As an employee, your employer may ask you to sign a non-compete agreement. A non-compete agreement is essentially a contract between you and your employer in which you agree not to enter into “competition” during, or for a certain period of time after, your employment. The purpose of such agreements may be to protect the employer’s confidential information and trade secrets, to protect the employer’s relationship with its clients, or to protect the investment of money and time that the employer spent training the employee.
While non-compete agreements are valid and enforceable under Kentucky law, they are not allowed to place an undue burden on the employee. Therefore, there may be several clauses within your employer’s drafted non-compete agreement that are unenforceable if they are found to be unreasonable by a Court reviewing the agreement.
Generally, a non-compete agreement will require the employee to refrain from working for a competitor of their employer or starting a business involving work similar to that performed by their employer either during employment or for a period of time after employment. However, overly broad non-compete agreements will not be “reasonable” in the eyes of the Court. For example, it has been held that a non-compete agreement may not be unlimited to both time and territory. Hammons v. Big Sandy Claims Serv., Inc., 567 S.W.2d 313, 315 (Ky. App. 1976) (citing Calhoun v. Everman, 242 S.W.2d 100 (Ky. 1951). The reasonability of an agreement may also change depending on the type of employment or industry. To ensure that a non-compete agreement is reasonable, and therefore enforceable, it is important for an employee to have it reviewed by a trusted employment law attorney such as those at Charles W. Miller & Associates.
Some non-compete agreements are entered into at the start of employment, while others are entered into after employment has already begun. Even if a non-compete agreement passes the “reasonability test” as discussed above, the employer must still give adequate consideration for the employee’s agreement not to compete if the agreement is being presented to the employee after employment has already begun. In a landmark case, Charles T. Creech, Inc. v. Brown, in 2014, the Kentucky Supreme Court ruled that an employer may not impose the limitations contained in a non-compete agreement upon an existing employee without granting additional consideration.Charles T. Creech, Inc. v. Brown, 433 S.W.3d 345 (Ky. 2014). The Court held that “continued employment” alone is no longer adequate consideration. Rather, consideration must be something of additional value in exchange for promising to not compete with the employer. If the Court determines that the non-compete agreement lacks this consideration, it may be determined to be unenforceable.
Charles T. Creech, Inc. v. Brown also decided that consideration may not only come in the form of a pay raise, a one-time additional payment, or a promotion. The court found that an employer providing specialized training or expertise to an employee that the employee may not have acquired otherwise may also act as sufficient consideration to support the enforceability of the non-compete agreement.
If you or someone you know has an issue relating to a non-compete agreement, the attorneys at Charles W. Miller & Associates are here to discuss its enforceability and your legal options. Contact our office at 502-273-0234 for a consultation.