When employees move on to other pursuits, they take their knowledge of the former employer with them. If you are a business owner, a well-drafted non-compete agreement can ensure that former employees do not directly compete with your business. Because many employees leave to work for competing firms (or start their own), a non-compete agreement is essential to protect, at least for a time, what you have worked so hard to build. But Arkansas businesses face challenges drafting non-compete agreements; draft one too narrowly and it may not effectively protect their interests; draft it too broadly and it will be deemed unreasonable, unenforceable and not be worth the paper it’s written on. Crafting such an agreement often involves a delicate balancing act that a business must constantly keep in mind.
Determining What is “Reasonable”
One of the biggest challenges for both employers and employees as to non-competes is the fact that it is notoriously difficult to determine whether any given agreement will be ultimately deemed enforceable. There is no statute that governs non-competes; rather, Arkansas courts have set forth broad principles to be applied when evaluating the validity of such agreements. These principles all revolve around the inherently amorphous concept of “reasonableness,” which the courts have repeatedly said is a case-by-case determination. As one Arkansas decision notes, “the enforceability of a covenant not to compete depends on its reasonableness in light of the particular facts of the case.”
Thankfully, this utterly unhelpful standard has been elaborated upon by the courts, giving some guidance as to how non-competes should be drafted to maximize the chances of their enforceability. First, it is important to note that when presented with a non-competition covenant, Arkansas courts will initially approach it with a somewhat skeptical eye, seeing as how such agreements restrain trade and are therefore generally unfavored.
That said, such agreements will be deemed enforceable if they meet three requirements:
- The employer has a valid interest to protect;
- The geographical restriction is not overly broad;
- A reasonable time limit is given.
As noted, what a court will ultimately deem “valid,” “not overly broad,” or “reasonable” is not something that can be determined in the abstract. The nature of the business, the nature of the employee’s responsibilities and other factors will play a role. A two-year time limit or a state-wide restriction may be held enforceable in one case, while a six-month or 20-mile limitation may be deemed enforceable in another.
No Saving Overbroad Provisions in Arkansas
In an effort to protect their secrets, businesses sometimes err on the side of drafting their non-competes too broadly. In some states, courts have the authority to rewrite, or “blue pencil’, unreasonable provisions in a non-compete to make them narrower and therefore reasonable and enforceable. Not so in Arkansas. Arkansas courts will not equitably modify an unreasonably broad covenant. A covenant that is unreasonable as to the time or geographic restraint, or as to the activities prohibited, is unenforceable and void. It’s all or nothing for non-competes in Arkansas.
In the coming weeks, we’ll be going into greater depth as to the interest, geographical, and time elements that need to be considered when drafting or evaluating Arkansas covenants not to compete.
If you are considering a non-competition agreement for employees or key members of your team, or if you are facing a challenge to the enforceability of an existing agreement, you should consult with an experienced Arkansas business lawyer who can work with you to ensure that your valuable corporate assets are thoroughly and effectively protected.
The Kendall Law Firm: Experienced Arkansas Business and Employment Lawyers
The Kendall Law Firm’s comprehensive business law and employment law practices cover the full range of employment and management issues. Contact us today at (479) 464-9828 to speak with one of our attorneys.
This article has been prepared by Kendall Law Firm for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.