On March 31, the First Appellate District of Ohio found that Ohio state courts do not have jurisdiction to enforce an employee non-compete clause found in a deferred compensation agreement.
At issue was whether a retired employee who had a “top hat” plan could compete against his employer while continuing to collect his deferred compensation. Briefly, a “top hat” plan is a plan set up by an employer that allows a highly paid employee to defer some of his/her annual compensation. The purpose of the plan is to allow the employee to take some of his/her compensation after the employee retires. Presumably, the employee will have a lower tax rate after retirement and will lose less of the compensation to income taxes.
The problem is that “top hat” plans are considered employee benefit plans. Federal law, specifically ERISA, governs employee benefit plans. ERISA preempts state law. Generally speaking, non-compete enforcement is governed by state law. Therefore, the state court could not enforce the non-compete clause because the state law enforcement claims were preempted by ERISA. The appellate court noted that there may be no provision of the ERISA statutes that provided relief to the employer. As a result, the employee who contractually agreed not to compete against his employer, was able to get away from working for the competition while being paid by both companies.
The case site is Western and Southern Life Insurance Co. v. Owens, 2015-Ohio-1188.