by David Cosgrove
Employment contracts often contain some type of non-compete and/or non-solicitation agreement that places restrictions on the employee after leaving his or her employment. In Missouri, these provisions are enforceable in limited circumstances.
One of the leading Missouri cases on non-compete agreements is Healthcare Svcs. of the Ozarks, Inc. v. Copeland, 198 S.W.3d 604 (Mo. banc 2006). Not only did the Court articulate the valid, yet conflicting concerns associated with non-compete agreements, but it analyzed the circumstances in which such agreements will be enforced in Missouri.
The competing interests between the employer and the employee are: the employer’s need to be able to employ a highly trained workforce to be competitive and profitable, without risking the employee using trade secrets or soliciting the employer’s customers after leaving employment; and the employee’s need for mobility and the ability to take his or her increasing skills and put them to work from one employer to the next. The conflicting interests in the law are the freedom of the parties to negotiate contracts with unlawful restraints on trade.
Missouri law attempts to balance these concerns when enforcing non-compete agreements. As such, non-compete agreements are typically enforceable so long as they are reasonable, which equates to being “no more restrictive than is necessary to protect the legitimate interests of the employer.” Thus, Missouri courts have found that these agreements must be narrowly tailored geographically and temporally. In particular, non-compete agreements cannot merely protect the employer from competition by a former employee unless that protection involves the employer’s business secrets and customer contacts.
If a dispute arises between an employer and a former employee concerning a non-compete agreement, the burden of proof rests upon an employer to substantiate its asserted interest in its trade secrets and/or customer contacts. However, in Missouri, if a court finds that a non-compete agreement is overbroad and unenforceable, the court has the authority to give effect to an overly restrictive non-compete clause by modifying the terms of the contract to be reasonable. The analysis on whether a non-compete agreement is enforceable is generally determined on a case by case basis and considers the type of industry involved, the duration and geographic reach of the restriction, and whether the employee had access to customer lists and trade secrets. Typically, agreements with a time restriction of over two years are unenforceable in Missouri.
Missouri courts have provided additional guidance since the Copeland decision. The opinion in Healthcare Svcs. Of the Ozarks, Inc. v. Copeland, 198 S.W.3d 604 (Mo. banc 2006) has proven to be one of those landmark cases in law related to non-compete agreements (“NCA”) in Missouri. Often cited for defining the means of achieving balance between the rights and needs of employers and employees, it determined that NCAs must be reasonable, in that they are not more restrictive than necessary, are narrowly tailored geographically and temporally, do not merely shield the employer from competition, and protect trade secrets or customer contacts. Id.
Utilizing the customer influence parameters established in Copeland, the Supreme Court of Missouri determined in Whelan Sec. Co. v. Kennebrew, 379 S.W.3d 835 (2012) that the Employer’s non-solicitation clause was “unreasonably broad.” Id. The clause specified former Employees were prohibited from approaching all potential clients of the Employer for two years following termination, not just those specific clients the Employees had contact with. Id. The lack of limitation led the court to determine that the large, national Employer was attempting to protect itself from competition, not unfair competition, as defined in Copeland.
While specificity regarding client groups[1] or time limitations[2] has been found to enable greater geographic restrictions in NCAs, their lack of specificity will decrease the physical restrictions that can be applied. In Sigma-Aldrich Corp. v. Vikin, 451 S.W.3d 767 (2014) the Missouri Court of Appeals found the NCA between the Employer and a former Employee to be unenforceable, due to a lack of territorial restriction, without the inclusion of these other items. The NCA forbade the Employee to engage in any work anywhere the company marketed or sold a product or service similar to those with which they were associated while employed.
Applying Copeland, amongst other cases,[3] the Court declared that “lack of a geographic limitation here renders the non-compete provision unenforceable without accompaniment by a specificity of limitation on the class with whom contact is limited. Rather, the non-compete provision creates a global prohibition in which Sigma attempted to ban employees from working for any of its competitors globally in any capacity.” Id.
The Vikin court further determined the Employer failed to demonstrate that the Employee retained any trade secrets which gave advantage over unknowing competitors, as alleged.[4] Citing Copeland, “Sigma did not meet its burden in demonstrating that the information Defendant possessed was not known outside the business, that the information was not widely known within the company or to others involved in the business, or that Sigma had taken measures to guard the secrecy…Sigma further did not meet its burden in showing the value of the information to Sigma and to competitors, the amount of effort or money it had expended to develop the information, and that it would be difficult for another company to duplicate or acquire the information.” Id.
Copeland limited the circumstances in which NCAs are enforceable. However, the Missouri Court of Appeals found that Missouri courts have recognized consideration for the agreement exists through continued at-will employment, where the employee has continued access to protectable assets and relationships.[5] In JumboSack Corp. v Buyck, 407 S.W.3d 51 (2013), it found the Employee “received in consideration for his covenant not to compete, access to Employer’s new and existing customers, as well as continued at-will employment, salary, and commissions.” Id.
Since it was handed down, the opinion delivered in Copeland has been a guiding force in the application of law related to non-compete agreements, a condition that appears stable for the foreseeable future.
If you need legal advice in drafting or negotiating non-compete agreements, determining whether a non-compete agreement which you have already signed is enforceable, or representing you in a dispute concerning a non-compete agreement, contact the attorneys at Cosgrove Law Group, LLC.
[1]Schott v. Beussink, 950 S.W.2d 621, 627 (Mo.App. E,D,1977); Whelan Sec. Co. v. Kennebrew, 379 S.W.3d 835, 842 (Mo. banc 2012)
[2]Mills v. Murray, 472 S.W.2d 6, 12 (Mo.App.1971)
[3]Schott v. Beussink, 950 S.W.2d 621, 627 (Mo.App. E,D,1977); Whelan Sec. Co. v. Kennebrew, 379 S.W.3d 835, 842 (Mo. banc 2012); Mills v. Murray, 472 S.W.2d 6, 12 (Mo.App.1971)
[4]Brown v. Rollet Bros. Trucking Co., Inc. 291 S.W.3d 766, 776 (Mo.App. E.D. 2009) (quoting Nat’l Rejectors, Inc. v. Trieman, 409 S.W.2d 1, 18-19 (Mo. Banc 1966)
[5]Morrow v. Hallmark Cards, Inc., 273 S.W.3d 15, 29 (Mo.App. W.D.2008); Nail Boutique, Inc. v. Church, 758 S.W.2d 206, 210 (Mo.App. S.D.1988); Computer Sales Int’l, Inc. v. Collins, 723 S.W.2d 450, 452 (Mo.App. E.D.1986)