A few years ago thirty-five doctors asked me to assist them with renegotiating their employment agreements with the largest hospital system in Des Moines. One sticking point in the employment agreement was a non-compete clause that restricted the physician’s employment after separation from the hospital system. The terms of the noncompete were for two years and a fifty mile radius. Although the center of the radius was not stated the time and mileage elements seemed reasonable under the case law. Physicians, pharmacists and other professionals who have sold their practices to large corporations know to what I refer. In the sale agreement or in the employment contract the buyer or hirer will attempt to limit where you can practice for about a two-year time frame following employment separation. The non-compete clauses in professional employment contracts are legal and therefore they are enforceable. The only real restriction is that the terms must be reasonable and also not against the public interest of the community.
This case out of the 8th Circuit Court of Appeals tossed out the non-compete agreement based on it not being reasonable. According to the opinion here is what the covenant stated:
NanoMech, Inc. v. Suresh, Docket No. 13-3671 (Feb. 6, 2015 8th Circ)
COVENANT NOT TO COMPETE: The Employee agrees that during the term of this Agreement, and for two (2) years following termination of this Agreement by the Company, with or without cause; or, for a period of two (2) years following a termination of this Agreement by the Employee, the Employee will not directly or indirectly enter into, be employed by or consult in any business which competes with the Company.
The employee having been sued filed her Answer and then technically moved to dismiss on grounds the noncompete was overly broad and therefore unenforceable. The distrct court agreed, “The court granted Suresh’s motion, concluding that the noncompete agreement was overbroad and unenforceable because it lacked a geographic scope and prevented Suresh from working for an undefined set of NanoMech’s competitors in any capacity. The court also concluded that NanoMech failed to state sufficient facts to show that Suresh’s breach of the nondisclosure agreement resulted in damages.”
The law provides three requirements for any noncompete to be enforceable.
A restraint of trade is reasonable only when it is “no greater than what is reasonably necessary to secure the interest of the party protected by the contract and is not so broad as to be injurious to the public interest.” Optical Partners, 381 S.W.3d at 53. In general, a noncompete agreement must meet three requirements to be enforceable under Arkansas law: “(1) the [employer] must have a valid interest to protect; (2) the geographical restriction must not be overly broad; and (3) a reasonable time limit must be imposed.” Duffner v. Alberty, 718 S.W.2d 111, 112 (Ark. Ct. App. 1986) (en banc).
Here is what the Court of Appeals found: “The district court held that Suresh’s noncompete was overbroad, and thus unenforceable, because it lacked a geographic restriction and failed to define what activities Suresh was prohibited from performing for NanoMech’s competitors.”
The employer argued that having no geographic restriction was reasonable in light of the business they are in and the world wide scope of their competition. This argument failed to carry the day because “Suresh’s agreement is still overbroad because this agreement—unlike those approved in Girard and Freeman, see id. at 473 n.4—prohibits her from working in any capacity for any business that competes with the company.”