Non-compete agreements play a critical role in business and are often included in employment contracts and agreements for the sale of a business. In the case of employment contracts, a non-compete provision protects an employer’s interest in developing a well-trained workforce without the risk of losing customers and business secrets when an employee leaves the business. This is especially true in those cases where an employer has made a substantial investment of time and money in training an employee. In the context of business sales, a non-compete agreement protects the purchaser’s interest in the goodwill of the business. But these interests must be balanced with the interest of a departing employee (or the seller of a company) in engaging in a chosen profession or business.
To fairly balance these competing interests, Kentucky courts will only enforce the restrictions created by a non-compete agreement when these restrictions are reasonable in terms of geographic scope and duration. For example, a federal court applying Kentucky law has enforced a non-compete provision in favor of an employer that prevented a former employee, for a three-year period, from working for any business that competes with the employer in any area of the United States in which the employer does business. In determining whether restrictions in a non-compete agreement are reasonable, a court will consider all of the relevant facts and circumstances. Thus a court may consider whether the former employee left the company voluntarily, the amount of time and money the employer has invested in training the former employee and the harm the public may suffer if the non-compete is enforced.
Even where a non-compete provision is unreasonable on its face (e.g., a restriction that bars a former employee from working anywhere in the United States for the next 50 years), Kentucky courts have authority to modify the terms of a non-compete so as to make it reasonable and enforceable. This ability of Kentucky courts to modify and make enforceable an otherwise unreasonable non-compete agreement is known as the “blue pencil” rule. In applying this rule of Kentucky law, a court has enforced a non-compete clause against a software salesman that prohibited him from working within a 100-mile radius of his former employer’s offices, finding that the restriction was reasonable in geographic scope. However, the court would only apply the 100-mile restriction to the employer’s three offices that were operational at the time the salesman signed the agreement containing the non-compete clause and refused to apply the restriction to the 100-mile radii surrounding the eleven new offices the employer acquired after the salesman signed the agreement.
Remedies available to a party seeking enforcement of a non-compete agreement may include injunctive relief as well as money damages resulting from a breach of the agreement.
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