Non-compete agreements are rising in popularity amongst employers and in response, have gained some notice in the courts. Some non-compete agreements will also contain non-solicitation obligations to provide employers protection of their trade secrets, clients, and business practices. However, if poorly drafted, they risk being unenforceable. To avoid a battle between employer and employee, a good non-compete agreement will strike a delicate balance between protecting an employer’s business while simultaneously giving employees the ability to find employment elsewhere.
In this article, you will find a brief overview of the law of non-compete agreements in Missouri, pointers on drafting them, and what to do if your non-compete agreement is causing unintentional competition between you and your employees.
The term “non-compete agreement” refers to all restrictive covenants entered into between the employer and employees that restrict post-employment activities of the employees, including non-competition and non-solicitation clauses. Whelan Sec. Co. v. Kennebrew, 379 S.W.3d 835 (Mo. 2012). In order to have a court-approved non-compete agreement, the agreement should be (1) reasonable and (2) balance the interests of employer and employee.
Missouri courts generally enforce a non-compete agreement if it is demonstratively reasonable. A non-compete agreement is reasonable if it is no more restrictive than is necessary to protect the legitimate interests of the employer. Payroll Advance, Inc. v. Yates, 270 S.W.3d 428 (Mo. Ct. App. 2008). It is important to note that protection of the employer, not punishment of the employee, is the essence of the law. Superior Gearbox Co. v. Edwards, 869 S.W.2d 239 (Mo. App. 1993). Therefore, the employer has the burden to prove that the agreement is reasonable and protects legitimate interests. Carmed 45, LLC v. Huff, 2021 Mo.App. LEXIS 683 (Mo. Ct. App. 2021).
But what does it mean to be demonstratively reasonable? Certainly, the element of good faith would provide the court with some ammo for the “reasonableness” leg of this analysis. Including a geographic or temporal restriction on the agreement would bolster the reasonableness of the agreement. For example, the courts have looked favorably on a 2-year expiration date on the non-compete agreement with a 50-mile radius from where the former employee rendered services. Other times, courts have reduced the temporal restriction from five years to two years, or added one when it did not exist before. While the traditional rules of contract are not completely applicable to non-compete agreements, one faulty provision will generally not invalidate the agreement. Rather, courts have been keen to amend the faulty provisions of a non-compete agreement and apply the rest as written.
When determining how to limit the time and space that the agreement controls, the employer can only restrict the agreement to protect the employer’s trade secrets or customer contacts. Consider the position of the former employee, their tasks, and how intimately they were involved with their former employer’s clients and confidential information. Consider the type of employee the agreement is intended to cover and draft different agreements for different employees. A warehouse employee who never communicates with a client and never handles trade secret information may be a poor candidate for a non-compete agreement. Contrarily, an employee who has access to the client roster, routinely communicates with clients, or who has access to trade secrets is a perfect candidate for a non-compete agreement.
In essence, these agreements cannot be arbitrary attempts to prevent employees from leaving to go work for a competitor. That would be a restraint on trade. Schmersahl, Treloar, & Co. v. McHugh, 28 S.W.3d 345 (Mo. Ct. App. 2000).
2. Strike the Balance
A non-compete agreement must secure two interests: first, it must protect the employer’s trade secrets and customer contracts. Second, it must ensure that the employee’s freedom to pursue her trade is protected.
A restrictive covenant to that extent is only valid and enforceable if it “is necessary to protect one of two well-defined interests: trade secrets and customer contracts.” Schmersahl. Protectable interests include confidential or trade secret business information, relationships with customers or suppliers, the goodwill of the company, and company loyalty. § 431.202.1(3)(a),(b). Even if an employee non-solicitation covenant seeks to protect interests not identified in § 431.202, it is nonetheless per se reasonable if its duration is for a period of one year or less following the conclusion of the employee’s employment. Mo.Rev.Stat. § 431.202.
Employee’s interests, just as employer’s interests, are important considerations: employees have a legitimate interest in having mobility between employers, providing for their families, and advancing their careers. Whalen. If the agreement fails to protect either trade secrets or customer contacts, and instead attempts to prevent former employees from approaching current employees about different job offers, the court will generally find the agreement invalid. Id.
Rather, courts enforce non-compete agreements only to the extent they protect the employer from unfair competition, not from all competition by a former employee. Whelan. The employer has the burden to prove that the non-compete agreement protects its legitimate interests in trade secrets or customer contacts and that the agreement is reasonable as to time and geographic space. Id.
While lawful, Missouri law does not look favorably on non-compete agreements that prevent former employees from competing with their former employers. Such covenants must be carefully restricted (and reasonable) because they deal with restraints on commerce and limit an employee’s freedom to pursue his or her trade. The following general rule still attends: An employer cannot extract an enforceable restrictive covenant merely to protect herself from the competition of an employee.
At Gausnell, O’Keefe & Thomas, LLC, we have the skill and experience to handle employers’ questions, concerns, or issues with their non-compete agreements. If you read this article and are wondering whether your non-compete agreement complies with Missouri law, we can provide assistance that ranges from guidance over the law to drafting a full agreement for your company. If your agreement has already been challenged by a former employee, we can assist you in navigating the resolution.
Article by Tayler Bertelsmann