Covenants Not to Compete in Alabama

Covenants against competition, often referred to simply as "non-competes," are generally utilized by companies in an attempt to protect confidential business information or relationships that the employee gained while working for the company.  This is a complex area of the law and cannot be fully explained in a few pages.  The information below is designed to provide a  brief insight into the  actual application of the law.  It is not complete, and only the advice of a knowledgeable and experienced lawyer can provide you with a meaningful application of the law.  This is not intended to be legal advice upon which anyone can rely.

A typical covenant not to compete might provide:

Alabama has had a statute for many years that regulates covenants not to compete.  The statute begins by establishing a broad rule, but with an important "otherwise:"

The Alabama courts have struggled with applying this statute over its long history.  One part of the struggle involves exactly what is meant by "is restrained from exercising a lawful" business.  For example, what if the covenant only restrained you from calling on only one account for one year, but did not prohibit general advertising and permitted you to accept an incoming call from that account.  Does that restrain you from "exercising a lawful" business?  Does the statute apply only to "partial restraints?"  These are questions that only lawyers can attempt to answer knowledgeably.

The statute has two additional subparts that exempt many restraints from the broad rule set out in section (a) of the statute.  These provide:

The interaction of the broad rule and the exceptions has been fruitful ground for litigation.  The Alabama courts have held that, since section (a) explicitly prohibits restraints on "a lawful profession" and neither section (b) nor (c) explicitly apply to professionals, covenants restraining professionals, such as doctors, lawyers and CPAs, from exercising their profession cannot be saved by sections (b) and (c).  The breadth of the meaning of "professional" remains unclear and is a frequent subject of litigation.

For most employees of business, however, the language of sub-section (b) tends to give the former employer a justification for a covenant.  It provides an exception to sub-section (a) for "one who is employed as an agent, servant or employee may agree with his employer to refrain from carrying on or engaging in a similar business and from soliciting old customers of such employer within a specified county, city, or part thereof."  The meaning and interpretation of this section continues to provoke litigation on a host of issues, including to what extent it can be applied to "independent contractors" who are not employees.

Alabama courts have ruled that section (b) will be enforced only when the employer has a "protectible interest" and then only if the restraint is reasonable in scope, both in terms of territory and time.

Further compounding the complexity of predicting how courts may rule on covenants against competition is the question of what state's law to apply -- the state mentioned in the contract, the home office of the employer, the residence of the employee, or the state in which litigation is initiated.

Non-competes are enforced through litigation, arbitration or sometimes a combination of both.  Employers often act quickly to enjoin employees by using temporary restraining orders (TRO) and preliminary injunctions.  Employees receiving notice of any effort to obtain a restraining order must obtain counsel immediately or face the practical problem of essentially losing the case before reacting.  TROs can be entered without the judge ever hearing from the employee.   Speed in defense is critical to avoiding harsh results.

Page Law Firm offers decades of experience in advising clients on practical solutions to through the very tangled law of covenants against competition.