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Non-Compete Agreements According to Arizona Law | Karemar

Non-Compete Agreements According to Arizona Law

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Our company was recently served with a frivolous lawsuit seeking to enforce a non-compete agreement against my partner who is a former employee of the Plaintiff. The law on Non-Compete Agreements in Arizona is clear and is as follows:

Under Arizona law, a restrictive covenant will be considered unreasonable and unenforceable: "1) if the restraint is greater than necessary to protect the employer's legitimate interest; or 2) if that interest is outweighed by the hardship to the employee and the likely injury to the public." Valley Med. Specialists v. Farber, 982 P.2d 1277, 1281 (Ariz. 1999). Generally, non-competition restrictive covenants are either reasonable and enforceable or unreasonable and unenforceable. However, "[i]f it is clear from its terms that a contract was intended to be severable, the court can enforce the lawful part and ignore the unlawful part." Olliver/Pilcher Ins. v. Daniels, 715 P.2d 1218, 1221 (Ariz. 1986).

As a result, Arizona courts have adopted the "blue pencil" doctrine as expressed in the Restatement (Second) of Contracts. See, Farber, 982 P.2d at 1286 ("Arizona courts will 'blue-pencil' restrictive covenants, eliminating grammatically severable, unreasonable provisions.") "Where the severability of the agreement is not evident from the contract itself, the court cannot create a new agreement for the parties to uphold the contract." Olliver/Pilcher Ins. v. Daniels, 715 P.2d at 1221.

First and foremost, the restraint placed on my partner by the non-compete agreement disallows him from working in any aspect of the web, anywhere in he world. Clearly, this does not protect a legitimate interest because the Company did not want to participate in the business path that we have chosen to pursue.

Additionally, the hardship to my partner in this particular case is extreme. Web related work is and his been my partner's business for over five years and he is only twenty one years old.

A problem that arises with the "blue pencil" rule is that the overbroad provisions are typically the geographic or temporal restrictions. See, e.g., Varsity Gold, Inc. v. Porzio, 45 P.3d 352, 356 (Ariz. App. 2002) (noting that the geographical provision in a non-compete agreement, which encompassed the entire state and contiguous states, was unreasonable, where the employee worked only in one portion of one city). Once a court strikes those provisions, there generally are no geographic or temporal restrictions at all, rendering the agreement overbroad per se and, therefore, unenforceable. In other words, courts following the blue pencil rule will not do anything more than strike overbroad provisions; they will not revise the agreement to be enforceable even if the agreement expressly authorizes the court to do so.

The geographical restrictions in the non-compete signed by my partner and the Plaintiff state that my partner cannot engage in the restricted work “anywhere in the United States or any other country.” Therefore, my parnter could only engage in this type of work on another planet. As seen in the above paragraph, Arizona courts find that limiting a person to work within an entire state is egregious and unenforceable, let alone the entire world.

Also, as seen above, an overbroad agreement is unenforceable.
Moreover, Arizona courts rigorously scrutinize geographic and temporal restrictions, as they will enforce only those agreements in which the "restraint does not exceed that reasonably necessary to protect the employer's business, is not unreasonably restrictive of the rights of the employee, does not contravene public policy, and is reasonable as to time and space." Bed Mart, Inc. v. Kelley, 45 P.3d 1219, 1221 (Ariz. App. 2002); see also, Bryceland v. Northey, 772 P.2d 36, 40 (Ariz. App. 1989) (suggesting, in dicta, that a reasonable temporal restriction should not exceed 14 weeks); Amex Distrib. Co., Inc. v. Mascari, 724 P.2d 596, 604 (Ariz. App. 1986) (asserting, in dicta, that a period of a few months is probably the maximum appropriate temporal restriction for a sales representative).

A non-competition clause is generally disfavored by the American legal system. Arizona is particularly harsh on the enforcement of restrictive covenants. In our particular case, our company (1) does not compete with the Plaintiff because we do not have clients, nor solicit any clients; (2) there is no legitimate interest being protected for the Plaintiff; (3) there is extreme hardship to my partner; (4) the temporal restriction is overbroad; and (5) the geographical restriction is overbroad.

Should you or your company be faced with a restrictive covenant in Arizona, analyze it carefully, reply with a letter indicating that the court will strike it down based on the facts and pursue ARS 12-349(c), ARS 12-347(a) and 44-2083 for sanctions against the Plaintiff and his counsel.

9 Comments

Non compete

I signed a non compete for the counties in arizona. However the non compete also says within 100 miles of an office of the company or within 25 miles of at which the company is doing business.
Over 2 years ago I changed territories to cover a different part of the country , but did not sign a new agreement. If i leave the company and start with a different company or start my own company in the same industry , calling on the same clients I am calling on now, how open am I to being sued?

The goal would be to stay out of az, at least until the non compete is up.

Also my agreement say it is governerned by law from another state. Does that apply and is it possible to get that moved to az law if there was litigation?

Non-Compete Question

I started a new job 3 months ago. I was working for a competitor of my current company. They hired me and 3 others from that company. I did not have a non-compete.

Now I find an opportunity with yet another competitor in the industry. I am considering this new offer. However, I did sign a non-compete with this current company.

The non-compete they gave me does outline a territory, however they gave me the paper work in the employee handbook with the territory blank and told me verbally what my territory was. It's the county in which I live.

So no where did I sign a piece of paper which says what my territory is, nor did they give me anything in writing with my territory.

The company is based in another state but has an office in Arizona. The new company I am considering is based in another state and has an office in Arizona.

I can show that several employees from my old company came to this current company and several other employees were recruited from my current company and went to my old company. No one has been sued in any case from any company.

I feel like since I haven't been there even 4 months and all this employee swapping has been going on I have nothing to fear. Finally, the non-compete albeit looks pretty tight left the part about territory blank, this leaves the whole thing to be thrown out.

Besides the new opportunity said my territory would be another state, but I live in Arizona. What do you think, do I have anything to worry about? I really don't see my current employer going after me, but you never know.

non competes

I am a contractor and am authorized to work in all states from my home base of Missouri. I have recently been offered a consulting position for a company based in Arizona and am being asked to sign a non compete. It basically says that I cannot consult for any of this company's clients for one year after I finish with them. Is that too restrictive? Their clients can encompass all states and countries. Will I be shooting myself in the foot to sign this?
Thank you very much

Generally speaking,

Generally speaking, non-competes will not hold up in court in today's society as they are restrictive on your ability to make a living.

non competes

Thanks for the info. Does the circumstance change if I sign a confidentiality agreement that states that I will honor a non-compete?
My attorney told me basically what you told me that the non compete was not worth the paper it was written on.

Non-compete agreement

I work on commission in Phoenix, AZ for a company based in Viginia. They closed the commercial sales divions of all offices across the country on 2/6/09. I was given 2 weeks severance pay and told not to work former competitiors due to my non-compete. Can they do this?

NON-COMPETE

Id like to ask if im working for a company for over 5years and have never been asked to sign a non-compete intill today can they make me sign it and tell me if i dont i cant work for there company

Also if the company makes me sign it and gave me nothing extar when i started and wont even make sure i get 40 hrs a week moving forward , can they stop me from breaking the non-compete in getting a better job out of state to better my future in the same field

Reply to non-compete

I'm not a lawyer, but I do have a comment.

Please do not take this personally, and I don't mean to be harsh, but here is some possibly helpful feedback that might help you to get more responses.

If you are going to ask for someone to spend his time and effort in answering your question, you might want to think about putting that same amount of effort into writing your question.

Seriously, man...you need to clean up the spelling, grammar, and typos. Think about writing your question in a way that shows that you actually care enough about the question (and the answer) to take the time to write it in a way that makes sense and can be easily understood.

You might find that you get more responses.

Just my two cents, and I could be all wet.

So, you know what is really

So, you know what is really annoying? When people act like their English is better than the next person: "but here is some possibly helpful feedback that might help." Could you use the word help enough in one sentence? Or is it the use of possibly that just sounds awful.
Did you know '...' signifies continuation of a sentence without having to write the details? Probably not, or you wouldn't have used it when stating, "Seriously man...you need to."
I know this is a late reply but I never had to read one of these forums about legal advise and I came across your reply and thought, WoW! what an idiot.

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