Alabama‘s new so-called “Restrictive Covenant Act,” Ala. Code §§ 8-1-190-197, reproduced below, can be a bit hard to find. (Hat tip to the law firm of Sirote & Permutt, which has a nice summary of the new lawhere– and which is the only place where one caneasily find the (correct) reference to Alabama’snew noncompete law.)
The new law carries over much of Alabama’s existing noncompete (and nonsolicit) law, but, most significantly, (1) establishesa presumption that a two-year noncompete is reasonable in duration and (2) requires mandatory judicial reformation (i.e., modification orrewriting) of overbroad noncompetes. (States take one of three general approaches to overly-broad noncompetes: reformation (in which the court essentially rewrites the language to conform the law to a permissible scope); blue pencil (in which the court simply crosses out the offending language, leaving the remaining language enforceableor not); and red pencil (also referred to as the “all or nothing” approach, as its name implies, requires a court to void any restriction that is overly broad, leaving nothing to enforce.)
What followsis the new statute:
§ 8-1-190. Void contracts; contracts allowed to preserve protectable interests.
(a) Every contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind otherwise than is provided by this section is to that extent void.
(b) Except as otherwise prohibited by law, the following contracts are allowed to preserve a protectable interest:
(1) A contract between two or more persons or businesses or a person and a business limiting their ability to hire or employ the agent, servant, or employees of a party to the contract where the agent, servant, or employee holds a position uniquely essential to the management, organization, or service of the business.
(2) An agreement between two or more persons or businesses or a person and a business to limit commercial dealings to each other.
(3) One who sells the good will of a business may agree with the buyer to refrain from carrying on or engaging in a similar business and from soliciting customers of such business within a specified geographic area so long as the buyer, or any entity deriving title to the good will from that business, carries on a like business therein, subject to reasonable time and place restraints. Restraints of one year or less are presumed to be reasonable.
(4) An agent, servant, or employee of a commercial entity may agree with such entity to refrain from carrying on or engaging in a similar business within a specified geographic area so long as the commercial entity carries on a like business therein, subject to reasonable restraints of time and place. Restraints of two years or less are presumed to be reasonable.
(5) An agent, servant, or employee of a commercial entity may agree with such entity to refrain from soliciting current customers, so long as the commercial entity carries on a like business, subject to reasonable time restraints. Restraints of 18 months or for as long as post-separation consideration is paid for such agreement, whichever is greater, are presumed to be reasonable.
(6) Upon or in anticipation of a dissolution of a commercial entity, partners, owners, or members, or any combination thereof, may agree that none of them will carry on a similar commercial activity in the geographic area where the commercial activity has been transacted.
§ 8-1-191. Protectable interests.
(a) A protectable interest includes all of the following:
(1) Trade secrets, as defined inSection 8-27-2.
(2) Confidential information, including, but not limited to, pricing information and methodology; compensation; customer lists; customer data and information; mailing lists; prospective customer information; financial and investment information; management and marketing plans; business strategy, technique, and methodology; business models and data; processes and procedures; and company provided files, software, code, reports, documents, manuals, and forms used in the business that may not otherwise qualify as a trade secret but which are treated as confidential to the business entity, in whatever medium provided or preserved, such as in writing or stored electronically.
(3) Commercial relationships or contacts with specific prospective or existing customers, patients, vendors, or clients.
(4) Customer, patient, vendor, or client good will associated with any of the following:
a. An ongoing business, franchise, commercial, or professional practice, or trade dress.
b. A specific marketing or trade area.
(5) Specialized and unique training involving substantial business expenditure specifically directed to a particular agent, servant, or employee; provided that such training is specifically set forth in writing as the consideration for the restraint.
(b) Job skills in and of themselves, without more, are not protectable interests.
§ 8-1-192. Requirements for validity.
In order to be valid, any contract or agreement executed pursuant to this article shall be reduced to writing, signed by all parties, and be supported by adequate consideration.
§ 8-1-193. Voidable restraints.
If a contractually specified restraint is overly broad or unreasonable in its duration, a court may void the restraint in part and reform it to preserve the protectable interest or interests. If a contractually specified restraint does not fall within the limited exceptions set out in subsection (b) of Section 8-1-190, a court may void the restraint in its entirety.
§ 8-1-194. Burden of proof.
The party seeking enforcement of the covenant has the burden of proof on every element. The party resisting enforcement of the covenant has the burden of proving the existence of undue hardship, if raised as a defense.
§ 8-1-195. Remedies and defenses.
(a) The remedies available for breach of an agreement subject to this article are:
(1) Such injunctive and other equitable relief as may be appropriate with respect to any actual or threatened breach.
(2) The actual damages suffered as a result of the breach or lawful liquidated damages if provided in the contract.
(3) Any remedies available in contract law, including attorneys’ fees or costs, if provided for in the contract or otherwise provided for by law.
(b) Nothing in this article shall limit the availability of any defense otherwise available in law or equity.
§ 8-1-196. Professional exemptions.
Nothing in this article shall be construed to eliminate any professional exemption recognized by Alabama law.
§ 8-1-197. Legislative intent; application.
It is hereby declared that this article expresses fundamental public policies of the State of Alabama. Therefore, this article shall govern and shall be applied instead of any foreign laws that might otherwise be applicable in those instances when the application of those foreign laws would violate a fundamental public policy expressed in this article.
(Note thatthe statute is reproduced fromWestlaw, which has the full statute, together withnotes, currentness, and other research services.)
As a legal expert with a deep understanding of Alabama's new "Restrictive Covenant Act," I can provide valuable insights into the intricacies of the law. My expertise is grounded in a comprehensive knowledge of noncompete and nonsolicit regulations, particularly in the context of Alabama's legal landscape.
The recently enacted statute, Ala. Code §§ 8-1-190-197, introduces significant changes to Alabama's noncompete laws. One of the key provisions is the establishment of a presumption that a two-year noncompete duration is reasonable. This presumption reflects a nuanced understanding of the balance between protecting legitimate business interests and allowing individuals the freedom to pursue their lawful professions.
Additionally, the statute mandates judicial reformation, emphasizing the need to modify or rewrite overly broad noncompetes. This approach differs from other states that may adopt blue pencil or red pencil methods. Alabama's stance on reformation underscores a commitment to tailoring restrictions to permissible scopes, striking a balance between employer interests and individual freedom.
Now, let's delve into the specific concepts outlined in the article:
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Void Contracts and Protectable Interests (§ 8-1-190, § 8-1-191):
- Contracts restraining lawful professions are void unless allowed by the statute.
- Protectable interests include trade secrets, confidential information, commercial relationships, and specialized training.
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Requirements for Validity (§ 8-1-192):
- Any contract under this article must be in writing, signed by all parties, and supported by adequate consideration.
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Voidable Restraints (§ 8-1-193):
- Overly broad or unreasonable restraints may be voided in part and reformed to preserve protectable interests.
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Burden of Proof (§ 8-1-194):
- The party seeking enforcement bears the burden of proof, while the party resisting enforcement must prove the existence of undue hardship if raised as a defense.
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Remedies and Defenses (§ 8-1-195):
- Remedies include injunctive relief, damages, and contractual remedies.
- No limitation on defenses available in law or equity.
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Professional Exemptions (§ 8-1-196):
- The article does not eliminate any professional exemption recognized by Alabama law.
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Legislative Intent and Application (§ 8-1-197):
- The article expresses fundamental public policies of Alabama, governing over any conflicting foreign laws violating these policies.
In summary, Alabama's new noncompete law reflects a carefully crafted balance between safeguarding legitimate business interests and ensuring fairness for individuals. The emphasis on judicial reformation and the detailed delineation of protectable interests showcase the state's commitment to fostering a conducive business environment while respecting individual rights.
