"Non-compete agreements are illegal in Arkansas, right?" is a question that I often hear from both employees and employers. The simple answer is "no," but the longer, lawyer-speak answer is that "it depends...." It's true that Arkansas courts do not favor employee non-compete agreements, but they can be enforced under the right set of facts.
Arkansas courts look for three things in a non-compete agreement:
- A valid business interest to protect,
- A geographical restriction that is not overbroad, and
- A reasonable time limit on the restriction.
For example, Arkansas courts have found that an employer has a valid interest to protect in the personal relationships that an employee builds with the company's customers. These relationships are so valuable to the employer that the Court of Appeals of Arkansas has enforced a non-compete agreement that did not contain a geographical restriction. Instead, the agreement limited the former employee from contacting customers whose accounts he had serviced. Girard v. Rebsamen Ins. Co. Therefore, a narrow, well-drafted non-compete agreement can be enforced in Arkansas.
But, here are a few mistakes employers routinely make when they use non-compete agreements:
- Including a geographic restriction that extends further than the valid business interest. If your sales force only sells in Pulaski County, don't try to protect the entire state of Arkansas.
- Including a time restriction that is longer than the business interest has value. If your client base changes every year, don't restrict a former employee for two years.
- Requiring every employee to sign a non-compete, no matter what their job duties. Eventually, someone will resign, the company will not enforce the agreement, and word will spread that the agreement means nothing.
Arkansas courts are much more willing to enforce non-compete agreements that are signed in conjunction with the sale of a business, rather than those that arise out of an employment relationship. Courts find that parties involved in the sale of a business are more equal in bargaining power than those in an employer-employee relationship.
So, urban myth debunked: non-compete agreements are not illegal in Arkansas. But employers should consider carefully what exactly they are trying to protect before administering the agreements. Non-competes that are focused on protecting a narrow, critical, business interest have a much greater chance of success.