Enforceability of non-competition agreements between employers less than certain under Oklahoma law

published in McAfee & Taft EmployerLINC | March 21, 2023

Most Oklahoma employers are familiar with the fact that the state has one of the strictest laws in the nation as it pertains to non-compete agreements between employers and employees.  But what about non-competition or non-solicitation agreements between two employers?

While not routinely used in the course of ongoing company operations, there is a time and place for them.  For example, these agreements are commonly executed before negotiations regarding potential mergers or acquisitions.  They are also often included in contracts between employers and staffing agencies.  Often they contain non-solicitation or no-poaching provisions that prohibit either employer from hiring the employees of the other.

While the general enforceability of traditional non-compete agreements between a company and an employee is relatively straightforward in Oklahoma, the enforceability of non-solicitation or no-poaching agreements between two employers is less than certain and subject to debate.

As an initial matter, it is important to recognize that these are not non-solicitation agreements between an employer and employee. As such, these provisions are not enforceable under Okla. Stat. tit. 15, § 219(B), which states “A contract or contractual provision which prohibits an employee or independent contractor of a person or business from soliciting, directly or indirectly, actively or inactively, the employees or independent contractors of that person or business to become employees or independent contractors of another person or business shall not be construed as a restraint from exercising a lawful profession, trade or business of any kind.”.

These agreements, however, may be enforceable under Okla. Stat. tit. 15, § 217 or Okla. Stat. tit. 79, § 203. Both of these statutes generally prohibit contracts that impose restraints on the exercise of a lawful profession, trade or business. It’s important to note, though, that  both have been interpreted by Oklahoma courts as prohibiting only unreasonable restraints.

The question of whether a provision imposes an unreasonable restraint is highly fact-intensive. As such, Oklahoma courts apply the “rule of reason” test, which involves consideration of the relevant market, the effect of the restraint on competition within the market, whether the effect is anti-competitive, and whether there are benefits that outweigh that effect. The analysis often involves evidence of the nature of the competing businesses, the relevant labor pool, the experience of the particular individuals involved, etc. Because these questions are resolved only by consideration of specific facts at issue in a particular dispute, these claims are typically not resolved by motions to dismiss. Motions for summary judgment regarding these types of disputes are also routinely denied.

As of yet, we have no definitive pronouncement of applicable law that would preclude the inclusion or attempted enforcement of these types of provisions. Including provisions like this in agreements could certainly deter a contracting party from engaging in the purportedly prohibited behavior. Employers are advised to obtain advice of counsel regarding the likelihood of enforcement prior to taking steps to address breach of these provisions.