Often Kentucky businesses and professional practices wish to restrict employees from leaving to work for the competition. They may have legitimate concerns about a former employee taking with them knowledge of the industry and of the business, goodwill with customers and the community, as well as skills learned in the original job. Such an employee could use these assets to the economic detriment of the former employer if allowed to compete directly.
A common contractual tool to restrict a former employee’s ability to compete after they leave an employer is the noncompetion agreement, also called a noncompete or a covenant not to compete. Employers often require noncompetes as a condition of initial employment within a longer employment contract, but sometimes employers impose them after employment has started.
Kentucky law on enforceable covenants not to compete
Kentucky law on noncompetes is not governed by statute (except for the law-firm context), but by common law developed from cases courts have decided. Courts have an extensive record of analysis of the enforceability of noncompetes.
Many employers alleging breaches of noncompetition agreements or employees challenging them file lawsuits in state or federal courts, which normally uphold noncompetes unless they would cause “very serious inequities.”
To be enforceable, a Kentucky noncompete must:
- Have reasonable limits on duration and geographic reach of the restrictions on the ex-employee, and a reasonable purpose
- Provide fair protections to the original employer
- Be consistent with the public interest
- Be without undue hardship to the employee
Bank employer example
For example, in First Financial Bank, National Association v. Williams, a federal court applying Kentucky law found a noncompetition clause appeared reasonable and would likely be enforceable against the former vice president of a bank. The provision restricted him from taking employment with a competing bank for a year in any city where the original employer has a branch or within 50 miles of that branch.
These cases are extremely dependent on the unique circumstances of the parties and may be more difficult when there is no limit on geographic reach or time. Stay tuned for part 2 of this post where we will talk about preliminary injunctions and how a lawyer can help with noncompetition agreements.
(First Financial Bank, National Association v. Williams is available on Westlaw at 2019 WL 4865888.)