Are Noncompete Agreements Enforceable?
Attorney
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Are non-compete clauses enforceable in Alabama? The short answer is yes but there are exceptions. Opinion after opinion on cases involving noncompetition agreements insists that such agreements are not favored. However, Ala. Code 1975, § 8-1-1 (a) states, “an employee may agree with his employer to refrain from carrying on or engaging in a similar business and from soliciting old customers of such employer within a specified county, city, or part thereof so long as the employer carries on a like business therein.” Over the course of time there developed a four prong test to determine if a noncompetition clause/agreement is enforceable.
A court will enforce a noncompetition agreement only if:
1) the employer has a protectable interest;
2) the restriction is reasonably related to that interest;
3) the restriction is reasonable in time and place;
4) the restriction imposes no undue hardship.
What is a protectable interest? The Alabama Supreme Court has explained that in order to have a protectable interest, the employer must possess “a substantial right in its business sufficiently unique to warrant the type of protection contemplated by a noncompetition agreement .” DeVoe v. Cheatham, 413 So.2d at 1142 (Ala.1982). In addition, “a protectable interest may exist when an employee is in a position to gain confidential information, (to gain) access to secret lists, or to develop a close relationship with clients.” Clark v. Liberty Nat’l Life Ins. Co., 592 So.2d 564, 566 (Ala.1992).
In regards to a reasonable scope for a time and place, typically a geographical limit and a time limit are required. A noncompetition agreement stating that an employee cannot open a competing business anywhere for an indeterminate period of time after leaving the employer will likely be held to be unreasonable and unenforceable. Thus the protection of the employer’s interest should be concise as to a narrow, identifiable group of clients and potential clients as well as a reasonable time period. Ostensibly, the same agreement with specific geographical limitations and a limited time frame will be held to be enforceable in regards to reasonableness of time and place.
As previously stated, noncompetition agreements are not favored but they are upheld if the employer has a protectable interest and the restriction is reasonably related to that interest. Further the restriction cannot be unreasonable as to time and place; lastly, the restriction cannot impose undue hardship. The burden is upon the person or entity seeking to enforce a contract which restrains a lawful trade or business to show that it is not void under Ala. Code 1975, § 8-1-1.