Many employers require employees to sign non-compete agreements as a condition of employment. Although any non-compete agreement is strictly construed by the courts to ensure compliance with Alabama law, one issue that arises on occasion is when a non-compete agreement can be signed in Alabama, and still be valid.
Last week, the 11th Circuit Court of Appeals issued an opinion addressing the question of whether a non-compete agreement can be signed BEFORE employment begins and still be valid. The answer is no. In Dawson v. Ameritox LTD., 2014 WL 3361169 (C.A.11(Ala.)), Dawson was hired by Ameritox in 2011 as an Associate Director of Medical Affairs, with his employment beginning on April 11. He executed a Confidentiality and Non-Competition Agreement on April 7, 4 days before his employment began. The Agreement restrained Dawson from working for a number of competitors, including Millennium, for 1 year after his employment ended with Ameritox. Ameritox alleged that during his employment, Dawson received “highly confidential, proprietary and sensitive information related to Ameritox’s technology, research and strategic business plan.” In December, 2013, Dawson gave notice of his resignation, and told his manager that he was accepting employment with Millennium.
Dawson filed a lawsuit asking the court to declare that the Agreement was unenforceable, and Ameritox filed counterclaims, including a request for injunctive relief in an attempt to enforce the non-competition provision of the Agreement. The trial court found, and the 11th Circuit upheld, that because the Agreement was signed BEFORE employment began, it was NOT enforceable. Prospective employment is not sufficient consideration for a non-compete agreement in Alabama.
Practice pointers. Courts in Alabama are reluctant to enforce non-compete agreements. In Dawson’s case, by signing the Agreement BEFORE employment began, the court made it clear that prospective employment cannot provide sufficient consideration to make the Agreement enforceable. Unlike a number of other states, Alabama courts are clear that continued employment IS sufficient consideration for a non-compete agreement. There is at least one other form that must be completed Post-Employment: the federal I-9 form. The safest approach for employers in Alabama is to have all required forms signed after employment begins.