Scott Zoppoth 2013-11-14 10:51:31
Kentucky’s Non-competition Agreements: Q: Are Covenants Not to Compete in Kentucky Enforceable? A: Yes, they are, but they must be “reasonable” as to time, scope and territory and it must protect a legitimate interest of the employer. The three (3) “reasonableness” factors considered by Kentucky Courts are as follows: 1. Time Duration: The length of the covenant should be no longer than necessary to protect the employer’s legitimate interest. This will usually be from one to a maximum of six years depending upon certain factors. 2. Geographical Restriction: The geographic restricted area should be limited to the area where the employer conducts business. A nationwide restriction is not common, but has been held to be enforceable under certain circumstances. 3. Scope The covenant can only restrict future employment or activity in the same or similar business in which the employee was engaged. Kentucky courts have the authority to make changes to any of the above three (3) elements of a covenant not to compete to the extent the Court finds them to be unreasonable or unfair or overbroad. In fact, last year the Kentucky Court of Appeals in Creech, Inc. v. Brown (2012 Ky. App. LEXIS 142), affirmed the trial courts authority to modify any of the three (3) “reasonable” elements of time, scope and territory if the existing covenant is overly broad or not “reasonable”. Further, this same opinion reaffirmed that the continued employment of an employee is adequate consideration when an employer requests that an existing employee sign a non-competition agreement. The Kentucky Court of Appeals in Creach, Inc. v. Brown, supra, in a very helpful analysis for attorneys dealing with covenants not to compete, set forth a series of six (6) factors that the trial court should consider when determining the reasonableness and enforceability of covenants not to compete in Kentucky: 1. The nature of the industry; 2. The relevant characteristics of the employer; 3. The history of the employment relationship; 4. The interests the employer can reasonably expect to protect by execution of the non competition agreement; 5. The degree of hardship the agreement imposes upon the employee; and 6. The effect the agreement has on the public. However, as in most areas of the law, the interpretation and enforceability of covenants not to compete is constantly changing and evolving. In fact, the Supreme Court of Kentucky decided recently on April 17, 2013, that it would review the Creech Opinion. Therefore, be on the lookout for the Kentucky Supreme Court to further clarify or refine the “reasonableness” elements and/or the validity of non-competition agreements in Kentucky. Scott Zoppoth is the founder of The Zoppoth Law Firm, specializing in Business Litigation. Zoppoth is a member of the Kentucky Bar Association, the Louisville Bar Association and the Kentucky Lawyer Referral Service Program. He received his B.S. from St. John Fisher College and a J.D. from South Texas College of Law. Zoppoth is active in the community and has been a member of the Board of Directors of the Downtown YMCA of Louisville for 5 years and a Parish Council Chairman for the past 12 years. You can reach Scott at (502) 568-8884 or by visting www.zoplaw.com.
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