Section 32 Noncompetition Covenants and Agreements

• Library: Bus Trans 2005

Noncompetition agreements seek to balance two divergent interests:

1. the desire of the employer to protect its existing business and clients from unfair competition by former employees; and

2. the former employee’s interest in working.

Because the courts have emphasized the strong societal preference for allowing individuals the freedom to earn a living in the manner and business they choose, noncompetition covenants are held to be presumptively void, enforceable only to the extent that they are demonstrably reasonable. Orchard Container Corp. v. Orchard,601 S.W.2d 299, 303 (Mo. App. E.D. 1980). See Grebing v. First Nat’l Bank of Cape Girardeau, 613 S.W.2d 872, 874 (Mo. App. E.D. 1981) (“By definition, covenants by employees not to compete with their employers after termination of their employment restrain trade in a free market. Therefore, in our society, these covenants may be against public policy, and, thus are enforceable only if their imposed restraint is reasonable.”).

In enforcing a noncompetition provision, courts often look to the duration and the geographic limit of the prohibition. “[A] temporally and spatially limited restraint may be deemed reasonable and enforceable in equity if a legitimate, protectible interest of the employer is served.” Deck & Decker Personnel Consultants, Ltd. v. Pigg, 555 S.W.2d 705, 707 (Mo. App. W.D. 1977). Goodwill, customer contacts, customer lists, and trade secrets are such protectible interests. See Herrington v. Hall, 624 S.W.2d 148, 151 (Mo. App. W.D. 1981); Orchard Container Corp., 601 S.W.2d at 299. Courts also consider the circumstances surrounding the covenant, including its purpose, its subject matter, the respective situation of the parties, the limits of the restraint, and the nature of the business involved. Superior Gearbox Co. v. Edwards, 869 S.W.2d 239, 247 (Mo. App. S.D. 1993).

Whether a certain duration is reasonable should be independently based on the facts of each case; a two-year period of restraint may be reasonable in one circumstance but unreasonable in another. Cf. Schnucks Twenty-Five, Inc. v. Bettendorf, 595 S.W.2d 279 (Mo. App. E.D. 1979).

Generally, to be enforceable, the noncompetition covenant must be restricted to the geographical area in which the company is doing business at the time the covenant is executed or at the time the employee’s employment is terminated. Again, however, courts have not given the spatial limitation of noncompetition covenants uniform treatment...