A few months ago, we reported on a federal court decision in the Southern District of Alabama declining to enforce a non-compete and non-solicitation agreement against a former employee who executed the agreement before he began his employment. Last week, a panel of the Eleventh Circuit affirmed the District Court’s decision in an unpublished opinion.
As we reported following the District Court’s decision, in Dawson v. Ameritox, Ltd., 2014 WL 31809 (S.D. Ala. Jan. 6, 2014), Ameritox, a healthcare company, sought to enforce non-compete and non-solicitation covenants against its former Assistant Director of Medical Science and Health Outcomes Research, Dr. Eric Dawson, who had left Ameritox for a similar position with a competitor. Although Ameritox sought a preliminary injunction against Dawson, the District Court denied the motion and ruled that the covenants in question were void and unenforceable because Dawson had executed the agreement before his employment with Ameritox began. Under Alabama Code § 8-1-1, a contract by which anyone “is restrained from exercising a lawful profession, trade, or business of any kind” is void, except that “one who is employed as an agent, servant or employee may agree with his employer to refrain from carrying on or engaging in a similar business and from soliciting old customers of such employer within a specified county, city, or part thereof, so long as the . . . employer carries on a like business therein.” Relying on the Alabama Supreme Court’s prior decision in Pitney Bowes, Inc. v. Berney Office Solutions, 823 So. 2d 659 (Ala. 2001), the District Court noted that employee non-compete agreements are valid only if signed by an employee and that prospective employment is not sufficient to meet the exception in Section 8-1-1. Thus, because Dr. Dawson was not an employee of Ameritox at the time he signed the agreements, the District Court reasoned that the agreements were void and unenforceable.
In its unpublished opinion affirming the District Court’s decision, the Eleventh Circuit agreed with the District Court, noting that Ameritox’s attempts to distinguish Pitney Bowes were unpersuasive. The Eleventh Circuit reasoned that, because the agreement was void under Alabama Code § 8-1-1, Ameritox failed to show a substantial likelihood of success on the merits. Thus, the District Court did not abuse its discretion in denying Ameritox a preliminary injunction.
The Eleventh Circuit’s panel decision reaffirms the importance of practical pointers we noted in our prior post. While it is prudent — and, in some states, required — to provide prospective employees with copies of required non-compete agreements before the employee’s first day of work, employers in Alabama should ensure that employees execute (or re-execute) such agreements on or after their first day of employment, ideally in the presence of a representative of human resources. In addition, because continued at-will employment is sufficient consideration for new restrictive covenants in Alabama, employers with operations in Alabama should consider periodically reviewing their existing restrictive covenants and requiring employees to execute new agreements from time to time as appropriate.