For many in Alabama, the holiday season does not end until after the college football national championship game, which has featured one of the state’s two top college football programs (the Auburn University Tigers and the University of Alabama Crimson Tide) for each of the five past years. While not quite as exciting as Auburn’s narrow fourth-quarter loss to Florida State in last week’s BCS National Championship Game, a ruling by an Alabama federal district judge issued on the same day could prove to be much more significant for employers and employees in Alabama.
In Dawson v. Ameritox, Ltd., 2014 WL 31809 (S.D. Ala. Jan. 6, 2014), Ameritox, a healthcare company, sought to enforce non-compete and non-solicitation covenants against its former Assistant Director of Medical Science and Health Outcomes Research, Dr. Eric Dawson, who had left Ameritox for a similar position with a competitor. Perhaps believing that its claims would be as safe a bet as hearing the cry of “War Eagle!” at an Auburn football game, Ameritox sought a preliminary injunction against Dawson. But as ESPN’s Lee Corso might say, “Not so fast, my friend!” In a January 6 order, District Judge Kristi DuBose ruled that the covenants in question were void and unenforceable because Dawson had executed the agreement before his employment with Ameritox began.
Under Alabama Code § 8-1-1, a contract by which anyone “is restrained from exercising a lawful profession, trade, or business of any kind” is void, except that “one 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.” Relying on the Alabama Supreme Court’s prior decision in Pitney Bowes, Inc. v. Berney Office Solutions, 823 So. 2d 659 (Ala. 2001), Judge DuBose noted that employee non-compete agreements are valid only if signed by an employee and that prospective employment is not sufficient to meet the exception in Section 8-1-1. Thus, because Dr. Dawson was not an employee of Ameritox at the time he signed the agreements, Judge DuBose reasoned that the agreements were void and unenforceable. The decision is currently on appeal to the Eleventh Circuit.
The decision in Dawson is an important reminder of a requirement in Alabama for enforceability of post-termination restrictive covenants. Most employers provide prospective employees with copies of required non-compete agreements before the employee’s first day of work so that prospective employees will be aware of their non-compete obligations in advance. Indeed, some states (such as New Hampshire) expressly require employers to disclose such agreements before making a job offer. While such practices are prudent, a restrictive covenant may be void in Alabama if a prospective employee signs the agreement before his or her first day of work. To avoid this unintentional fumble, employers in Alabama should ensure that employees execute (or re-execute) such agreements on or after their first day of employment, ideally in the presence of a representative of human resources. In addition, because continued at-will employment is sufficient consideration for new restrictive covenants in Alabama, employers with operations in Alabama should consider periodically reviewing their existing restrictive covenants and requiring employees to execute new agreements from time to time as appropriate.