Employment Disputes

Restrictive Covenants – Non-Compete, Non-Solicitation, and Non-Disclosure Provisions

Many employers insist on employees signing employment agreements that contain restrictive covenants, which can include non-compete, non-solicitation, and/or non-disclosure provisions. Like any other creature of contract, a restrictive covenant must be supported by consideration in order to be legally enforceable. In Arizona, continued employment of an otherwise purely “at will” employment relationship may be such consideration. Demasse v. ITT Corp., 194 Ariz. 500, 984 P.2d 1138 (1999);Mattison v. Johnston, 152 Ariz. 109, 730 P.2d 286 (App.1986).

A non-compete is designed to prevent an employee from leaving an employer and subsequently going to work for a competitor or setting up his or her own competing business. Some non-competes are written to prohibit an employee from competing during the employment relationship as well. But, unless otherwise agreed, an employee already has a legal fiduciary duty not to compete with his or her employer while employed. In any event, in order to be enforceable, among other things, a non-compete must be reasonable in terms of duration and geographical scope. Bed Mart, Inc. v. Kelley, 202 Ariz. 370, 45 P.3d 1219 (App. 2002).

A non-solicitation or “anti-piracy” provision is designed to present an employee from leaving and subsequently soliciting or pirating the former employer’s customers and/or employees for the benefit of a competing or rival business. Some non-solicitations are written to prohibit such solicitation during the employment relationship. But again, unless otherwise agreed, an employee already has a legal fiduciary duty not to compete with his employer during their employment relationship.

A non-disclosure provision is designed to protect an employer’s confidential, proprietary, and/or trade secret information from being misappropriated by an employee during or after their employment relationship.

The following are some general principles with regard to the laws in Arizona on restrictive covenants. They are not intended to be exhaustive or necessarily apply to all cases or circumstances.

“A restrictive covenant – whether a covenant not to compete or an anti-piracy agreement – is enforceable so long as it is no broader than necessary to protect the employer’s legitimate business interest. The burden is on the employer to prove the extent of its protectable interest.” Hilb Rogal and Hamilton Co. v. McKinney, 190 Ariz. 213 (App. 1997).

“Restrictive covenants which tend to prevent an employee from pursuing a similar vocation after termination of employment are disfavored. Such contractual provisions are strictly construed against the employer.” Amex Distributing Co. v. Mascari, 150 Ariz. 510 (App. 1986).

“When the restraint is for the purpose of protecting customer relationships, its duration is reasonable only if it is no longer than necessary for the employer to put a new man on the job and for the new employee to have a reasonable opportunity to demonstrate his effectiveness to the customers.” Id. at 518.

“Merely informing customers of one’s former employer of a change of employment, without more, is not solicitation.” Alpha Tax Services, Inc. v. Stuart, 158 Ariz. 169, 172, 761 P.2d 1073, 1076 (App.1988).

A court cannot “add terms or rewrite provisions” of restrictive covenants in employment agreements. Valley Medical Specialists v. Farber, 194 Ariz. 363, 372, 982 P.2d 1277, 1285 (1999); Varsity Gold, Inc. v. Porzio, 202 Ariz. 355, 359, 45 P.3d 352, 356 (App. 2002) (“By simply authorizing a court to rewrite unreasonable restrictions, an employer may relieve itself of crafting a reasonable restriction with the added benefit that departing employees may adhere to an onerous covenant”).

Each restrictive covenant must be interpreted and analyzed according to its own terms.  If you have questions regarding the interpretation of, enforcement of or defense against a restrictive covenant, call Berk & Moskowitz, P.C.  We have handled cases involving all types of restrictive covenants, including employment of professionals and non-professionals.  Many times, restrictive covenant litigation necessitates “fast track” litigation.  Our attorneys are generally available on short notice.