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Non-Compete and Non-Solicitation Agreements between Employers and Employees

What is a non-compete agreement?

A non-compete and/or non-solicitation agreement can either be part of a larger employment agreement or a separate agreement(s) entirely. A non-compete agreement is a contractual promise by the employee to not compete with an employer by engaging in a similar business if the employee is terminated or resigns. A non-solicitation agreement is a contractual promise by the employee to not attempt to procure business from customers of the employer both during and after employment.

The employer often provides these agreements to an employee prior to or shortly after starting employment and the employer may require new agreements be signed during the course of employment. It is vital to read such agreements carefully before signing as they may impact future employment.

What does Alabama law say about these agreements?

Alabama law generally frowns upon non-compete agreements, stating that “[e]very contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind otherwise” is void. However, there are statutory exceptions that permit such agreements.

There are several broad exceptions listed in the statute, which may permit a non-compete and/or non-solicitation agreement, for the purpose of “preserv[ing] a protectable interest.” Generally, the exceptions apply to (i) an individual that holds a position unique to the management, organization, or service of the employer; (ii) limiting commercial dealings to only between certain businesses; (iii) an individual that sells the goodwill of a business or commercial entity; (iv) an employee of a commercial entity that may later engage in a similar business; and (v) partners, owners, or members of a commercial entity, prior to a dissolution of the commercial entity.

The employer-employee exception and enforceability.

Exception four (4), listed above, encompasses two (2) separate exceptions regarding non-compete and non-solicitation agreements in employer-employee relationships. These agreements may include a number of different requirements and/or limitations. However, some of the common items include a time limit, a geographic scope, and a limit on the activities the employee can engage in after leaving employment. Alabama law states that such restrictions must be reasonable as to time and place.

In determining whether an agreement between an employer and employee is enforceable, Alabama courts look to whether (i) the employer has a protectable interest; (ii) the restriction is reasonably related to that interest; (iii) the restriction is reasonable in time and place; and (iv) the restriction imposes no undue hardship on the employee. If the court finds these factors have not been met, the agreement may be unenforceable against an employee. However, if these factors have been met, an employee may be prohibited from engaging in similar employment within a particular
geographical area for a number of years after leaving that employer. A two year restraint period is presumed to be reasonable under Alabama law.

If you feel your rights have been violated, or if you have any other questions regarding your employment rights, please contact the experienced Birmingham employment law attorneys at Wrady Michel & King. You can contact us either online or by calling us at (205) 319-9724. We are here to serve you!