Noncompete agreements serve important public and commercial interests: they allow businesses to allow employees while purporting to protect them against the unhappy prospect of training their future competition. On the other hand, noncompete agreements are contrary to important public and commercial interests: they restrict the ability of qualified individuals from working in their field. Because of these cross-purposes the enforceability of noncompete agreements under Kentucky law is a constant question for both employers and individual employees.
The Court of Appeals of Kentucky, in an opinion written by Chief Judge Glenn Acree, recently decided Charles T. Creech Incorporated v. Donald E. Brown, No 2011-CA-629 (August 17, 2012), identified six factors that should almost always by considered by a circuit court in assessing the enforceability of a noncompete agreement:
- The nature of the industry. Is it highly competitive and cut-throat?
- Characteristics of the employer. Basically, would the employer truly be competing with the employer and, if so, would the competition actually be detrimental?
- The history of the relationship between the employer and employee. Significant to this analysis is when -- at the beginning or somewhere after that -- in the employer-employee relationship was the noncompete agreement signed.
- The interests the employer seeks to protect. This factor again requires consideration of whether "the employer's own innovation or distinctive approach to its business [will] be used against it to its own detriment[.]"
- Hardship on the employee. Are "the restrictions on future employment intended to protect the employer's interests [too] broad as to unduly burden the employee's ability to find work?"
- Impact on the public. This one rarely will come into play.
This assessment will be done by the presiding circuit court judge, as the Court of Appeals emphasizes that circuit courts have and will maintain "blue pencil" authority to reform or amend restrictions or clauses in a noncompete agreement. As a practical matter, there will be very little appellate oversight as fact-finding will be reviewed deferentially on a substantial evidence basis and amendments (or not) likewise deferentially on an abuse of discretion standard.
The case is not final, however. The Kentucky Supreme Court decided to review the case in April 2013; it was briefed by the parties and oral argument scheduled for November 2013. In February 2014, the Court, on its own motion, put the case on hold. So we will just have to see what happens.
