agreements can still be used, they must be reasonable in both time and geographic scope to avoid being voided. If you have questions about the validity of your agency’s employment agreements, contact OIA’s Executive Director, Jeff Smith, JD, CIC, CAE, for assistance and templates for use by OIA members.

Sources: Gongwer News Service, Ohio Supreme Court.

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