Earlier this year, Alabama adopted a new non-compete and non-solicitation statute, repealing Section 8-1-1 of the Alabama Code (hereinafter “the New Act”). Although the New Act preserves the current presumption against contracts in restraint of trade, it is even more restrictive than its predecessor.
The New Act specifically authorizes the following contracts to the extent they “preserve a protectable interest”:
The legislative committee comments note that a specified geographic area may encompass the entire state, “depending upon the specific facts and circumstances.”
Most notably, the New Act sets forth presumptively reasonable time limits for non-compete and non-solicitation agreements. One year is presumed to be reasonable for agreements preventing the seller of the good will of a business from competing against or soliciting the buyer’s customers. Two years is presumed to be reasonable for non-compete agreements. Finally, 18 months is presumed to be reasonable for non-solicitation agreements.
As noted above, these type of agreements allowed by the New Act are only enforceable if they preserve a protectable interest. Included in the New Act’s definition of “protectable interests” are the following:
It should be mentioned that the New Act recognizes that “job skills,” in and of themselves, without more, are not protectable interests.
There is an unanswered question of whether the New Act applies retroactively. More likely than not, however, it will not be applied by courts retroactively for two reasons. First, Alabama courts do not apply state law retroactively if they impact substantive rights (as opposed to procedural or remedial rights). A strong argument can be made that the rights involved in restraints of trade are substantive and thus, not subject to retroactive application. Second, Alabama courts typically do not apply statutes retroactively unless the statute contains an express provision for retroactive application, which the New Act does not.
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