This case involved a public relations firm, and its president who left to start a competing business.  The former president did not have a written employment contract with the company, but had signed a Confidentiality, Non-Solicitation and Non-Competition Agreement.  When the company sued to enforce the restrictive covenants, the former president argued these restrictive covenants were overbroad and unenforceable.  The Arizona Court of Appeals ultimately agreed.  It found the company’s non-solicitation provision unenforceable because it restricted solicitation of potential customers it was planning to solicit or former customers with whom it no longer did business, and the company had no protectable interest in relationships that do not constitute current business.  The court also struck down the covenant-not-to-compete that prevented the former president from competing in the public relations industry altogether, and a confidentiality provision.  It found those clauses overbroad.  However, it found that the trial court improperly dismissed a range of other claims.  These were for breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty and duty of loyalty, tortious interference with business expectancies, and unfair competition.

 

This holding emphasizes many practical realities of enforcing restrictive covenants.  First, Arizona courts carefully scrutinize restrictive covenants in employment agreements, and they are often struck down.  Second, employers need to ensure that such covenants are narrowly tailored to protect the company’s legitimate business interests.  Last, the survival of various claims other than enforcement of the covenants themselves illustrates how litigation over post-employment conduct can raise issues beyond the limited language of restrictive covenants.  Even if the covenants are unenforceable, there may be other claims that can legitimately be raised and litigated.  Employers and key employees both need to carefully consider their conduct and approach to post employment realities.

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