On August 14, 2012, the Missouri Supreme Court issued Whelan Security Co. v. Kennebrew, et al., 2012 Mo. LEXIS 167, addressing the enforceability of employee noncompetition agreements under Missouri law. Whelan Security marks the first time the Court has addressed employee noncompetition agreements since its 2006 decision in Healthcare Servs. of the Ozarks, Inc. v. Copeland, 198 S.W.3d 604 (Mo. 2006). In Whelan Security, the Court reaffirmed long-standing Missouri precedent that employee noncompetition agreements can be enforced under Missouri law to the extent they are reasonable and necessary to protect the employer’s legitimate protectable interests. The Court’s decision also highlights that the reasonableness of an employee noncompete generally depends upon a fact-specific inquiry.
Whelan Security involved noncompetition agreements signed by two former Whelan employees, Kennebrew (who had been the director of quality assurance for Whelan’s Dallas office) and Morgan (who had been the branch manager of Whelan’s Nashville office), and three types of noncompetition provisions: (1) customer nonsolicitation provisions, (2) employee nonsolicitation provisions and (3) territorial noncompete provisions. The customer nonsolicitation provisions at issue in Whelan Security lasted for two years as to Kennebrew and one year as to Morgan, and prohibited them from soliciting, taking away or attempting to take away any of Whelan’s existing customers, as well as any of Whelan’s prospective customers from the last twelve months. The employee nonsolicitation provisions also lasted two years as to Kennebrew and one year as to Morgan, and prohibited them from soliciting, interfering with, employing or endeavoring to employ any of Whelan’s employees. The territorial noncompete lasted for two years, and prohibited Kennebrew from working for a competing business within a fifty-mile radius of any location where he had provided services for Whelan, or arranged for Whelan to provide services.
The Missouri Supreme Court found Whelan’s customer nonsolicitation provisions overbroad and unenforceable as written, noting that they applied to all of Whelan’s existing customers throughout the nation (regardless of whether the former employees had ever dealt with them) and all of Whelan’s prospective customers from the last twelve months (regardless of how tenuous Whelan’s relationship was with these potential customers, or how detached the former employees had been from them). The Court did not hold that these provisions were per se unreasonable and unenforceable under Missouri law, but rather explained that they were overbroad and unenforceable as written under the facts and circumstances of the case. Ultimately, the Court modified the customer nonsolicit by limiting the no-solicitation of existing customers provision to those customers with whom the former employees had dealt during their employment. It also eliminated the portion prohibiting the former employees from soliciting Whelan’s prospective customers (though its decision indicates that prospective customers can be covered under certain circumstances).
The Court also held that Kennebrew’s two-year territorial noncompete was reasonable and enforceable as written, and that Morgan’s one-year employee nonsolicit was per se reasonable and enforceable under Mo. Rev. Stat. § 431.202.2. The Court found, however, that a genuine issue of material fact existed as to the enforceability of Kennebrew’s two-year employee nonsolicit under the statute. The Court noted that Kennebrew’s two-year provision fell outside of § 431.202.2’s one-year safe harbor, and there was no language in the agreement indicating that the purpose of the provision was to protect the interests set forth in § 431.202.1(3) (i.e., “[c]onfidential or trade secret business information,” and “[c]ustomer or supplier relationships, goodwill or loyalty”).
The Court’s decision in Whelan Security highlights the importance of having well-drafted noncompete agreements.