In many competitive businesses industries, employers often require their employees to sign non-compete agreements as a condition of employment with their company. A non-compete agreement is an agreement/contract between an employee and an employer that restricts the ability of an employee to work in the same field or geographic region for a set period of time following a resignation, termination of employment, or retirement*. Generally, these agreements have been held to be enforceable by Kentucky Courts, regardless of whether the employee’s employment with the company ended voluntarily or involuntarily.
As any other contract, in order for a valid non-compete agreement to exist, there must be consideration. In Kentucky, if the non-compete agreement is entered into at the time the employee was hired, the employment itself is recognized as sufficient consideration to create a binding contract. If an employee is asked to sign a non-compete agreement after they have been employed, that may be enforceable as well, if the employer demonstrates that it has provided additional consideration to the employee. It is important to note that consideration is not just monetary value and can include other benefits or specialized training that the employee received that they would not have received without working for the Employer.
The time length and geographic scope for the enforcement of a non-compete agreement is very fact dependent on the nature of the business that is seeking court protection. For a non-compete agreement to be enforceable it must reasonable**. Reasonableness in non-compete agreements is determined by Kentucky Courts in three different ways: duration, geographic coverage, and purpose***. Courts have held that non-compete agreements can extend a restriction only far enough to protect the interests of the employer and not so much as to “impose undue hardship on the party restricted.”****
If a Court determines that a non-compete agreement is unreasonable in its enforcement, a Court retains the authority to modify an existing non-compete agreement so that its restrictions are not overly broad or burdensome on the employee. This is called the “blue pencil” rule.
Finally, employees should take note that non-competes are assignable contracts. If a new company buys out their current employer, the new company likely has been assigned the rights to enforce the non-compete agreement against the employee of the former company and will have the authority to take court action to enforce the terms of the original non-compete agreement.
For assistance with non-compete agreements, employment disputes, or any Employment Law issues, please contact Ziegler & Schneider today at (859) 426-1300.
*Kegel v. Tillotson, 297 S.W.3d 908, 909 (Ky. Ct. App. 2009); Debra H. Dawahare, § 18:7. Non-competition and conflict of interest clauses, 2 KY Forms & Transactions § 18:7 (2018 ed.)
**Hall v. Willard & Woolsey, P. S. C., 471 S.W.2d 316, 317 (Ky. 1971)
***Id. at 318
****Hammons v. Big Sandy Claims Serv., Inc., 567 S.W.2d 313, 315 [Ky. Ct. App. 1978) (quoting Ceresia v. Mitchell, 242 S.W.2d 359 (Ky. Ct. App. 1951)]