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Employment contracts, as well as severance and separation agreements, frequently contain noncompete agreements. These agreements are designed to protect the business interests of the employer and the investment they make in employees. As a “restraint on trade,” however, noncompete agreements are subject to important limitations.

The reasonableness standard

Kentucky law requires noncompete agreements to be reasonable in scope. The reasonableness requirement applies to three aspects of the restriction:

  • Duration: Noncompete restrictions typically last anywhere from six months to two years after the employment relationship ends. The total duration, however, might be shorter or longer depending on any employer’s unique needs or interests.
  • Location: While there are some exceptions, noncompete restrictions generally can’t be unlimited in geographic scope. A good rule of thumb is that, as the the geographic restriction gets larger (g., from a few miles to nationwide), the heavier the burden becomes for the employer to justify the restriction as a legitimate protection of its interests. (Contrast this with nonsolicitation agreements – which prevent former employees from “stealing away” former customers and coworkers – which can be unlimited in geographic scope.)
  • Purpose: The noncompete restriction must be narrowly tailored to protect the employer’s interests. It can’t be so broad as to prevent the employee from seeking any realistic employment.

Viewed as a whole, these agreements must be made in good faith. Employers can’t use noncompete agreements to take advantage of an employee or gain an unfair advantage in the marketplace.

When must they be signed?

Noncompete agreements are typically executed as part of an employment contract at the outset of an employer-employee relationship. However, they can also be signed during employment, so long as the employer provides some form of additional consideration beyond continued employment – such as a bonus, salary increase, enhanced benefits, or additional time off, for example. Employers beware: continued employment is no longer sufficient consideration under Kentucky law to compensate the employee for executing an agreement after employment has already begun.

Can courts modify them?

When a former employee challenges a noncompete agreement, Kentucky courts have the power to modify the agreement. However, courts generally will do so only if the original agreement was unreasonable in its scope.

What are employers to do?

Employers who would like their employees to sign a noncompete agreement, or any other type of restrictive covenant, such as a confidentiality or nondisclosure agreement or nonsolicitation agreement, are advised to discuss the specific terms and language with experienced legal counsel. This process requires a deep dive into an employer’s legitimate interests and the finding the most effective, and sometimes the most creative, way of protecting those interests in the narrowest way possible. After all, if the noncompete agreement won’t hold up in court, it isn’t worth the paper its written on.