Can My Employer Enforce a Non-Compete Agreement?

A Non-Compete Agreement or Covenant Not to Compete, in the employment context, is an agreement to refrain from entering into or starting a similar trade or profession that would be in competition against the employer. The use of these agreements is usually premised on the possibility that when an employee is terminated or resigns, he or she may begin working for a competitor or start their own business and gain a competitive advantage. That advantage would presumably come from exploiting confidential information gained while working for the former employer. Information regarding the former employer's operations, trade secrets, sensitive information, etc., are meant to be protected by such agreements, as well as confidentiality and non-disclosure agreements.

Are non-compete agreements valid in Alabama?

Non-compete agreements are standard in employment contracts within certain industries, such as sales positions. However, the enforceability on a non-compete agreement must be determined on a case-by-case basis. The law of the state governing the employment contract will determine enforceability, along with the terms of the agreement itself and the relevant factual circumstances.

Generally speaking, Alabama law says that "contracts restraining business," like non-compete agreements, are void. However, there are so many recognized exceptions that many non-compete agreements are valid if they are reasonable. In Alabama, an "employee may agree with his employer to refrain from carrying on or engaging in a similar business and from soliciting old customers." In determining whether such an agreement is enforceable, the court will look at four factors:

  • Whether the employer has to have a protectable interest;
  • Whether the restriction is reasonably related to that interest;
  • Whether the restriction is reasonable as to time and place; and
  • Whether the restriction imposes undue hardship on the employee

Here is an example: If your employer required you to cold call people as part of a sales effort, by going through the phone book, this would most likely not constitute a protectable interest. Why? Because a phone book is available to the public. Now, if your employer has cultivated relationships with customers over many years, that customer list would be a protectable interest. One important point, though, is that if your new job was with a company that sold the same type of products, but you were no longer involved in sales, you should not be prohibited from taking that new job.

Certain professionals, such as those who have specialized education and are required to obtain a license by taking a test (e.g., doctors, lawyers and engineers) are not subject to non-compete agreements.

What type of non-compete agreement is reasonable?

In Alabama, non-compete agreements that are limited to the same geographic region where the former employer does business, restricted for no more than two years, have been held by the courts as valid. An agreement that includes a nationwide restriction is not. "Undue hardship" is determined on a case-by-case basis. For example, in one Alabama case, the court determined that a 6 month non-compete restriction imposed on an employee who had only worked for the company for 2 months was unreasonable.

If your employer requires you to sign a non-compete agreement, you should consider the terms of the agreement and the consequences carefully. If you have any questions or need an employment attorney to review a non-compete agreement presented to you by your employer, please give us a call.

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