Non-Compete Agreements, Trade Secret Laws Offer Protection

(Originally published in The Business Journal)

You have spent considerable time and money building your business, engineering your product, cultivating relationships with clients and refining your production methods. 

It makes sense that you would want to protect your investment from interference and outright theft.  Non-compete agreements with your employees and existing Ohio trade secret laws exist to protect you (and your money).  

The term “non-compete agreement” is generic and subject to varying interpretations.  These contracts can include prohibitions against former employees from competing against you, soliciting your customers, breaching your confidences and even stealing employees.

Such agreements can provide for liquidated damages and permit you to obtain a court order mandating that your employee refrain from harming your business.

In developing such agreements, you should thoughtfully consider the interest you are seeking to protect, the standard practices in your industry, the length of time you will need protection, the geographic area over which you will need protection and the functions of the employees involved.

Employers often ask their lawyers the same question when it comes to these contracts:  “Is this agreement enforceable?”  Unfortunately, Ohio courts do not have bright-line test applicable to non-compete agreements and they will only enforce a contract that is “reasonably necessary” to protect your legitimate business interests.  Courts will not uphold a restrictive covenant that is overly broad in its scope. 

One critical aspect of any non-compete agreement is the geographic scope of the prohibition against competition.  A business that caters only to customers in the Mahoning Valley would likely need a non-compete agreement that covers only this specific area. 

But a business with a national presence should consider broadening the scope of its covenant.  Likewise, the time associated with the non-compete agreement should be limited to that which is necessary to protect your business interests, as courts are reticent to enforce overly broad covenants. 

Even without a non-compete agreement, Ohio law provides you with trade secret protection by providing a remedy against an employee that misappropriates confidential information critical to your business.  Ohio law defines a trade secret as follows:

• It derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
• It is the subject of efforts that are reasonable under circumstances to maintain its secrecy.  

What constitutes a trade secret is open to interpretation and the premium for you is making certain that your confidential information satisfies the law’s definition of a trade secret. 

Courts consider these facts to determine whether your information is a trade secret:

1. The extent to which the information is known outside the business.
2. The extent to which the information is known to those inside the business, i.e. by the employees.
3. Precautions taken to guard the secrecy of the information.
4. The amount of effort or money expended in obtaining and developing confidential information.

You should include prohibitions against the misappropriation of trade secrets in your non-compete agreements.  Also consider including a trade secret acknowledgement in your employment applications. 

During your interviews of potential employees, you should advise them of the confidential nature of your business. 

A critical aspect of trade secret protection is that the information is actually a “secret.”  This means that you should take adequate steps to protect the confidentiality of your trade secrets. 

For example, engineering schematics, sensitive data regarding the design (and production) of your product and customer lists should only be made available to those employees that require such information.  Sensitive information should not be readily available to all employees. 

Properly drafted agreements can protect you from employee malfeasance, unfair competition and theft. 

But boilerplate agreements and those not specifically tailored to your business may not protect you and are at risk of being ignored (or even rewritten) by Ohio courts.  You should work with your legal counsel to maximize your protection. 

Gurbach can be reached at mgurbach@hhmlaw.com or at (330) 744-1111.