I hear it all the time from clients, and even other lawyers:
“Non-competes are not enforceable in Alabama. They’re worthless.”
It is true that by statute and public policy non-competes (non-competition agreements) are disfavored. This policy hearkens back to English common law, which declared these kinds of agreements void as a restraint on trade, which the old craft guilds did not like. As a result, Alabama still starts with the default position that non-competition agreements are disfavored and therefore void.
What you should understand, however, is that historically in Alabama there have been a great number of judicially-crafted exceptions to the rule which, with careful consideration and thoughtful drafting, can result in completely enforceable non-competition agreements. Even better, in June of 2015 the Legislature passed, and the Governor signed, a new Act into law that clarifies and expands traditional Alabama non-compete law. While this area of the law is too complex to treat thoroughly here, I can give you a few of the major features of an enforceable non-compete agreement under the new statute.
First, you must be protecting what the statute calls a “protectable interest.” This could include such things as trade secrets (as defined in Alabama statutes), certain types of confidential information, certain types of commercial relationships, and certain types of specialized and unique training specific to a particular employee and which was obtained at substantial cost to the employer. This list is not exhaustive, and you should meet with your business attorney to determine whether a particular employee meets any of these criteria (or others).
Non-competes must be reasonable both in time and geographic restraints. The new statute states that 2 years or less is presumed to be reasonable in terms of time, but gives little guidance for geographic limits. The geographic restraint question is likely to be worked out in the courts over the next few years, but an attorney who practices in this area should have a good idea of what would likely be considered reasonable in your particular situation.
According to Alabama law, a non-compete must be executed after the employment actually begins. If the agreement is executed prior to start of employment, it can (must!) be re-executed after the employee starts work. In that case, there should be additional consideration (benefit) given to the employee for executing the agreement — continued employment is probably not enough. I am asked all the time why I instruct my business clients to pay their key employees $100 when they sign a non-compete — and I actually put that in the agreement. This is the reason.
You should know that “professionals” will typically not be held to non-compete agreements. Historically this would include doctors, lawyers, accountants, etc. However, there is some question as to what other professions should be included in the “professional” exception. What about insurance brokers, investment advisors, etc.? There is no clear answer to this yet, and is another area which will likely be worked out in the courts over time.
The new statute goes into effect January 1, 2016, but will apply to agreements entered into before that date, so if you have any non-competes currently in place, they will be enforced according to the parameters of the new law after that date. I should be clear that the new law does not nullify existing agreements, but it may affect their parameters and enforceability. If you have any non-competes sitting out there with any of your employees, you should review them with your business attorney and update them if necessary. Keep in mind that non-competition agreements can be stand-alone documents, or can be located in a section buried deep in a larger employment agreement.
If you need help with this, let me encourage you to contact us and set up an appointment. We are here for you.