Not long ago, companies reserved non-compete agreements for executives and high-paid employees. No longer. Times have changed, and many companies now ask employees at all levels to sign non-compete agreements, including low-wage employees.
Even though non-compete agreements are increasingly common, many employees and employers remain unsure about what such agreements mean and whether they are enforceable. If you are an employer or employee and have a non-compete issue, you may find the following information helpful.
What is a non-compete agreement?
A non-compete is an agreement that limits an employee’s ability to work in a given industry after leaving his or her employer. In the hypothetical case of a healthcare executive, for instance, a non-compete agreement might bar the executive from working in a healthcare position within 25 miles of Kansas City for a one-year period following the end of his employment. Put most simply, a non-compete limits your ability to work.
A quick point of clarification. This post focuses on non-competition agreements rather than non-solicitation agreements or other restrictive covenants. Although both agreements limit what employees can do after leaving their employer, they do so in different ways. We have covered non-solicitations in another post: Introduction to Non-Solicitation Agreements in Kansas and Missouri. For now, the important thing to remember is that non-competition agreements dictate the who, when, and where of your employment; non-solicitations limit your ability to bring clients or former colleagues with you to your new job. Employers may ask employees to agree to a non-compete, a non-solicitation, or both.
Are non-competes enforceable?
Non-competes are typically enforceable so long as they are reasonable. Healthcare Servs. of the Ozarks, Inc. v. Copeland, 198 S.W.3d 604, 610 (Mo. 2006). “In practical terms, a non-compete agreement is reasonable if it is no more restrictive than is necessary to protect the legitimate interests of the employer.” Id.
So what do courts consider to be legitimate employer interests? An employer’s general desire to protect against competition is not enough. Whelan Sec. Co. v. Kennebrew, 379 S.W.3d 835, 842 (Mo. 2012). An employer’s interest in trade secrets or customer contacts, on the other hand, can support a non-compete agreement. Id. As the Missouri Supreme Court has noted, “[p]rotection of the employer, not punishment of the employee, is the essence of the law.” Id.
The employer bears the burden of proving that a non-compete protects legitimate interests and is reasonable (see below). Id.
How broad can a non-compete agreement be?
Non-competes must be reasonable. In Missouri, a non-compete agreement will be considered reasonable if:
- it is no more restrictive than is necessary to protect the legitimate interests of the employer;
- it is narrowly tailored temporally and geographically;
- it seeks only to protect legitimate employer interests beyond mere competition by a former employee.
Whelan Sec. Co. v. Kennebrew, 379 S.W.3d 835 (Mo. 2012).
In practical terms this means that while an employer might be able to prevent an employee from working in Kansas City, it cannot prevent the employee from working anywhere on the planet (unless other parts of the agreement indirectly limit the geographic scope). Similarly, an employer might be able to prevent an employee from working in Kansas City for one year, but it will not be able to limit the employee from working in Kansas City for all of eternity.
Missouri and Kansas courts have not created a bright-line rule for reasonableness. Courts will examine each agreement’s specific terms and consider the terms in the context of the employee’s role and history with his former employer. See Osage Glass, Inc. v. Donovan, 693 S.W.2d 71, 74 n. 2 (Mo. banc 1985) (enforcing a non-compete agreement prohibiting an operations manager from working for a competitor in Missouri for a period of three years); Alltype Fire Protection Co. v. Mayfield, 88 S.W.3d 120, 123–24 (Mo. App. 2002) (enforcing a two-year non-compete agreement spanning a 100–mile radius against a customer service representative); Mid–States Paint & Chem. Co., 746 S.W.2d at 617 (enforcing a non-compete agreement against a salesman that was modified by the trial court to a 125–mile radius for a two-year period); Orchard Container Corp. v. Orchard, 601 S.W.2d 299, 304 (Mo. App. 1980) (enforcing a non-compete agreement against a former company president covering 125 miles and for a period of three years).
The above cases give a general idea of the types of non-compete agreements that Missouri courts have upheld. Ultimately, though, each case is unique and the analysis is fact specific.
If a non-compete is overbroad, is the whole agreement unenforceable?
Probably not. It is more likely that a court will strike or modify the unreasonable terms in the agreement. Both Kansas and Missouri allow courts to modify the unreasonable parts of non-compete agreements. This is called the “blue-pencil” rule. The blue-pencil rule allows courts to modify the overbroad parts of a non-compete without tossing the whole agreement.
In some cases, however, an agreement may be so unreasonable that the courts will deem the entire agreement unenforceable.
What should I do before signing a non-compete or asking an employee to sign a non-compete?
Speak to an attorney. Understanding your obligations on the front end of an agreement—whether you are an employee or employer—can save you thousands of dollars down the road. We recommend you consult with our Kansas City non-compete attorneys before moving forward. Please contact Mike Pospisil (816.895.9105) or Matt Swift (816.895.9107) to discuss your specific situation.
The information contained on this website is informational only and not intended to be, and does not constitute, legal advice. While we attempt to update our site regularly, the information does not necessarily reflect the most current legal developments. You should not act or refrain from acting based upon information provided on this site without first consulting legal counsel.
