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Table of Contents:

  • Non-competition agreements
  • General rule on non-compete agreements
  • Exceptions for professional firms
  • What is a protectible interest?
  • What restrictions are reasonable as to time and place?
  • What restrictions impose an undue hardship on the worker?
  • What special rules apply for a preliminary injuction?
  • Does the non-compete agreement continue if the company is sold?
  • Non-competition agreements

    Non-competition agreements are contracts between employers and employees (or sometimes between former partners) that the employee will not compete with the employer after the employment ends. Because these agreements restrain the freedom of the employee to seek other work, Alabama law restricts the use of these agreements. Suits under non-compete agreements are usually brought against the former employee and the new employer. Courts will review such agreements for reasonableness of the time and region covered by the non-competition agreement.

    For more information on non-competition agreements, please see the following:
    The general rule on non-compete agreements
    Exception for professional firms
    What is a protectible interest?
    What is a reasonable restriction as to time and place?
    When do restrictions pose an undue hardship on the worker?
    Rules for preliminary injuctions
    Does the non-compete agreement continue if the company is sold?

    Alabama law also provides protection against the misuse of a company's trade secrets by its former employees or competitors. Companies sometimes bring claims under the Trade Secrets Act when the employee has not signed a non-competition agreement or a court has held the agreement invalid.

    I will be happy to discuss non-competition agreements or trade secrets problems with

    * companies wishing to use them
    * companies hiring employees who are subject to such agreements,or
    * employees who are subject to them.

    My employment law cases are on the Case List page. The Case List page does not list many case which were settled or on which a judge did not write an opinion.

    This entry was posted by Edward at 10:01 AM, 24 July 2008 | TrackBack (0)

    General rule on non-compete agreements

    Agreements not to compete are disfavored under Alabama law.

    A. General rule in Alabama Code § 8-1-1(a): “Every contract by which anyone is restrained from exercising a lawful profession, trade or business of any kind otherwise than is provided by this section is to that extent void.”

    B. Exception in Alabama Code § 8-1-1(b): "[O]ne who is employed as an agent, servant or 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."

    C. Similar exception for sale of good will of business.

    D. The Alabama Supreme Court will enforce covenant if following conditions are met:
    "(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."
    DeVoe v. Cheatham, 413 So.2d 1141, 1142 (Ala.1982).

    [This is only a summary of a few cases. This is presented for informational purposes only. Contact a lawyer for an assessment of your situation.]

    This entry was posted by Edward at 12:00 PM, 30 September 2006 | TrackBack (0)

    Exceptions for professional firms

    Professional firms may not enter into non-compete agreements with their workers/members/partners.

    A. “Subsection (a) [of § 8-1-1] provides the general prohibition of covenants not to compete and expressly applies to professionals. Subsections (b) and (c) provide limited exceptions to the general prohibition in subsection (a). However, these exceptions do not apply to professionals.” Cherry, Bekaert & Holland v. Brown, 582 So.2d 502 (1991).

    B. Agreements will be reformed, if necessary. “It is clear from the wording of the statute itself and from the holdings of this Court that under § 8-1-1(a) a noncompetition contract provision is only “void” only to “that extent” prohibited by § 8-1-1(a).” Pierce v. Hand, Arendall, Bedsole, Greaves & Johnston, 678 So.2d 765 (Ala. 1996).

    [This is only a summary of a few cases. This is presented for informational purposes only. Contact a lawyer for an assessment of your situation.]

    This entry was posted by Edward at 12:00 PM, 30 September 2006 | TrackBack (0)

    What is a protectible interest?

    A. Ormco Corporation v Johns, 838 So.2d 360 (Ala. 2003): “Protectible interests certainly include, but are not limited to, those mentioned above: valuable customer relationships and goodwill that have been established by the defendant as an employee of the plaintiff and confidential information, such as trade secrets and confidential business practices.”

    B. Keystone Automotive Industries v Stevens, 838 So.2d. 360 (Ala. 2003): Regarding the first factor, our 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, 413 So.2d at 1142 (quoting Cullman Broad. Co. v. Bosley, 373 So.2d 830, 836 (Ala.1979)). Moreover, "[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) (quoting DeVoe, 413 So.2d at 1143) (emphasis added).

    C. Nobles-Hamilton v Thompson, 838 So.2d 360 (Ala Civ App 2003): However, employees who have access to customer lists and who develop close relationships with the customers of their employers have repeatedly been restrained from entering into competition with their employers because the customer base is a protectible interest.

    [This is only a summary of a few cases. This is presented for informational purposes only. Contact a lawyer for an assessment of your situation.]

    This entry was posted by Edward at 12:00 PM, 30 September 2006 | TrackBack (0)

    What restrictions are reasonable as to time and place?

    Restriction reasonable in time and place.

    A. In King v Head Start Family Hair Salons, 886 So.2d 769 (Ala. 2004), the court held that a 2-mile restriction zone around each of 30 locations in Jefferson and Shelby counties was unreasonable (but such a zone around the last location was reasonable).

    B. In Nobles-Hamilton v Thompson, 838 So.2d 360 (Ala Civ App 2003), the court upheld an agreement which did not contain a geographical limitation but which the trial court enforced with a 5-mile exclusion zone.

    [This is only a summary of a few cases. This is presented for informational purposes only. Contact a lawyer for an assessment of your situation.]

    This entry was posted by Edward at 12:00 PM, 30 September 2006 | TrackBack (0)

    What restrictions impose an undue hardship on the worker?

    A. In King v Head Start Family Hair Salons, 2004 WL 68617 (Ala), the court held that a restriction created an undue hardship because employee had worked only in one industry and would not be able to retrain for another easily.

    B. In Sheffield v. Stoudenmire, 553 So.2d 125, 126-27 (Ala.1989), the Court held that a noncompetition agreement restricting an employee from competing within a 50- mile radius of his former employer posed an undue hardship on the employee because he was "50 years old, married, and possesse[d] significant financial obligations."

    C. In Calhoun v. Brendle, 502 So.2d 689 (Ala.1986), the Court declined to uphold a noncompetition agreement that restricted the employee from servicing fire-extinguishing equipment within a 100-mile radius of the business location of his former employer. Evidence was presented showing that the employee was trained and educated only in the field of fire-equipment maintenance.

    [This is only a summary of a few cases. This is presented for informational purposes only. Contact a lawyer for an assessment of your situation.]

    This entry was posted by Edward at 12:00 PM, 30 September 2006 | TrackBack (0)

    What special rules apply for a preliminary injuction?

    Ormco Corporation v Johns, 838 So.2d 360 (Ala. 2003):

    A. “when seeking a preliminary injunction to enforce a noncompetition agreement against a former employee salesperson, the employer, to make use of the [rebuttable] inference [of irreparable injury], must make an prima facie showing 1) that a valid noncompetition agreement exists, 2) that the employer has a protectible interest, and 3) that the former employee salesperson is actively competing with his or her former employer in the same geographic area in violation of the noncompetition agreement.”

    B. “However, the employee can rebut this inference by producing evidence that the competition of the employee will not irreparably injure the employer. As discussed above, such evidence could include evidence indicating that the customers' purchase decisions were based primarily on an independent preference for the particular goods of the employer rather than on the relationship between the customer and the salesperson (so that the salesperson has no substantial "personal hold" on the customers, see Rosewood Mortgage Corp., 383 N.W.2d at 459; Webb Publ'g Co., 426 N.W.2d at 448-49), or evidence indicating either that the salesperson did not have confidential information or that the information was not really confidential.”

    C. “the burden shifts back to the employer to produce sufficient evidence (beyond that necessary for the prima facie showing described above) of irreparable injury.”

    [This is only a summary of a few cases. This is presented for informational purposes only. Contact a lawyer for an assessment of your situation.]

    This entry was posted by Edward at 12:00 PM, 30 September 2006 | TrackBack (0)

    Does the non-compete agreement continue if the company is sold?

    The answer seems to depend on how the sale was accomplished.

    A. In Clark Substations LLC v Ware, 838 So. 360 (Ala. 2002), the court refused to enforce a covenant against employees when the assets of a corporation had been sold to another corporation and the employees had not signed a new non-compete agreement.

    B. A successor corporation which is the product of a merger may enforce an agreement against the employees of the former corporation. Sevier Insurance Agency Inc. v Willis Corroon Corp., 711 So.2d 995 (Ala. 1998).

    [This is only a summary of a few cases. This is presented for informational purposes only. Contact a lawyer for an assessment of your situation.]

    This entry was posted by Edward at 12:00 PM, 30 September 2006 | TrackBack (0)


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