Non-compete agreements in Kentucky. Non-compete agreements are generally not favored by the courts. In fact, some states, like California, have enacted laws which effectively ban the use of non-compete agreements.
What does Kentucky law say about non-compete agreements? In an important ruling in 2014, the Kentucky Supreme Court clarified the law on non-competes in a case called Charles T. Creech, Inc. v. Brown.
What should I know about this decision?
In 2014, the Kentucky Supreme Court made it clear that when an employer seeks to impose a non-compete agreement on an existing employee without granting additional consideration, the agreement is not enforceable. Prior to 2014, an employee’s agreement not to compete with his or her employer was presumed to be valid and enforceable, so long as the agreement was reasonably tailored to protect the employer’s business interests. Kentucky courts assumed that continued employment, was sufficient “consideration” to the employee to support a binding contract.
In the Creech case, a business (Creech, Inc.) providing hay and straw to horse farms in Kentucky asked a long-time employee to sign a “conflicts of interest” document that was not actually made part of his employment agreement. No one told the employee his continued employment was contingent on signing the agreement, and the employee did not receive any monetary consideration for signing the agreement. In the years after signing, the employee was not promoted, given additional training, or provided with a pay increase. When the employee left to work for another firm in a similar business, his former employer argued he violated an agreement not to work for a competitor within three years after leaving his job.
The Kentucky Supreme Court said this agreement was not enforceable because the employee received no consideration for signing it. Continued employment with the firm, the court said, did not constitute consideration for an enforceable non-compete.
Non-Compete Agreements in Kentucky – Implications of the Cheech decision:
Now, an employer seeking to enforce a former employee’s non-compete agreement must also be able to show that the employee received something of additional value more than mere continued employment. If the employer cannot show the employee received something in exchange for promising not to compete with the employer, the employee may be able to persuade the court that the non-compete agreement lacks “consideration” and is, therefore, not enforceable.
Are your company’s non-compete agreements vulnerable?
In the wake of the 2014 Creech decision, the important question is whether your company’s employees have received something of additional value in exchange for signing a non-compete agreement. Most employers meet this test because they provide one or more concrete benefits to their employees in exchange for their agreements, whether at the time of signing or shortly thereafter: additional compensation, a promotion, a promise to provide additional training, job protection, etc.
What steps can I take to protect my company’s interests?
Going forward, employers would be wise to review their existing non-compete agreements to ensure the specific terms will not create any problems should they need a court’s assistance in enforcing their rights.
Given the importance non-competition agreements and other restrictive covenants have in protecting a business’s most critical assets – customers, employees, and intellectual property – this is a situation where a periodic “check-up” with a legal advisor may be necessary.
In short, the law of enforceability of non-competes is evolving in Kentucky. If your company has not reviewed its non-compete agreements with legal counsel, or if you are concerned about the enforceability of your business’ non-compete agreements, Commonwealth Counsel Group’s attorneys would be glad to speak with you.