Earlier this year, Alabama adopted a new non-compete and non-solicitation statute, repealing Section 8-1-1 of the Alabama Code (hereinafter “the New Act”). Although the New Act preserves the current presumption against contracts in restraint of trade, it is even more restrictive than its predecessor.
The New Act specifically authorizes the following contracts to the extent they “preserve a protectable interest”:
- Agreements precluding a departing employee from soliciting an employee of his or her old employer, provided that the current employee holds a position “uniquely essential” to the management, organization, or service of the business. See Ala. Code § 8-1-190(b)(1).
- Agreements precluding the seller of the good will of a business from operating a competing business or soliciting the buyer’s customers within a specified geographic area. See Ala. Code § 8-1-190(b)(3).
- Non-compete agreements that preclude an employee from engaging in a similar business within a specified geographic area. See Ala. Code § 8-1-190 (b)(4).
- Non-solicitation agreements that preclude an employee from soliciting current customers. See Ala. Code § 8-1-190 (b)(4).
The legislative committee comments note that a specified geographic area may encompass the entire state, “depending upon the specific facts and circumstances.”
Most notably, the New Act sets forth presumptively reasonable time limits for non-compete and non-solicitation agreements. One year is presumed to be reasonable for agreements preventing the seller of the good will of a business from competing against or soliciting the buyer’s customers. Two years is presumed to be reasonable for non-compete agreements. Finally, 18 months is presumed to be reasonable for non-solicitation agreements.
As noted above, these type of agreements allowed by the New Act are only enforceable if they preserve a protectable interest. Included in the New Act’s definition of “protectable interests” are the following:
- Trade secrets.
- Confidential information, including but not limited to, pricing information and methodology; customer lists; customer data and information; mailing lists; and prospective customer information.
- Commercial relationships or contacts with specific prospective or existing customers.
- The good will associated with customers, patients, vendors or clients.
- Specialized and unique training specifically given to the particular employee that involves a substantial business expenditure, provided that such training is specifically set forth in writing as the consideration of the restraint. See Ala. Code § 8-1-191(a).
It should be mentioned that the New Act recognizes that “job skills,” in and of themselves, without more, are not protectable interests.
There is an unanswered question of whether the New Act applies retroactively. More likely than not, however, it will not be applied by courts retroactively for two reasons. First, Alabama courts do not apply state law retroactively if they impact substantive rights (as opposed to procedural or remedial rights). A strong argument can be made that the rights involved in restraints of trade are substantive and thus, not subject to retroactive application. Second, Alabama courts typically do not apply statutes retroactively unless the statute contains an express provision for retroactive application, which the New Act does not.