Are Non-Compete Provisions Enforceable in Arizona?
A non-compete agreement, which is often referred to as a “restrictive covenant,” attempts to preclude an employee from working for a competitor or undertaking a new business venture that would compete with a former employer. In Arizona, broadcast employers, which include television stations, television networks, radio stations, and radio networks, are legally prohibited from asking current or prospective employees to sign non-compete agreements. Non-compete agreements between a lawyer and law firm are also illegal. Non-compete agreements with certain medical providers may be illegal, although there is no definitive ruling on the issue as of the date of this article. All other Arizona employers may require employees to sign non-compete agreements.
So, are such non-compete agreements enforceable? The unsatisfying answer is: it depends. Determining whether a non-compete agreement is enforceable requires a fact specific inquiry and can only be accomplished on a case-by-case basis.
What Factors are Considered?
In short, courts will only enforce non-compete agreements that are no broader than what is necessary to protect the employer’s legitimate business interests. Such interests may include customers, trade secrets, or other confidential information. Courts consider three factors when determining whether to enforce a non-compete agreement: (1) the scope of the precluded activity; (2) the duration; and (3) the geographic region to which it applies.
1. Scope of Precluded Activity
Non-compete provisions should be limited to the scope of activities the employee was performing for his or her former employer. Non-compete agreements that attempt to preclude employees from competing per se in an entire industry are likely unenforceable. For example, a non-compete agreement that attempts to preclude an artist from working for any “arts-based” industry is substantially less likely to be enforced than a provision that attempts to preclude the artist from competing in a specific space, such as commercial screen printing.
Although we frequently see non-compete agreements that are twelve months in duration, a non-compete provision is only enforceable for the period it takes to train a former employee’s replacement and bring them up to speed. This means that courts are willing to enforce non-compete agreements with a longer duration when employees have specialized skills that cannot be readily replaced.
3. Geographic Region
Restrictive covenants should be limited to a geographic region wherein the employer has a legitimate business interest. For example, an employer that provides goods and services only in the state of New Mexico does not have any legitimate business interests in Arizona. Thus, a non-compete agreement that attempts to prevent a New Mexico employee from working for a competing business in Arizona would likely be unenforceable.
When Should an Attorney be Consulted?
Non-compete agreements have become quite commonplace. Before agreeing to be bound by a restrictive covenant, employees should consult with an experienced employment attorney to review their employment agreements and provide guidance as to how a restrictive covenant could potentially limit their future job opportunities. Conversely, employers should also seek counsel to draft non-compete agreements and evaluate risks in hiring someone subject to a non-compete.
Employees considering working for a competitor or starting a competing business should consult with an attorney before they leave their employment to understand their options and how to best protect themselves. Employers wanting to enforce restrictive covenants should also seek counsel.
About the Author: Alden Thomas is an employment law attorney at Jaburg Wilk. She advises employees and employers in a wide array of issues, including non-compete agreements and state and federal harassment, discrimination, wage and hour, wrongful termination, and whistle blower laws.