On June 11, 2015, Alabama’s Governor signed into law legislation that revises the state’s non-compete statute, which is found in Section 8-1-1 of the Code of Alabama. The effective date for these changes is January 1, 2016. As summarized below, these revisions represent the Alabama legislature’s attempt to “clarity” portions of the non-compete statute by codifying several recent judicial decisions that interpreted the previous version of Section 8-1-1.
Just like its predecessor, the revised statute begins by setting forth a general ban against any agreements that restrict someone from engaging in “a lawful profession, trade, or business of any kind.” That said, in “order to preserve a protectable interest,” the new law then details six exceptions to that general ban:
- When the “agent, servant, or employee holds a position uniquely essential to the management, organization, or service of the business.”
- “An agreement between two or more persons or businesses or a person and a business to limit commercial dealings to each other.”
- “One who sells the good will of a business may agree with the buyer to refrain from carrying on or engaging in a similar business and from soliciting customers of such business within a specified geographic area . . . subject to reasonable time and place restraints. Restraints of one year or less are presumed to be reasonable.”
- “An agent, servant, or employee of a commercial entity may agree with such entity to refrain from carrying on or engaging in a similar business within a specified geographic area so long as the commercial entity carries on a like business therein, subject to reasonable restraints of time and place. Restraints of two years or less are presumed to be reasonable.”
- “An agent, servant or employee of a commercial entity may agree with such entity to refrain from soliciting current customers, so long as the commercial entity carries on a like business, subject to reasonable time restraints. Restraints of 18 months or for as long as post-separation consideration is paid for such agreement, whichever is greater, are presumed to be reasonable.”
- “Upon or in anticipation of a dissolution of a commercial entity, partners, owners, or members, or any combination thereof, may agree that none of them will carry on a similar commercial activity in the geographic area where the commercial activity has been transacted.”
For the first time, the new law now defines “protectable interest,” which includes the following:
- Trade secrets (as defined by Alabama law).
- “Confidential information, including, but not limited to, pricing information and methodology; compensation; customer lists; customer data and information; mailing lists, prospective customer information; financial and investment information; management and marketing plans; business strategy, technique, and methodology; business models and data; processes and procedures; and company provided files, software, code, reports, documents, manuals, and forms used in the business that may not otherwise qualify as a trade secret but which are treated as confidential to the business entity, in whatever medium provided or preserved, such as in writing or stored electronically.”
- “Commercial relationships or contacts with specific prospective or existing customers, patients, vendors or clients.”
- “Customer, patient, vendor, or client good will associated with any of the following: (1) An ongoing business, franchise, commercial, or professional practice, or trade dress. (2) A specific marketing or trade area.”
- “Specialized and unique training involving substantial business expenditure specifically directed to a particular agent, servant, or employee; provide that such training is specifically set forth in writing as the consideration for the restraint.”
Several other key revisions include:
- “Blue penciling” is now codified, allowing a court (if it so chooses) to void an overly broad or unreasonable in duration restraint and reform it to “preserve the protectable interest or interests.”
- The new law provides the following remedies for breach of a non-compete agreement as follows:
- “Such injunctive and other equitable relief as may be appropriate with respect to any actual or threatened breach.”
- “The actual damages suffered as a result of the breach or lawful liquidated damages of provided in the contract.”
- “Any remedies available in contract law, including attorneys’ fees or costs, if provided for in the contract or otherwise provided by law.”
- The new law states that the party who opposes enforcement of a non-compete agreement must establish that such enforcement would cause them undue hardship. Previously, the plaintiff had the burden of proving the lack of undue hardship.
- The new law does not abolish the “Professional Exemptions,” which includes doctors, physical therapists, lawyers, CPAs, and veterinarians.
In light of these forthcoming changes, it is imperative that Alabama employers carefully review their non-compete agreements before January 1, 2016 and update them as necessary to conform with the new law. In particular, employers should carefully review the time durations included in their non-compete agreements, as well as how they define their protectable interests, in order to avoid having a non-compete agreement held invalid. Please do not hesitate to contact us if you have any questions or wish to discuss further.