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A covenant restraining an employee from competing with his former employer upon termination of employment is reasonable if the restraint is no greater than is required for the protection of the employer, does not impose undue hardship on the employee, and is not injurious to the public.
Appellees Barbara Rogers and Nicholas Marrone signed employment contracts with appellant Runfola & Associates, Inc. Appellees’ employment contracts contained a covenant not to compete, precluding appellees form engaging in court reporting or public stenography as an employee or otherwise in Franklin County, for a period of two years. The covenant also banned appellees from ever diverting or soliciting any of Runfola's clients and barred appellees from ever using any client list, notes, transcripts, exhibits, files, records or any documents received by or on behalf of Runfola. Subsequently, appellees quit working for appellant with the intention of starting a competing firm locally. Appellees filed a declaratory judgment seeking a clarification as to the validity and enforceability of, and obligations under their employment contracts. The trial court found that the employment contracts were unenforceable. In addition, the trial court found that even if the employment contracts were valid, the covenants contained therein were unreasonable. The court of appeals found that the employment contracts were valid but that the covenants were unreasonable. Both parties appealed.
Were the covenants not to compete contained within appellees’ employment contracts reasonable?
The court noted that a covenant restraining an employee from competing with his former employer upon termination of employment was reasonable if the restraint was no greater than was required for the protection of the employer, did not impose undue hardship on the employee, and was not injurious to the public. In this case, the court found that their employment was sufficient consideration for the contract, but the hardships on appellees exceeded what was necessary to protect appellant’s business interests. Geographically, appellees were prohibited from engaging in court reporting or public stenography in Franklin County for two years. Appellees were also restricted, for a lifetime, from soliciting or diverting any of Runfola's clients. Imposing such space and time restrictions was unreasonable and will create an undue hardship on appellees. However, since Runfola has a legitimate commercial interest to protect, the court modified the covenant, limiting it to one year in duration within the city limits.