More guidance on noncompete and nonsolicitation agreements

published in Oklahoma Employment Law Letter | January 2012

By Sharolyn Whiting-Ralston

On November 22, 2011, the Oklahoma Supreme Court handed down its most recent explanation regarding the viability of the noncompetition agreements many employers have with their employees. While the case didn't definitively change the current state of the law, it emphasizes the importance of crafting agreements and policies using the language provided in statutes as much as possible rather than creating what you believe to be similar language.

Nonsolicits may be 'OK'

The Oklahoma Legislature has made it very clear that restrictions on trade are against the public policy of the state and, with only a few exceptions, will not be upheld. That means general noncompetition agreements between employees and employers are void and unenforceable. One main exception to that rule is found in an Oklahoma statute — Section 219A — that allows an employer to enforce narrowly defined nonsolicitation agreements.

Section 219A states: "A person who makes an agreement with an employer, whether in writing or verbally, not to compete with the employer after the employment relationship has been terminated, shall be permitted to engage in the same business as that conducted by the former employer or in a similar business as that conducted by the former employer as long as the former employee does not directly solicit the sale of goods, services or a combination of goods and services from the established customers of the former employer." In other words, nonsolicitation agreements are allowed as long as they prohibit only direct solicitation of established customers.

Nitro-Lift's contract

Contrary to Oklahoma law, Nitro-Lift Technologies required a former employee to enter into a very broad noncompetition agreement. The agreement with Eddie Lee Howard prohibited him from working for a competitor in any capacity, from luring away past and current customers and suppliers, and from soliciting away or hiring any of Nitro-Lift's employees. Consistent with Section 219A and previous cases, the Oklahoma Supreme Court made clear that an employer cannot prevent a former employee from working for a competitor, nor can it prevent him from soliciting suppliers or past customers. The court then turned to the customer nonsolicitation provision of Nitro-Lift's agreement to determine if it prohibited more than the direct solicitation of established customers.

The agreement stated that the employee was prohibited from soliciting "present customers." The court debated whether the term "present" meant the same thing as "established." In doing so, it provided guidance on the meaning of "established customers," stating that the term refers to "businesses and customers wherein a relationship was ongoing and anticipated to continue into the future." The court distinguished established customers from "present customers," which could include "temporary" or one-time customers. Accordingly, the court found the nonsolicitation provision in Nitro-Lift's contract was too broad and treated it as unenforceable. Howard v. Nitro-Lift Technologies, LLC, 2011 OK 98.

What does this mean?

So why didn't the court just fix that part of the agreement and replace the word "present" with "established"? Generally, Oklahoma courts don't like to alter agreements to make them better than they were written. The Oklahoma Supreme Court recognized, however, that "[j]udicial modification is justified if the contractual defect can be cured by imposition of reasonable limitations concerning the activities embraced, time, or geographical limitations." Oklahoma courts have done just that in previous cases involving nonsolicitation agreements. The difference in this case appeared to be the fact that Howard's agreement required a lot more than just a minor modification. Had the only flaw been the use of the word "present" rather than "establish," the court might have felt differently.

The court's decision tells us two things. First, it provides a much-needed definition of the phrase "established customers." We now know that established customers are "businesses and customers wherein a relationship was ongoing and anticipated to continue into the future." Second, it reminds us that our courts take the actual language used in a statute very seriously, and employers that use different language in their own agreements may create interpretation issues. Consequently, when crafting policies or agreements, you should use the actual statutory language if possible.

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