In contract law, a non-compete agreement, or a non-compete clause, is an agreement under which party A promises not to engage in business that competes with party B, generally for a specified period of time. Sometimes employers require new employees to sign a non-compete agreement that will go into effect when their employer-employee relationship ends. Although this type of agreement generally favors the employer, before you start drafting a bunch of non-compete agreements for your new employees to sign it is important to understand that courts in the United States are generally weary of these agreements because they can act as a huge obstacle to an employee’s ability to work in the future. However, each state has its own laws that govern non-compete agreements so be sure to consult with a competent corporate law attorney if you are interested in crafting a non-compete agreement for your company.
Alabama’s Non-Compete Statute
On January 1, 2016, Alabama’s updated non-compete statute went into effect. This statute is contained in section 8-1-1 of the Alabama Code and states the general rule that, “Every contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind… is to that extent void.” In other words, the general rule in Alabama is that non-compete agreements that contain restrictive covenants involving a legal profession, trade, or business are not enforceable.
However, there are six important exceptions to this general rule. A non-compete agreement can be valid in Alabama if the agreement is in writing, is signed by both parties, is supported by adequate consideration, and the agreed-upon restraint involves one of the following types of permissible restrictive covenants:
- If the employee’s position is uniquely essential to the management or organization of the business,
- If the agreement is to limit certain commercial dealings to deals between the contracting parties,
- If the non-compete agreement is associated with the sale of a business,
- If the agreement not to compete is limited to a specific geographic area and the restraint lasts for no more than two years,
- If the agreement is to not solicit the business’ current customers and the restraint lasts for no more than 18 months, or
- If the agreement is made between business partners in anticipation of the dissolution of their business and the restraint prohibits them from conducting a similar business within a specified geographic area.
What is the Difference Between A Non-Compete Agreement and a Non-Solicitation Agreement?
Non-compete agreements and non-solicitation agreements both contain restrictive covenants that are often executed between an employer and an employee, however, there are a few key differences. As discussed above, a non-compete agreement involves a restrictive covenant under which an employee generally agrees not to compete against their former employer for a specified period of time within a certain geographic area. On the other hand, a non-solicitation agreement contains a less restrictive convenant as the employee party under this type generally agrees not to solicit the former employer’s clients. While this distinction may seem subtle, it is an important distinction as courts often treats these agreements differently.
Need Legal Advice?
If your business is located in Alabama and you are interested in drafting enforceable non-compete or non-solicitation agreements contact the experienced Birmingham business attorneys at Cloud Willis & Ellis, LLC today. Our experienced corporate law lawyers would be happy to sit down with you and discuss your legal options.