An Alabama non-compete agreement is a restraint against a person from performing a service or profession in a specific area and time period. A non-compete is valid if it intends to preserve a protectable interest and is not against a person within a lawful profession. Depending on the type of non-compete, it can last for a maximum period of 1-2 years to be considered reasonable.
A non-compete in Alabama against an independent contractor is prohibited.
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A non-compete is enforceable and legal against:
- An employee, agent, or servant;
- The sale of a business; and
- The dissolution of a partnership.
A non-compete is unenforceable against an independent contractor (Premier Industrial Corporation v. Marlow (1974)).
A non-compete must have a “protectable interest” and is defined under § 8-1-191, which includes:
- Trade secrets. As defined under § 8-27-2;
- Confidentidential information. Most types of internal company data, such as customer information, business strategies, and marketing reports;
- Commercial relationships;
- Customer or client goodwill; and
- Specialized or unique training.
The Alabama courts have deemed the following professions to be legal to enter into non-competes:
- Bank employees. Cent. Bancshares of the South v. Puckett (1991)
- Insurance brokers. James S. Kemper & Co. Southeast v. Cox & Associates, Inc. (1983)
- Radio station announcers. Cullman Broadcasting Co. v. Bosley (1979)
A non-compete against a “lawful profession” is not allowed in Alabama. The term is not defined under the statutes, but the following laws and cases have ruled there to be at least six (6) types:
- Accountants. Burkett v. Adams (1978)
- Attorneys. Rule 5.6
- Physicians. Odess v. Taylor (1968)
- Physical therapists. Benchmark Medical Holdings, Inc. v. Barnes (2004)
- Securities brokers. G.L.S & Associates, Inc. v. Keith Rogers (2014)
- Veterinarians. Friddle v. Raymond (1991)
An employee with simple labor skills is not allowed to enter into a non-compete.
For example, in Nobles-Hamilton v. Thompson (2004), an employee at a health foods store cannot be subject to a non-compete as they do not hold any protectable interest. The court specifically ruled, “A simple labor skill, without more, is simply not enough to give an employer a substantial protectable right unique in his business.”
However, a court will not recognize a non-compete agreement signed to prohibit a person from working in the same industry. For example, in Robinson v. Computer Servicenters, Inc. (1977), the employer intended to terminate the employee on the same date as signing a non-compete).
Both parties are required to show a burden of proof under State statute (§ 8-1-194). The party seeking enforcement of a non-compete must provide a burden of proof, and the party resisting must provide evidence of undue hardship.
A written contract in Alabama must have “adequate consideration” to be legally binding (§ 8-1-192). The courts in Alabama have ruled in the past, such as in Daughtry v. Capital Gas Company (1970), that continued employment is adequate consideration.
However, the State statutes on January 1, 2016, repealed the laws stating that continued employment is sufficient consideration (§ 8-1-1). Therefore, it’s not with 100% certainty that continued employment remains sufficient consideration.
A non-compete for the periods mentioned below is determined to be reasonable under State statute:
- Employment: 2 years (§ 8-1-190(b)(3))
- Sale of a business: 1 year (§ 8-1-190(b)(4))
- Non-solicitation: 18 months (§ 8-1-190(b)(5))
Under § 8-1-193, an Alabama court may void specific restraints if a non-compete is overly broad or unreasonable. In addition, the court may go as far as re-writing the duration or geographical areas of a non-compete to make it reasonable (Mason Corporation v. Kennedy (1971)).