Steven Greenhouse reports in the New York Times that noncompete agreements are popping up in jobs and businesses where really they serve no legitimate purpose: Noncompete Clauses Increasingly Pop up in Array of Jobs. A couple of examples of jobs where noncompete agreements have been used to prevent an individual from going to work for another employer: summer camp counselor, yoga instructor and pizza cook.
Noncompete agreements do have a proper but very limited role. Certainly with regard to protecting what can truly be considered a trade secret and other very limited circumstances, they are properly used and and should be enforced. But these circumstances and the jobs and industries in which they arise are limited.
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 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.
The Kegels bought a business, Unique Promotional Products, from a Michelle Chapman on January 16, 2007. Previously, Roxanna Tillotson, as an independent contractor, had entered a noncompete agreement with Unique Promotional Products providing that upon termination of her relationship with Unique Promotional Products she would not engaged in a competing business for 5 years within 350 miles. A week after Chapman sold Unique Promotional Products to the Kegels, Tillotson terminated her relationship with the company and began a competing business the next day. The Kegels filed suit to enforce the noncompete agreement that Tillotson had initially entered into with Chapman.
The Kentucky Court of Appeals ruled that the noncompete agreement initially entered into by Tillotson with Chapman was enforceable by the Kegels, reasoning
While Tillotson may have been an independent contractor, her relationship was with the business, Unique Promotional Products, and not with Chapman, the individual. Accordingly, her commitment was one not to compete with the business, not with Chapman herself. Therefore, we find that the noncompete clause in the matter sub judice, having been freely entered into by Tillotson, was assignable to the Kegels.
The court did remand the case for further discovery on whether the terms of the noncompete -- 5 years and 350 miles -- could be enforced or should be reformed on grounds of unconscionability, noting that under the "blue pencil" rule "courts have no difficulty in restricting a [noncompete agreement] to its proper sphere and enforcing it only to that extent."
