Alabama has a booming market for a wide variety of businesses. If you are planning on starting a business in the state, you should find yourself a good business attorney. It is vital the attorney has a thorough understanding of non-disclosure provisions as well as non-compete agreements. This is particularly important if you have protectable business interests and want to keep operations and information insulated from competitors.
How does a Non-Compete Agreement Work?
A non-compete agreement in Alabama is essentially a contract that places certain limitations on employees working to become a competitor against their current employer. This is for a certain specified period of time. The agreement needs to be solidified early in the business relationship. Typically, these agreements are enforced between an employer and their employee.
The employer enforces the agreement to prevent the employee from competing against the business in their next position. This includes starting up a new business within the same industry and field or working with direct competition within the same market. Alabama non-compete agreements prevent employees from recruiting any other current employees that may want to leave the company.
In short, there can be no poaching of current employees by a former employee looking to become a direct competitor of the business. Employers routinely add a non-disclosure agreement to the non-compete agreement to prevent employees from revealing sensitive information and secrets about the company’s clients, customer base, operations, salary, pricing, strategy, methods, ideas, future projects, practices, formulas, future products, vendors, public relations, trade secrets, mailing lists, and marketing plans among others.
These agreements can have a broad purview. Non-disclosure terms and non-compete agreements can be standalone agreements or sections of a larger contract. Typically, these are referred to as non-competes, non-compete covenants, non-compete clauses, and covenants not to compete. They demonstrate the same concept of protecting the company against the competition. They also prevent the leak of any information pertaining to the business.
An example of the benefits of a non-compete agreement may involve a company in a market that has under five businesses offering the same products or services. The company may use the non-compete agreement to prevent its sales staff or other employees from taking the list of clients to a direct competitor in the same geographic location. The company may ask all employees to sign the non-compete agreement.
Another example includes a tech company that wants to protect its design and system information. The company probably doesn’t want its developers to go and work for a competitor where they may share detailed information about the products and services currently on offer. A non-compete agreement will prevent former employees from sharing the information they know with other companies in the exact same tech niche.
Non-Compete Statute in Alabama
Alabama updated its non-compete statute, which went into effect on January 1st, 2016. Section 8-1-1 of the Alabama Code contains this statute. The general rule listed in the statute is 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 followed in Alabama is that restrictive covenants in non-compete agreements that prevent a legal business, trade, or profession from carrying out business are not enforceable. There are exceptions to this general rule. Non-compete agreements are valid in Alabama if the agreement is signed by both parties, is in writing, and is supported by adequate consideration.
The agreed-upon restraint should involve one of the following restrictive covenants:
- The employee’s position should be essential to the organization or management of the business
- The agreement should be to limit certain types of commercial dealings
- The non-compete agreement is associated with a business sale
- The agreement is limited to a specific geographic location and the restraint placed is not for more than two years
- The agreement is to prevent the former employee from soliciting the company’s current customers and the restraint placed doesn’t exceed 18 months
- The agreement is made between partners in the event their business is dissolved, to prohibit each other from conducting similar business for a certain period of time in the specified geographic area
Difference between Non-Solicitation Agreement and Non-Compete Agreement
Non-solicitation and non-compete agreements both contain restrictive covenants typically executed between an employer and employee. However, there are major differences between the two. Non-compete agreements involve a restrictive covenant under which an employee agrees to not compete with their former employer in a specified geographic area for a certain time period.
The non-solicitation agreement contains less restrictive covenants. The employee basically agrees to not solicit the clients of the former employee. This is a subtle yet important distinction. Taking all of this into account, courts treat these agreements in a different manner.
Seasoned Alabama Business Law Attorneys are Here to Help
The attorneys at the BHM Law Group can help if you are a business located in Alabama and are interested in drafting legally valid non-compete agreements. Our dedicated attorneys will understand your particular situation and discuss all available legal options in order to protect your business interests in the best way possible. To schedule your free case review with our lawyers today, call us at (205) 994-0902 or contact us online.