Ohio Court of Appeals Refuses to Enforce Non-Compete or Award Damages and Dismisses Counterclaims.

On Monday, the Warren County Court of Appeals upheld the dismissal of both the employer and contractor’s claims involving the enforcement of a non-compete clause and abuse of process claims. Reliant Serv. MJF, L.L.C. v. Brown, 2025-Ohio-5364.   The Court treated the non-complete clause involving the independent contractor as though he were an employee of the employer contracting business.   It found that the clause was unenforceable because it was overly broad in prohibiting all competition and in failing to show any protectible interest such as an investment in training the contractor or in confidential information.  In its breach of contract claim, the employer also failed to show that its level of business with that customer (or any other customer) had declined as a result of the allegedly unfair competition.  The court also refused to award the individual damages for the amount of lost income he suffered while the TRO was in effect because he was limited to the amount of bond required for the TRO and failed to challenge the low amount with evidence.  It also found that he could not prevail on his counterclaims because the employer was permitted to file a lawsuit, even if it lost on the merits of its claim. 

According to the Court's opinion, the plaintiff employer ran a construction staffing business where it would supply individuals to complete the “punch lists” for newly constructed homes (i.e., drywall repairs, painting, etc.)  It hired the defendant individual/independent contractor in 2013.  He already had 25 years of experience as a handyman and did not receive any training to perform his assignments.  The employer had a large customer and a few smaller ones.   In 2013, it required its employees and contractors to sign a non-compete form which prevented them from competing or providing services to identified customers, including Ryan Homes.  The defendant signed that form and began performing assignments, including for Ryan Homes.   When another court found the form unenforceable, the employer required the contractors to sign an independent contractor agreement which contained a different non-compete clause preventing any competition for one year.    The defendant also signed that agreement, but the employer mysteriously back dated it to 2013. 

The defendant formed his own contracting/handyman business in September 2021 and began performing work for his new business for Ryan Homes as well as for the employer.  He then resigned from the employer in October 2021.  The employer discovered his competition with Ryan Homes and filed suit in March 2022 and obtained a TRO against the competition and was only required to post a $1K bond.   While the magistrate initially enforced the non-competition agreements, the trial court in December ultimately dissolved the TRO and preliminary injunctions, but also rejected the counter claims for abuse of process and tortious interference.   The court also refused to award damages of $115K which the defendant claimed to have lost as income while the TRO and PI were in force and limited the defendant to the $1K bond.  Both parties appealed and the Court of Appeals affirmed.

First, the courts refused to treat the non-compete form and independent contractor agreement clause as integrated.  The employer argued that the defendant should at least be enjoined from working for Ryan Homes because it was specifically identified on the non-compete form.  However, the magistrate and trial found that the clause replaced the form and the employer had failed to appeal that finding.    In any event, the courts concluded that the clause was overly broad because it contained no geographic restrictions.  The employer’s business was concentrated in four counties, but the clause prevented all competition, even outside that area.   

A noncompete covenant is reasonable if (1) its restrictions are not greater than what is required to protect the employer, (2) it does not impose an undue hardship on the employee, and (3) it is not injurious to the public. Id. at 26. In determining the validity of a noncompete covenant, each case must be decided on its own facts. Id. at 25. A plaintiff seeking to enforce a noncompete covenant must establish, by clear and convincing evidence, each of the three elements above.  . . .

In determining whether a noncompete covenant is reasonable, a court should consider the following factors: (1) the absence or presence of limitations as to time and space, (2) whether the employee represents the sole contact with the customer, (3) whether the employee is possessed with confidential information or trade secrets, (4) whether the covenant seeks to eliminate competition which would be unfair to the employer or merely seeks to eliminate ordinary competition, (5) whether the covenant seeks to stifle the inherent skill and experience of the employee, (6) whether the benefit to the employer is disproportional to the detriment to the employee, (7) whether the covenant operates as a bar to the employee's sole means of support, (8) whether the employee's talent which the employer seeks to suppress was actually developed during the period of employment, and (9) whether the forbidden employment is merely incidental to the main employment.

 . . . The Contract's noncompete clause is a statewide, if not worldwide, limitation from employment with any of [the employer’s] home-builder clients for a period of one year. A one-year time period for a noncompete covenant is generally reasonable.  . . . However, in the circumstances of this case, where [the defendant] only performed work for [the employer’s] client, Ryan Homes, in Ohio's four southwest counties, the lack of any geographic limitations makes the noncompete clause unduly restrictive. . . . .

Further, the employer failed to show a protectible interest.  The clause was not tailored to prevent the misuse of confidential or trade secret information.  Further, while such clauses are enforceable to prevent unfair competition and to protect an investment in employees, they are not enforceable to prevent fair competition.  There was no evidence that the employer had invested in any special training of the defendant.  Rather, he was hired because of his extensive prior experience and the employer could not prevent him from using his previously acquired skills to compete against it.   

An employer's legitimate interests in utilizing a noncompete covenant include "prevent[ing] the disclosure of a former employer's trade secrets or the use of the former employer's proprietary customer information to solicit the former employer's customers."  . . .  Another legitimate purpose of a noncompete covenant is the retention of employees in which an employer has invested time and other resources.  . . .  However, this case did not implicate trade secrets or confidential information. Moreover, the record plainly shows that [the employer] did not invest time and money in training [the defendant], and did not play any role in [his] development as a skilled and professional punch-list contractor. Rather, [he] worked as a handyman providing handyman and punch-list services for 25 years prior to his employment with [it]. Stated differently, [his] knowledge and skills were not developed or improved while he was a[n] . .  independent contractor. Noncompete covenants that prevent an employee from using his or her general skills and experience in the marketplace weigh against enforcement.  . . .  In addition, while the record indicates [he] dealt directly with Ryan Homes in scheduling work as a[n]independent contractor, he was not the sole contact with Ryan Homes.

Nonetheless, the Courts found that the defendant was not unduly harmed because the clause had never been enforced to prevent him from using his skills in other contexts, such as a handyman or in other commercial construction.

Despite an employer's interests, enforcement of a noncompete covenant cannot cause undue hardship on a former employee.  . . . "To be sure, any person who is prevented from practicing his profession or trade for a period of time in an area in which it has been practiced, suffers some hardship.  However, the Raimonde test requires more than just some hardship."  . . .  "The public's interest in determining the reasonableness of a noncompete [covenant] 'is primarily concerned with . . . promoting fair business competition.'"   . . .  In highly competitive industries, enforcement of noncompete covenants are often found to not adversely affect the industry or harm the public in limiting the public's options in obtaining goods and services. Id.

[The Defendant] is providing the same type of punch-list services for Ryan Homes now as he did for it when he worked as a[n] independent contractor. The forbidden employment is therefore not merely incidental to the main employment under the ninth Raimonde factor. Although the Contract's noncompete clause prevents [him] from working for or with [the employer’s] home-builder clients for a period of one year, it does not act as a complete bar to his sole means of support or stifle his inherent skills and experience. Fenik testified that [the employer] does not prevent current and former independent contractors from providing general handyman services or landscaping to residential property owners or from working in commercial construction. Fenik stated that many individuals working for [it], in fact, do side work on the weekends or if they have an opening in their work schedule. [The defendant’s] testimony revealed that during the nine months the preliminary injunction was in effect, he did not seek any alternative handyman employment or work in commercial construction. Moreover, although the record shows [he] worked mostly, if not exclusively, for Ryan Homes as a[n]independent contractor, he never inquired of [the employer] if he could work for its other home-builder clients during the nine-month preliminary injunction. The Raimonde test requires more than just some hardship. [He] did not show that he could not readily obtain a position or establish a non-competing practice.  . . .  Thus, the fifth and seventh Raimonde factors weigh in favor of enforcing the Contract's noncompete clause.

In addition, as for the employer’s breach of contract claim – which was tried in 2024, it failed to show that it had suffered any financial losses.  It sought a percentage of the fees which the defendant had earned from  Ryan Homes.  However, it continued to receive the same amount of business from Ryan Homes before and after the period when the defendant competed against it.  Any business he took was from other competitors, not the defendant: “there is no evidence this business would have gone to [the employer].”

The Court also affirmed the dismissal of the defendant’s counterclaims.  It refused to find that the act of filing a lawsuit can constitute tortious interference merely because the employer could not meet the clear and convincing evidence standard of evidence:

Turning to [his] argument, [the employer’s] mere resort to filing a civil lawsuit against [him] and seeking a preliminary injunction does not constitute a tortious interference with a business relationship. To hold otherwise would have a chilling effect on valid lawsuits seeking to enforce contractual provisions such as a noncompete covenant. Moreover, [he] has failed to articulate any damages resulting from [its] alleged tortious interference with a business relationship. Here, [he] was out of work for several months as a result of the magistrate's decision granting [the employer] a preliminary injunction. Thus, [his] claimed loss of income was not caused by [its] filing of the lawsuit and seeking of a preliminary injunction, but by the magistrate granting the preliminary injunction.

The Court rejected the abuse of process claim on similar grounds:

We find there is no genuine issue of material fact regarding [his] abuse of-process counterclaim because [he] failed to present evidence establishing [the employer’s] ulterior motive. That is, there is no summary judgment evidence that [it] had an ulterior motive in seeking injunctive relief. Here, [it] filed a lawsuit against [him] and sought injunctive relief specifically to prevent [him] from competing directly with it. These are not "ulterior purposes" that [it] aims to accomplish but are clearly the stated and primary goals of these proceedings. Furthermore, as plainly shown by its December 12, 2022 decision dissolving the preliminary injunction, it is well within the trial court's jurisdiction to grant or deny a preliminary injunction. . . The trial court, therefore, did not err in granting summary judgment in favor of [the employer] on [his] abuse-of-process counterclaim.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Clermont County Enforces Non-Compete Even After Employee Placed on Paid Administrative Leave for One Year

Earlier this month, a unanimous Clermont County Court of Appeals reversed a trial court decision denying judgment to an employer who sued a former employee and her new employer for violating her non-competition and non-solicitation agreement even after the new employer put her on a paid leave of absence during the non-compete period.  Total Quality Logistics, L.L.C. v. Leonard, 2023-Ohio-2271.  The Court found that the agreement was not merely to protect the unfair poaching of its customers, but also to prevent the poaching of its employees after a significant investment in training them.  By putting the employee on a paid leave of absence, the new employer created an incentive for the employee to leave the plaintiff employer and deprive the plaintiff employer of its investment. “Allowing a competitor to circumvent a noncompete agreement by simply hiring an employee and placing the employee on paid administrative leave for the duration of the noncompete agreement would defeat the purpose of noncompete agreements, reward former employees and the competitors hiring them, and ignore the employer's legitimate business interests.”

According to the Court’s opinion, the plaintiff employer hired an inexperienced employee and spent 22 weeks training her about the industry, its business and how to win and retain loyal customers. She was required to sign a one-year non-compete and non-solicitation agreement which provided that the one-year period would be tolled while she was in violation.    After two years, she transferred to Massachusetts and became personal friends (i.e., after working hours) with employees of a few customers.  She was then recruited away by another company for its new division, which directly competed with her former employer.  She was incorrectly told that her non-compete was not enforceable in Massachusetts (which should have been suspicious when she was required to also sign a non-compete with her new employer).  The former employer learned about this on LinkedIn and brought suit the following month.  She was then placed on paid administrative leave for a year, at which time the new employer requested to dissolve the agreed preliminary injunction.  The trial court agreed, and after a bench trial limited the plaintiff employer’s damages to the $24K profit lost during the six weeks that she actively worked for the competitor and denied it attorneys’ fees as the prevailing party under the agreement.   The Court of Appeals reversed.

Non-compete agreements are only enforced to the extent necessary to protect the employer’s legitimate interest.  The trial court found that the employer’s only interest was to protect its customers from being unfairly poached and that this was sufficiently protected by placing the employee on paid administrative leave.  However, the plaintiff employer argued that it also had a protectible interest in retaining its investment of “substantial time, money, and other resources” in the employee.  It argued that the trial court had turned it into a “farm system” for the identification and training of logistics staff for its competitors.

One legitimate purpose of a noncompete agreement is to prevent the disclosure of a former employer's trade secrets or the use of the former employer's proprietary customer information to solicit the former employer's customers. . . . . We have recognized that another legitimate purpose of a noncompete agreement is the retention of employees in which an employer has invested time and other resources. (bolding added for emphasis).

                . . .

            In addition to its legitimate business interest in keeping its proprietary customer information and marketing and business strategy confidential, TQL had a legitimate business interest in retaining its employees. [She] obtained her experience and skills as a freight broker in the logistics industry while being trained extensively by and working for TQL. [She] had a proven track record of success, was demonstrably skilled at developing customer relationships, and was a promising broker as evidenced by her promotions through TQL's ranks, and once she began working for Ally, by her being contacted by former TQL customers and the profits she generated for Ally in less than six weeks . . .

The upshot of [defendants’] argument is that the NCA restricts them only from competing with TQL for customers. However, the NCA is not so limited as it also restricts "employment" with a TQL competitor.  Moreover, the purpose of the NCA is to prevent not only unfair competition for customers but also for the human resources necessary to conduct business. The NCA promotes this purpose by, among other things, disincentivizing TQL employees from leaving the employ of TQL to work for a competitor. Adopting [defendants’] narrow construction of the NCA would permit competitors to acquire TQL's key and high-performing employees and placing them on paid administrative leave for a year, thus depriving TQL of the benefit of its investment in the employee and the employee's services while avoiding liability for tortious interference and breach of contract. (bolding added for emphasis).

In light of this construction, the Court also found it was an error to conclude that the employee ceased being employed by a competitor after she was placed on paid administrative leave simply because she conveyed no tangible benefit to her new employer during that time because this conclusion did not give weight to the plaintiff employer’s interest to disincentive its employees to resign for greener pastures.

Trial testimony established that Leonard signed a two-year noncompete agreement on her first day as an Ally employee, and that while on administrative leave, she continued to be on Ally's payroll, was paid her regular salary, paid taxes on her income, and continued to receive benefits. Leonard and Zambo both identified Leonard as a current employee of Ally. It is axiomatic that only an employee can be placed on paid administrative leave. The trial court focused on the fact that although she was paid during her administrative leave, Leonard did not conduct business of any kind on behalf of Ally and that her pay and benefits were "entirely gratuitous on Ally's part." That Leonard was paid for doing nothing during her administrative leave because Zambo purportedly felt responsible for Leonard's situation does not make Leonard a non-employee of Ally for purposes of the NCA.  The fact that Ally paid Leonard her full salary and benefits during her administrative leave shows that it received a reciprocal benefit. It is no different than an employee going on a paid FMLA, jury duty, or military leave and performing no services for the employer during such leave. From the time Leonard was hired to date, nothing in Leonard's status as an Ally employee changed. By being hired by Ally and by continuing to be employed by Ally, Leonard violated the noncompete provision of the NCA prohibiting its employees from being "employed" by a competitor of TQL.

The Court further focused on the fact that the employee continued to socialize with the three employees of her former employer’s customers while she was on paid administrative leave.  It found these contacts – even though purely social – were contrary to her former employer’s economic interests.

The trial court had found that the plaintiff employer had no legitimate interest in rendering the employee unemployed if she was not competing against it in business.   However, the Court found this focused more on the benefit – or lack thereof -- to the new employer and not on the interest of the plaintiff employer to retain its employee.

Ally's retention of [her] was a benefit to Ally from the outset, and a benefit Ally was able to hold onto by maintaining [her] as an employee after November 25, 2020. However, the test established in Raimonde plainly focuses upon the former employer and its legitimate interests and need for protection, not on the competitor's benefit, and thus requires that noncompete agreements be viewed through the interests of the former employer, not the offending competitor.

As discussed in the first assignment of error, TQL has a legitimate business interest in retaining its employees after it has invested time, money, and other resources in them, and preventing its competitors from recruiting those employees away. Before being employed at TQL, Leonard had no prior experience, clients, or contacts in the logistics industry. At TQL, Leonard received extensive training learning how to become a successful freight broker and was promoted due to her recognized leadership qualities. Trial testimony established that Leonard had a proven track record of success, was extremely skilled at developing customer relationships, and was a promising asset in the logistics industry. Ally's hiring of Leonard undermined TQL's legitimate business interest in retaining Leonard as its employee. The trial court erred by ignoring TQL's legitimate business interest in the retention of its experienced and skilled employees after investing time and other resources in them.

The trial court found that "[h]ad [she] been terminated [by Ally] or had she resigned after November 25, 2020, and then been rehired by Ally after a year had elapsed, the effect upon TQL would have been exactly the same as it is in the current circumstances." Not so. While the result of [her] not working for the logistics industry for a year in compliance with the NCA or her sitting out for a year while on paid leave might have been the same in that [she] performed no services in the logistics industry, [she] would have been less inclined to leave employment with TQL if there were no other employment prospects in the industry. Allowing a competitor to circumvent a noncompete agreement by simply hiring an employee and placing the employee on paid administrative leave for the duration of the noncompete agreement would defeat the purpose of noncompete agreements, reward former employees and the competitors hiring them, and ignore the employer's legitimate business interests.  (emphasis  added). 

Ultimately, the Court found that the plaintiff employer was entitled to a permanent injunction to keep the employee from working for another year and was entitled to attorneys’ fees as the prevailing party.

This is exactly the kind of non-compete case to which the NLRB objects -- disincentivizing employees from seeking higher wages and better working conditions.  

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.