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The Ins and Outs of Non-Compete Agreements


Use and Popularity of Employee Non-compete Agreements

Employee non-compete agreements are popular tools utilized by many types of employers when hiring new employees. It is easy to understand why. Employees today are considerably more mobile than in past generations. When a new job opportunity arises, an employee is more likely to move on than his or her predecessors were. The days of spending one’s entire working career with a single employer are a thing of the past. With such a fluid workforce, understandably, employers need to protect their information, including accounts, relationships, and access to customers. In many situations, an employer accomplishes this by requiring a new employee to sign a non-compete agreement.

Arizona courts have held that these covenants not to compete must be narrowly tailored to protect an employer’s legitimate business interests. A non-compete agreement cannot be overly restrictive when it comes to duration or to geographic scope. In other words, businesses cannot handcuff a former employee’s job prospects for the sake of their bottom line.

How can a business draft a non-compete agreement that holds up in court? If one provision within the agreement is found to be invalid, is the entire agreement found to be invalid? To examine these circumstances, one must look to the “blue pencil rule.”

Why You Want “Severable Portions” in Your Non-Competes

If you are an Arizona employer, “severable portions” should be part of your evolving business vocabulary. Also known as step-down clauses, these provisions in an employer’s non-compete agreement refer to either a specific alternative time or a territorial provision that creates the restrictions in the covenant agreement. To be enforceable, the non-compete agreement must provide a clearly stated alternative as to either time or geographic location in its restrictions.

The blue pencil rule allows a court to strike out restrictions that conflict with each other within an agreement. However, it is not acceptable for the employer to include both provisions in their agreement and to simply give the Court “revision authority” so as to attempt to be more restrictive in its agreement language. Doing so risks the validity of the entire agreement.

The Arizona Supreme Court addressed this very issue in Varsity Gold, Inc. v. Porzio. In this case, the drafting party included a reformation clause that granted the Court authority to revise the non-compete agreement in question to conform to acceptable standards in lieu of a step-down provision. The Court held that granting it revision authority to modify the non-compete agreement was not a valid step-down provision and as such, deemed the entire agreement unenforceable. The court stated, “Although we will tolerate ignoring severable portions of a covenant to make it more reasonable, we will not permit Courts to add terms or rewrite provisions.”

Covenants not to compete are complex documents that can be easily invalidated by Arizona courts. Laws favor employees as the non-drafting parties. It takes a carefully crafted agreement to ensure that the parties on both sides of a non-compete agreement are protected and understand their rights and obligations.

©2015 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website has been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.