How to Challenge a Non-Compete Agreement

Non-compete agreements can be enforced in Arizona, but they must be drafted properly. Courts  generally disfavor non-competes and other restrictive covenants, because public policy favors competition and these agreements restrict it.  Covenants can be deemed unenforceable if they are too broad or are not tailored to protect legitimate business interests. Disputes typically arise when an employee leaves and moves to a competing business, potentially in violation of an agreement not to compete.

An important Arizona case that discussed non-compete agreements is Orca Communications Unlimited, LLC v. Noder. Orca employed Noder as president of a public relations firm, and required her to sign a non-compete agreement, in addition to other restrictive covenants.

Just before Noder left Orca to start her own public relations firm, she informed some potential customers of her plans to leave and start her own firm. Orca sued to enforce the restrictive covenants.

Overly Broad Non-Compete Clauses Are Unenforceable

To be enforceable, non-compete must protect legitimate business interests. This can include trade secrets and confidential information that gives the company competitive advantage.  It can include a company’s established customer relationships.  However, it cannot be any broader than necessary to protect the company’s legitimate interests

Orca’s non-compete agreement was so broad it prevented Noder from working in virtually any position in the public relations industry. The Arizona Court of Appeals found this clause unenforceable because it was not narrowly crafted to protect only Orca’s legitimate business interests. Several other restrictive covenants were also deemed unenforceable in this case.

The Arizona Supreme Court later depublished portions of the Court of Appeals opinion, but not the portion dealing with restrictive covenants.

Analysis of Non-Compete Agreements

A non-compete should be drafted to protect business interests, but as narrowly as possible. Rather than preventing a former employee from working in any position in an industry, it should restrict them only from activities the Courts have expressly authorized the business to protect.

Courts will also examine the time and geographic scope of a non-compete when determining if it is enforceable. The reasonableness of these provisions will depend on the nature of the business or industry. For example, if you only do business one city, a county-wide non-compete agreement may be too broad.

When examining the duration of the non-compete, courts will look at the time it takes to replace the former employee and reestablish customer relationships with a new employee.  This also may vary and be evaluated based on the type of industry and uniqueness of knowledge required to do the job.

Chernoff Law Firm drafts contracts based on the unique circumstances of your business, industry, and employment relationship. If you need a creative solution to your complex business problem, contact us to schedule a consultation.

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