Labor & Employment Client Alert (August 2012)

Missouri Supreme Court Provides Guidance as to Non-Compete Agreements

In 2006, the Missouri Supreme Court sent shockwaves through the business community with its Healthcare Services of the Ozarks, Inc. v. Copeland, decision, stating that non-compete agreements “are not enforceable to protect an employer from mere competition by a former employee.” In a matter of one sentence, the court lent credence to the argument that agreements attempting to restrict a worker from competing in a certain geographic area were not enforceable because such restrictions purported to prevent “mere competition.” However, in its most recent decision issued last week, the Court softened its stance and breathed life back into these non-compete provisions.

In Whelan Security Co. v. Kennebrew, the Missouri Supreme Court considered non-compete agreements containing the following prohibitions:

  • A client non-solicitation clause which prohibited soliciting any of the employer’s (Whelan’s) clients or prospective clients (whose business was sought in the year before the end of the employee’s employment) for two years;
  • An employee non-solicitation clause which prohibited soliciting any of Whelan’s employees (one of the agreements contained a one-year prohibition, the other contained a two-year prohibition); and
  • A two-year non-compete clause which prohibited the employee from working for a competitor within fifty miles of any location at which the employee had arranged for Whelan to provide services.

Applying Missouri law, including its prior Copeland decision, the Supreme Court reached the following conclusions:

  • The client non-solicitation clause was overbroad because, as written, it applied to clients with whom the employees had never dealt.
  • The client non-solicitation clause was not so overbroad as to render it invalid. Instead, the Supreme Court modified the clause so that it applied only to clients with whom the employees had dealt while employed by Whelan.
  • The client non-solicitation clause was overbroad and invalid as to the solicitation of prospective clients.
  • A one-year employee non-solicitation clause is reasonable.
  • A two-year employee non-solicitation clause is only reasonable if its purpose it to protect the employer’s trade secrets/confidential information or to protect the employer’s customer or supplier relationships, goodwill or loyalty.
  • A fifty mile, two-year non competition clause is reasonable provided it protects the employer’s trade secrets or customer contacts.

Implications of the Supreme Court’s Decision

The Supreme Court’s Whelan decision is significant in many respects. First, this decision clarifies what Copeland rendered unclear—that reasonable geographic and temporal restrictions are enforceable provided that the restrictions are intended to protect the employer’s trade secrets or customer contacts. Second, although the Whelan decision reaffirmed the courts’ power to modify overbroad non-compete agreements, the Supreme Court also demonstrated the courts’ authority to completely invalidate non-compete agreements/clauses that are unreasonably overbroad. Third, the courts are unlikely to enforce a client non-solicitation clause to the extent it attempts to prevent the solicitation of clients with whom the employee had no contact. Fourth, while one-year employee non-solicitation clauses are enforceable, an employee non-solicitation clause that extends beyond one year must be tied to the protection of the employer’s trade secrets/confidential information or customer or supplier relationships, goodwill or loyalty.

In the wake of the Supreme Court’s Whelan decision, employers who distribute non-compete agreements to employees should review and, where necessary, update these agreements to ensure that the employer receives the benefits and protections of these agreements.

Questions?

In the event you have questions regarding your current non-compete agreements or to ensure compliance with the Missouri Supreme Court’s decision, contact any of the attorneys in the Greensfelder, Hemker & Gale Labor and Employment Department.

View the attorneys in the Labor & Employment Practice Group.

We Earn Our Reputation from the Companies We Keep®