Ohio business groups push back on Senate bill banning noncompete contracts

By Nick Evans
Ohio Capital Journal

Opponents got their chance Wednesday to weigh in on an Ohio Senate measure banning noncompete contracts in the state. The sponsors contend that tools like nondisclosure and nonsolicitation agreements as well as trade secrets law are more than enough to protect employers’ business and intellectual property.

But opponents argue that without post-employment restrictions, small employers would face a disadvantage with large ones, and rural employers would struggle to maintain their ranks.

They raised a handful of narrower critiques as well. Employers who cover benefits like relocation, tuition reimbursement, or visa sponsorship could be hesitant to offer them if workers could leave without penalty. Hospitals warned it could be more difficult to offer specialty care because of the front-end investment in equipment and support staff. Insurers argued noncompetes are important when an agency sells its business to ensure the seller doesn’t immediately open a new competing agency.

Proponents
Despite the broader tenor of opposition, committee members did hear from a pair of supporters as well. The company Veeva Systems, which submitted written testimony previously showed up in person to reiterate their arguments.

Speaking on behalf of the company, Caleb Tuten argued noncompetes stifle mobility and entrepreneurship, depress wages and restrict employers’ access to the most talented employees.

Attorney Pete Friedman is the employment law chair with the Ohio Association for Justice. He explained that although he represents employees, he can empathize with critics — he comes from a family of business owners and owns one himself.

“In theory, noncompete agreements are designed or intended to protect the company’s business interests,” he said. “But the reality is, the extent of harm resulting from noncompete agreements does not justify the means.”

He noted noncompetes are “rarely negotiable” and rarely make a distinction when it comes to how an employee left the job.

“A company can require an employee to sign a one-year noncompete and then terminate that person for no reason one month after they sign that agreement,” Friedman said. “That puts the employee in a position, without a job, without income, and a restriction for one year impeding their ability to advance their career.”

Friedman praised a provision requiring that employment disputes be litigated in Ohio, recalling a client who had to travel to Texas to pursue a wrongful termination case.  He added that if lawmakers want to set a threshold above which noncompetes would be legitimate, they should set the cut-off as high as $200,000.

Critics weigh in
The noncompete ban faced stiff opposition from business and industry groups who insisted the agreements are critical to protecting their members’ businesses.

Tony Long from the Ohio Chamber of Commerce said, “It is unclear if the legislation would continue to allow nondisclosure agreements, nonsolicitation agreements, or standard confidentiality agreements if they contain restraints on the conduct of a former partner, owner or employee.”

The bill’s sponsors have noted Ohio is one of just eight states in the country with zero noncompete restrictions in state law.

“Ohio does have restrictions on (noncompetes),” Long argued back. “Ohio’s body of law is developed in court decisions instead of legislative enactment.”

Facing questions, Long allowed that the Chamber might consider a bill that included an income threshold. Theresa Nelson from the Ohio Manufacturer’s Association, though, insisted they would not.

“I think that’s too arbitrary,” she said, “and does not go to the actual facts of whether or not that company needs to have protections, contractual protections in place for when that employee leaves.”

She also said there’s no reason to void a noncompete contract just because an employee was fired.

“It depends on the circumstances, right?” she said. “Because if you are terminated from a position that does not erase what you may have done during the time that you were employed, it does not erase what information you were exposed to.”

Jay Pascoe from the Ohio Mortgage Bankers Association said that if you don’t like noncompetes, “you don’t have to accept the position.” But by that logic, you might not have a future in mortgage banking. He insisted post-employment agreements are important for businesses that are often on the hook for the cost licensing and training for their employees.

Ohio Insurance Agents Executive Director Jeff Smith criticized the bill but stopped short of outright opposition. He repeatedly argued that people buy insurance from agents they “know, like and trust,” and so the industry needs guardrails to ensure business doesn’t walk out the door with employees who leave.

Like Long, he said the measure should have explicit protections for post-employment contracts like nonsolicitation or nonpiracy agreements. Smith added they’d like to see protections tied to the sale of a business.

“If you were able to sell your interest as a minority owner and then go out and start a competing business, it would significantly devalue the asset and the value of that transaction.”

Lawmakers’ reactions
Committee chair state Sen. Nathan Manning, R-North Ridgeville, pressed Friedman on the point about noncompetes remaining in force despite an employee being fired. Manning was under the impression, based on a client he previously represented, that a noncompete agreement wasn’t enforceable under those circumstances.

“Some noncompete agreements have terms that say if you’re terminated, the noncompete provision will not be enforceable, but the law doesn’t provide for that,” he explained.

Manning repeatedly asked opponents about that point.

“It doesn’t really seem fair that they can’t go get a job in the same field when they were the ones let go,” he said “I understand if you’re trying to leave and start your own business or something along those lines and you’re taking clients, but do you think it’s fair that they can’t go and get a job in the same field, even though they were the ones fired?”

None of the opponents offered an unqualified defense of employees in those circumstances. Only Smith allowed that employees shouldn’t face restrictions if they were laid off.

The bill’s sponsor, state Sen. Louis Blessing, R-Colerain Township, dismissed opponents’ insistence that employees can always go to court if they believe their noncomptete agreement is excessive.

“Is it really a solution for employees insisting that they work this out through the courts?” he asked.

“It’s something that I have noticed in my time in the legislature,” he said. “You know, we’re saying that, hey, employees work this out in courts, whereas for the business community, I can assure you, over the last 10 years, the legislature and the business community would never suffer that level of uncertainty.”