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by M. McClure on Jan 2, 2010 at 12:42 PM

Arkansas courts, like most courts around the country, closely scrutinize employers' attempts to restrain former employees from competing.  For example, it's generally an up-hill battle to enforce a non-compete agreement in Arkansas

In the absence of a non-compete agreement, some employers turn to the Arkansas Trade Secrets Act to limit competition from a former employee, but this approach just became a little more difficult when an Arkansas court recently narrowed the application of the inevitable disclosure doctrine in the state.  

In Verizon v. Langston, Verizon attempted to prevent a former Alltel/Verizon employee from working for the new Little Rock telecom company, Allied Wireless Communications Corp. (AWCC).  Langston worked for Alltel for twenty-five years until Verizon acquired Alltel, during which time he worked for Verizon in its Transition Planning.  Langston was responsible for transitioning properties to Atlantic Tele-Network, Inc (ATNI) after Verizon sold the properties to ATNI.  Langston resigned in November 2009 and began working for AWCC, a subsidiary of ATNI, as the Chief Information Officer.

Verizon sought to prevent Langston from working for AWCC because it would violate the Arkansas Trade Secrets Act and the non-disclosure portion of his employment contract, which reportedly did not contain a non-compete agreement.  The court denied the injunction, in part, because the court did not believe that Langston would inevitably disclose trade secrets that he acquired with Alltel and Verizon.  

Under the inevitable disclosure doctrine, a court can issue an injunction when it finds that a former employee will inevitably disclose the trade secret to the new employer, even if there is no actual proof of disclosure.  Arkansas courts have accepted this doctrine (see Cardinal Freight v. JB Hunt), whereas courts in California, Florida and Virginia have rejected it. The court did not apply the doctrine to Langston primarily because AWCC took steps to ensure Langston's duties did not pertain to Verizon's confidential information.   AWCC successfully argued that the trade secrets that Langston possessed would not be of value in the role he held with AWCC. 

Although trade secret and non-compete litigation is largely fact-dependent, it appears that employers will now be able to hire employees who possess trade secret information when the employee is placed in a role where the trade secrets are not useful, thus narrowing the doctrine of inevitable disclosure in Arkansas.

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by M. McClure on Jun 25, 2009 at 11:16 AM
Filed in Non-competes

"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. 

   

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