NONCOMPETE AGREEMENTS: DO YOU NEED ONE?

NONCOMPETE AGREEMENTS: DO YOU NEED ONE?

 

In order to be enforceable, a non-compete agreement must be reasonable in both its length of time and the geographic territory. What is reasonable is subject to interpretation but the time and territory must be no greater than necessary to protect the employer’s legitimate business interest. Generally, this will be measured in how long it would take an employer to hire and train a replacement employee and allow the new employee to develop a relationship with the customers. The court will balance the need to protect legitimate interests of employers with the need for an employee to earn a living. Other considerations include the nature of the employer’s business and the uniqueness of the knowledge and information in the employee’s possession.

A non-compete agreement that entirely prevents a former employee from pursuing a living in his or her chosen vocation will not be enforced. For example, a restriction that prevented a mobile disc jockey employee from engaging in competition with his employer for two years after termination within a fifty-mile radius of Phoenix was unenforceable. The primary reason was because it only took fourteen weeks to hire and train a new employee. A restriction that prevented a pest control employee from competing for two years in the entire Tucson metropolitan area was unenforceable because the employer could show no harm due to the fact there were 55 competitors and because the employer’s business was not unique. A non-compete agreement that prevented a former sales employee from competing for six months in the entire Phoenix metropolitan was enforced because it was limited to a narrow market niche and allowed the former employee to still earn a living in his general profession.

No Arizona court has upheld an employment non-compete agreement that restricted the employee from competing in the entire state of Arizona. The greater the geographic scope the less likely a non-compete will be upheld as it may prevent the former employee from earning a living. Restrictions for an entire county or city may be unenforceable as well unless the employer can demonstrate that its business has a substantial market presence in that area. Generally, the greater the geographic scope, the smaller the duration and vice versa. In Arizona, a duration longer than six months may not be enforceable absent proof that a longer period is necessary to hire and train a replacement. However, a non-compete agreement in Arizona that prevented a veterinarian from competing for five years within a twelve-mile radius of Mesa was upheld as reasonable. The longer duration was upheld because the geographic scope still permitted the employee to earn a living.

Non-compete agreements can also be used to prevent, for a time, solicitation of the employer’s customers or employees. These covenants are often referred to as “anti-piracy” or “hands-off” provisions. These types of restrictions will generally be enforced as long as they are reasonable in their duration. However, in one case a state wide insurance agency was unable to enforce a statewide “hands-off” restriction when the employee sold insurance exclusively in Northern Arizona.

If you have any questions concerning non compete clauses/agreements, please contact experienced non compete lawyer, Shane Buntrock for a consultation.