Use and Popularity of Employee Non-compete and Non-Solicitation Terms
Employee non-compete and non-solicitation terms as part of an employment contract 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 is a relic of the past.
With such a fluid workforce, 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 non-compete and non-solicitation clauses as a part of an employment 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 non-compete clauses that hold 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 a Business Wants “Severable Portions” in Your Non-Compete Clause in an Employment Agreement
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 employment 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 or solicit are complex documents that can be invalidated by Arizona courts if they are determined to be unreasonable. Laws favor employees as the non-drafting parties. It takes a carefully crafted agreement to ensure that the parties on both sides of an employment agreement are protected and understand their rights and obligations.
