Erstwhile & Erstwhile is a small public accounting firm with twelve employees. Erstwhile maintained a single office in Columbus, Ohio. All of Erstwhile’s clients were located in Ohio. Erstwhile employed Julius as a senior accountant. The employment contract provided that if the employment should be terminated for any reason, Julius would not engage in the practice of public accounting nor accept employment by a public accounting firm anywhere in the United States for a period of five years.

Question

Erstwhile & Erstwhile is a small public accounting firm with twelve employees.  Erstwhile maintained a single office in Columbus, Ohio.  All of Erstwhile’s clients were located in Ohio.  Erstwhile employed Julius as a senior accountant.  The employment contract provided that if the employment should be terminated for any reason, Julius would not engage in the practice of public accounting nor accept employment by a public accounting firm anywhere in the United States for a period of five years.

BlackTom AI · Accepted Answer

This question asks about the enforceability of a noncompete clause in an employment contract for a public accountant with a small firm.
Option A: 'Julius could leave the firm at any time and practice public accounting anywhere because all noncompete agreements in employment contracts are trade restrictions and are illegal and unenforceable.' This is incorrect because noncompete agreements are not universally illegal; their enforceability depends on reasonableness in scope, duration, and geographic reach, plus public policy. Courts in many jurisdictions will enforce reasonable noncompetes but strike down those that are overly broad or oppressive. Here, the blanket assertion that all noncompetes are illegal misstates the law and ignores the reasonableness standard.
Option B: 'The agreement is probably reasonable as to distance and duration of the restriction on Julius.' This overstates the enforceability by treating a nationwide 5-year ban as reasonable. Most jurisdictions require that a noncompete be reasonable in scope and geographic area. A nationwide ban for a small Ohio firm affecting a CPA’s ability to work anywhere in the United States for five years is typically seen as excessive, especially when the firm’s clients are all in Ohio. Therefore, this option mischaracterizes the reasonableness standard and is unlikely to be correct.
Option C: 'The agreement would probably be reasonable if the duration of the restriction was one year.' Reducing the duration to one year improves reasonableness, but the geography remains nationwide (all of the United States). Even with a shorter duration, a nationwide restriction tied to a small local firm’s interests may still be deemed overly broad if there is no compelling need to protect client relationships on a nationwide basis. This option shows partial alignment with reasonableness (shorter duration) but fails to address the geographic scope fully, making it a weaker or conditional correct answer depending on jurisdiction.
Option D: 'The agreement would probably be unreasonable and unenforceable against Julius.' This option correctly recognizes that a five-year, nationwide noncompete for a public accountant employed by a small Ohio firm is likely impermissibly broad. Courts typically require that noncompetes be limited to reasonable geographic scope (often tied to where clients and the employer do business) and a reasonable duration. Given the firm’s local client base in Ohio and the extensive geographic restriction, this clause is prone to being deemed unreasonable and unenforceable.
In summary, the core issue is reasonableness: long durations and expansive geographies in noncompete clauses are commonly struck down, especially when the employer’s business footprint is local. Options A and D assert universal illegality, which is inaccurate; option B overstates reasonableness, and option C offers a partial improvement but still fails to secure full reasonableness due to geography. The best articulation reflecting typical enforceability standards is that the agreement would probably be unreasonable and unenforceable against Julius.

BUSFIN 3500 AU2025 (2111) Chapter 5 Quiz

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