Alabama has a new restrictive covenant statute. A few weeks ago, Alabama Governor Bentley signed new legislation which will repeal the 1975 version of Alabama Code Section 8-1-1 titled “Contracts restraining business void; exceptions” and replace it with a new version effective January 1, 2016.
The new law stakes out the permissible scope and purpose of restrictive covenants such as non-compete and non-solicitation agreements. Unlike some other states with restrictive covenant statutes, Alabama’s new law codifies a middle-of-the-road approach to restrictive covenants. Essentially, it allows non-compete and non-solicitation clauses for many employees provided they contain reasonable restrictions. In explaining what may constitute reasonable restrictions, the new law provides a dash of certainty in an especially uncertain area of law. First, it explains that restrictive covenants must be limited to the geographic area where the company operates a similar business. Second, it also provides certainty about the appropriate temporal limitations. It says that a temporal restriction of 2 years or less in a run-of-the-mill employee/employer non-compete is presumptively reasonable. It also says that a temporal restriction of 18 months or less (or for as long as post-separation consideration is paid for that agreement; whichever is longer) in a non-solicitation of customers clause is presumptively reasonable. Finally, the statute also codifies the concept of equitable modification (sometimes loosely described as blue-penciling) and permits a court to modify restrictions that are over broad or unreasonably long to preserve the protectable interest at issue.
In light of this new law, employers should consider whether any changes are necessary to their restrictive covenants. However, because the enforceability of restrictive covenants necessarily depends on the circumstances, employers seeking to modify or implement restrictive covenants should consult with an experienced restrictive covenant attorney to determine how best to craft reasonable restrictions under the circumstances.