Act 921: Enforceable Non-Compete Agreements for Employers
The year 2015 saw significant changes to Arkansas law regarding the enforceability of non-compete agreements. In early 2015, the Arkansas General Assembly passed Act 921 (SB 998), a statute which greatly expands the enforceability of non-compete agreements in Arkansas. The legislation creates a significant opportunity for Arkansas employers to examine existing non-compete agreements with employees and to consider entering into new agreements with key employees.
Act 921 reinforces and helps clarify some existing elements of Arkansas common law. For example, it identifies the following interests as protectable business interests of employers:
- Trade secrets,
- Intellectual property;
- Customer lists;
- Goodwill with customers;
- Knowledge of his or her business practices;
- Profit margins;
- Confidential business information that is confidential, proprietary, and increases in value from not being known by a competitor;
- Training and education of the employer’s employees; and
- Other valuable employer data that the employer has provided to an employee that an employer would reasonably seek to protect or safeguard from a competitor in the interest of fairness.
The legislation also makes a two year restriction “presumptively reasonable” unless the facts and circumstances of a particular case clearly demonstrate that two years is unreasonable compared to the employer’s business interest. In addition, the absence of a geographical restriction will not automatically render the agreement unenforceable. Instead, a determination will be made whether the non-compete agreement is limited as to time and scope so that the restriction on competition is not greater than necessary to protect the business interests of the employer.
Continued employment is sufficient consideration for a non-compete agreement with an employee. Therefore, employers are not required to offer monetary consideration for an employee to enter into a new non-compete agreement. Also, any breach of a non-compete provision is deemed to be irreparable, making it more likely that an employer can obtain a preliminary injunction preventing the former employee from causing further harm.
Act 921 embraces the “blue pencil” rule, which allows for courts to reform an otherwise unreasonable or overbroad non-compete provision. This is a significant departure from prior Arkansas law. Previously, an overly-broad non-compete provision would have rendered the entire non-compete agreement unenforceable. Now, by statute, courts have the authority to revise a non-compete provision that is found unenforceable and to enforce the revised provision.
Act 921 only applies to non-compete provisions in employment contracts—it does not apply to covenants not to compete in a sale and purchase of a business, franchise agreements, or any other agreement not ancillary to an employment relationship or employment contract. Nor does Act 921 apply to agreements not to solicit, recruit, or hire employees, confidentiality agreements, nondisclosure agreements, or to other terms and conditions of an employment agreement. The statute also excludes from coverage employees who hold professional licenses in medical fields.
The provisions of Act 921 took effect on July 22, 2015 and it is unlikely that the provisions of the statute will be applied retroactively. Therefore, in order to take advantage of the greater protections afforded by Act 921, employers will need to revise their existing non-compete agreements with current employees.
In sum, Act 921 greatly expands the enforceability of non-compete agreements in Arkansas and provides greater protections to employers. It increases the likelihood of immediate protection after a breach of a non-compete provision; and the “blue pencil” rule eliminates the all-or-nothing approach to the enforceability of these provisions that existed in the past. Importantly, employers can obtain these greater protections by entering into new non-compete agreements, but without providing additional monetary consideration to its employees.
If you have any questions about Act 921 or would like to know about how these changes to the enforcement of non-compete agreements in Arkansas might impact your business, please contact Nathan Read at 870-336-8228, Nathan Looney at 870-336-8248, or any of the Waddell, Cole & Jones, PLLC attorneys with whom you normally consult.