Non-Compete Agreements

Non-Compete Agreements, Non-Disclosure Agreements, and Employment Agreements generally are becoming more and more frequently used throughout the United States, but particularly in the Huntsville, Madison, North Alabama area where we have a high density of technology and information-focused corporations. With companies and employers wanting to ensure that their product and services remain competitive and employees wanting to be able to practice their trade upon termination of employment, litigation in post-employment cases are becoming commonplace.

What Is A Non-Compete Agreement?

A Non-Compete Agreement of a Covenant-Not-to-Compete is an agreement made by an employee or entity to refrain from performing a similar trade or profession or working in the same areas that the former employer does.

Why Do Employers Demand That I Sign A Non-Compete?

These agreements are used by employers to ensure that when an employee voluntarily resigns or is terminated that the employee does not begin working for a competitor or starting their own business which would cause additional competition for the employer. The employer typically justifies these agreements by presumably having a vested interest in either the skills, knowledge, and expertise that the employee gained while serving as an employee or in the certain trade secrets, sensitive information or specialized knowledge of the practices of the employer.

Are Non-Compete Agreements Valid In Alabama?

While non-compete agreements are growing to be standard with employers in certain industries, the enforceability of the agreements must be determined on a case by case basis. Alabama law states, as a general rule, that contracts restraining trade (like non-compete agreements) are void. That said, there are many exceptions to this general rule.

The biggest exception to the rule is that an employee may agree with his employer to “refrain from carrying on or engaging in similar business and soliciting old customers of such employer.”

Is My Non-Compete Agreement Enforceable In Alabama?

When determining whether a certain non-compete agreement is enforceable, courts in Alabama look at several factors:

  • Does the employer have a protectable interest?
  • Is the restriction on employment reasonably related to the protectable interest?
  • Is the restriction geographically reasonable and is it reasonable as to it duration?
  • Does the restriction cause an undue hardship on the employee?

There are other nuances to non-compete agreements:

  • Was the employee actually an independent contractor?
  • When was the non-compete signed?
  • What is the profession of the employee?
  • Was the agreement actually signed by the employee?

If I Breach My Non-Compete, What Can Happen?

Often times, the non-compete agreement itself will state what will occur in the event that the employee defaults on his obligations and breaches the agreement. Usually, the remedies available to the employer include a temporary restraining order, an injunction, and monetary damages. The agreement itself will often time indicate where the lawsuit must take place or if there will be an arbitrator.

If you believe that you have questions on your non-compete agreement and whether you are in jeopardy of breaching it, you should seek the counsel of a skilled employment lawyer or corporate lawyer to review your agreement.

As An Employer, What Should My Non-Compete Say?

Martinson & Beason has established a strong clientele of corporations, limited liability companies and other entities that would like to ensure that their non-competes are enforceable. If you are in the process of drafting a non-compete, we recommend that you seek legal counsel immediately to assist you that process. Minor missteps in drafting the non-compete agreement could be used by an employee to get from underneath the contractual obligations they agreed to.

If you previously had a non-compete drafted, but now your company is expanding into other markets or is growing, having an attorney review your previous agreements may be the difference between an enforceable contract and one that is void.

Bottom Line

In today’s work environment, non-compete agreements are used regularly despite the fact that courts in Alabama are reluctant to enforce non-compete agreements. The Alabama Supreme Court has stated on several occasions that the public policy of Alabama is that contracts that place a restraint on trade are disfavored “because they tend not only to deprive of the public of efficient service but also tend to impoverish the individual.” Friddle v. Raymond, 575 So. 2d 1038 (Ala. 1991).

Despite the fact that courts disfavor non-competes, employers continue to use them and continue to attempt to enforce them. It is important that both the employer and employee understand the nuances of these agreements and have an able and experienced lawyer review them for you.