Obtaining Enforceable Non-Compete Agreements: Timing and Geography Matter

Last month, a federal judge in Mobile, Alabama denied an employer’s request for a preliminary injunction seeking to stop that employer’s former employee from working for an alleged competitor.  See Dawson v. Ameritox, Ltd., Case No. 13-0614-KD-M, 2014 WL 31809 (S.D. Ala. Jan. 6, 2014).  The reasons for the court’s decision have everything to do with timing and geography.  Specifically, Judge DuBose denied the injunction after finding that the employer was not likely to succeed on the merits of its claims because the non-compete agreement was signed before the employee began his employment and was therefore void under Alabama law. The employer is presently seeking an appeal of this ruling.

The former employee in this dispute, Eric Dawson, lives in Alabama and is a pharmacist by training.  Back in 2011, Ameritox, Ltd., a Maryland-based company providing services to healthcare providers, offered Dr. Dawson employment, and he accepted the offer.  Dr. Dawson worked “remotely,” meaning that he was not required to report to a particular Ameritox office.

Ameritox’s offer letter (dated March 29, 2011) listed Dr. Dawson’s official start date as April 11, 2011.  However, even before this “start date,” Dr. Dawson signed two Ameritox non-compete agreements.  One of these agreements specified that Maryland law would apply.

On December 3, 2013, Dr. Dawson gave notice of his resignation and informed Ameritox that he had accepted a position with Millennium Laboratories, Inc.  Ameritox considered Millennium to be a competitor.  When Ameritox accepted Dr. Dawson’s resignation, Ameritox told him that his non-compete agreement meant that he could not work for Millennium in the position he had accepted.

Within a week of his resignation from Ameritox, Dr. Dawson sued Maryland-based Ameritox in an action filed in state court in Mobile, Alabama and asked the court to declare his non-compete agreement(s) with Ameritox void.  In response to this litigation, Ameritox removed the action to federal court, filed a counterclaim, and asked the court for a temporary injunction preventing Dr. Dawson from working for Millennium.

However, because Dr. Dawson had signed the non-compete agreement(s) before his “start date” of April 11, 2011, the court denied Ameritox’s requested injunction and found that the non-compete agreement(s) would likely be unenforceable.  Judge DuBose’s ruling relied on Alabama Code § 8-1-1 and the Alabama Supreme Court’s decision in Pitney Bowes, Inc. v. Berney Office Solutions, 823 So. 2d 659 (Ala. 2001).  Judge DuBose explained in her ruling:   “Non-compete agreements are valid only if signed by an employee.  Prospective employment is not sufficient because a person that has been offered employment to begin in the future does not have an employer-employee relationship.”  (emphasis added).

Judge DuBose’s ruling in Dawson serves as a cautionary tale that both timing and geography may matter in obtaining enforceable non-compete agreements.  The employer had tried to apply Maryland law (which would have avoided application of Alabama Code § 8-1-1 and the Alabama Supreme Court’s Pitney Bowes decision) and had also tried to distinguish Pitney Bowes using Alabama law.  Neither approach was successful.  It remains to be seen what will happen in this particular case, since litigation is on-going and the employer is seeking an appeal.  For the moment, some “take aways” from the decision are that timing and geography can be critical — there might have been a different result if the employee had signed the non-compete agreement on his “start date” or if the employer been able to have the enforceability of its agreements determined using Maryland (not Alabama) law.

If you would like additional information on non-compete agreements and trade secrets law, please contact one of the Burr & Forman Non-Compete & Trade Secrets team members.