Covenants Not to Compete in Alabama
by Richard E. Corrigan
Whether you are an employer or an employee in the state of Alabama, chances are you have been confronted by the issue of a covenant not to compete. This article will briefly explain what these are and how you should think about dealing with them.
Covenants not to compete are generally viewed as agreements that prohibit an employee from going to work for a competitor. Non-compete agreements are also found in contracts between a business and a departing owner or key person. These contracts are governed in this state by Alabama Code §8-1-1. It begins with the blanket statement that “every contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind otherwise than is provided by this section is to that extent void.”
If that were the end of the statute, there would be no enforceable covenant not to compete in this state.
However, it is the next portion of the law that really causes issues for courts, lawyers and clients:
One who sells the good will of a business may agree with the buyer and one who is employed as an agent, servant or employee may agree with his employer to refrain from carrying on or engaging in a similar business and from soliciting old customers of such employer within a specified county, city, or part thereof so long as the buyer, or any person deriving title to the good will from him, or employer carries on a like business therein. | |
Ala. Code §8-1-1(b)
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This one sentence tries to cover two completely separate issues, the sale of a business and the employment
relationship.
Focusing on the employer-employee provisions, an employee may agree to refrain from “carrying on or engaging in” a business similar to his employer’s, but there must be geographic restrictions. To be valid under the statute, the covenant not to compete must only prohibit employment within a specific city or county or portion thereof, but only if the employer has a ‘like’ business in that city or county.
The geographic limitations can pose some problems for employers. Let’s say an outside sales representative is the only employee the employer has in Mobile and there is an otherwise enforceable covenant not to compete. The employee quits and goes to work in Mobile for a competitor of his old employer. If the employer doesn’t thereafter somehow keep its business going in Mobile, the covenant not to compete is arguably not enforceable.
People are always trying to creatively get around either the application of the statute or the agreement not to compete. Calling an employment agreement something else, such as a “revenue sharing” or “office splitting” agreement will not allow a stricter non-compete agreement; the statute clearly states it applies to “every contract,” no matter what you call it.
The issues regarding non-compete agreements can effect employment in a variety of different fields, from doctors and lawyers to information technology workers to hairdressers.
If you are about to change jobs, you need to check to see if you have any sort of written non-compete agreement, whether or not you have any other contract governing your employment. Conversely, if you are an employer about to hire someone away from a competitor, you need to make certain the status of any noncompete that employee may have with his or her current employer.
If you have questions about any employment agreement, you should seek counsel of an attorney that is familiar with these issues.
Copyright ©The Corrigan Law Firm PC 2009
