Stricken language would be deleted from and underlined language would be added to present law.
1 State of Arkansas
2 94th General Assembly A Bill
3 Regular Session, 2023 HOUSE BILL 1628
4
5 By: Representatives S. Meeks, Gazaway
6 By: Senator M. Johnson
7
8 For An Act To Be Entitled
9 AN ACT TO PROHIBIT COVENANT NOT TO COMPETE
10 AGREEMENTS; TO AMEND THE LAW CONCERNING A COVENANT
11 NOT TO COMPETE AGREEMENT; AND FOR OTHER PURPOSES.
12
13
14 Subtitle
15 TO PROHIBIT COVENANT NOT TO COMPETE
16 AGREEMENTS; AND TO AMEND THE LAW
17 CONCERNING A COVENANT NOT TO COMPETE
18 AGREEMENT.
19
20
21 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS:
22
23 SECTION 1. Arkansas Code § 4-75-101 is amended to read as follows:
24 4-75-101. Covenant not to compete agreements — Prohibited — Definition.
25 (a) A covenant not to compete agreement is enforceable if the
26 agreement is ancillary to an employment relationship or part of an otherwise
27 enforceable employment agreement or contract to the extent that:
28 (1) The employer has a protectable business interest; and
29 (2) The covenant not to compete agreement is limited with
30 respect to time and scope in a manner that is not greater than necessary to
31 defend the protectable business interest of the employer.
32 (b) For the purposes of subsection (a) of this section, the
33 protectable business interest of the employer includes the employer's:
34 (1) Trade secrets;
35 (2) Intellectual property;
36 (3) Customer lists;
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1 (4) Goodwill with customers;
2 (5) Knowledge of his or her business practices;
3 (6) Methods;
4 (7) Profit margins;
5 (8) Costs;
6 (9) Other confidential business information that is
7 confidential, proprietary, and increases in value from not being known by a
8 competitor;
9 (10) Training and education of the employer's employees; and
10 (11) Other valuable employer data that the employer has provided
11 to an employee that an employer would reasonably seek to protect or safeguard
12 from a competitor in the interest of fairness.
13 (c)(1) The lack of a specific or defined geographic descriptive
14 restriction in a covenant not to compete agreement does not make the covenant
15 not to compete agreement overly broad under subdivision (a)(2) of this
16 section if the covenant not to compete agreement is limited with respect to
17 time and scope in a manner that is not greater than necessary to defend the
18 protectable business interest of the employer.
19 (2) The reasonableness of a covenant not to compete agreement
20 shall be determined after considering:
21 (A) The nature of the employer's protectable business
22 interest;
23 (B) The geographic scope of the employer's business and
24 whether or not a geographic limitation is feasible under the circumstances;
25 (C) Whether or not the restriction placed on the employee
26 is limited to a specific group of customers or other individuals or entities
27 associated with the employer's business; and
28 (D) The nature of the employer's business.
29 (d) A post-termination restriction of two (2) years is presumptively
30 reasonable as to length of time under subdivision (a)(2) of this section
31 unless the facts and circumstances of a particular case clearly demonstrate
32 that two (2) years is unreasonable compared to the employer's protectable
33 business interest.
34 (e)(1) In a private court action, a court may award the employer
35 damages for a breach of a covenant not to compete agreement, appropriate
36 injunctive relief, or both, if appropriate.
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1 (2) The immediate harm associated with the breach of a covenant
2 not to compete agreement shall be considered irreparable to establish the
3 appropriateness of a preliminary injunction.
4 (3) This subsection does not limit:
5 (A) Any other defense available to a party against a claim
6 for preliminary injunctive relief; or
7 (B) An employer's right to monetary damages for breach of
8 a covenant not to compete agreement.
9 (f)(1) If restrictions in a covenant not to compete agreement are
10 found to be unreasonable and impose a greater restraint than is necessary to
11 protect the protectable business interest of the employer under subdivision
12 (a)(1) of this section, the court shall reform the covenant not to compete
13 agreement to the extent necessary to:
14 (A) Cause the limitations contained in the covenant not to
15 compete agreement to be reasonable; and
16 (B) Impose a restraint that is not greater than necessary
17 to protect the protectable business interest.
18 (2) The court shall enforce the covenant not to compete
19 agreement under the reformed terms and conditions.
20 (g) An employee's continued employment is sufficient consideration for
21 a covenant not to compete agreement.
22 (h)(1) This subsection does not apply to a covenant not to compete
23 agreement that is ancillary to other contractual relationships, including any
24 type of agreement for the sale and purchase of a business, franchise
25 agreement, and any other agreement not ancillary to an employment
26 relationship or employment contract.
27 (2) Existing common law standards governing a covenant not to
28 compete agreement outside the employment background shall remain in effect.
29 (i)(1) This section shall not apply to other types of agreements
30 between employers and employees that do not concern competition or
31 competitive work, including:
32 (A) Agreements not to solicit, recruit, or hire employees;
33 (B) Confidentiality agreements;
34 (C) Nondisclosure agreements; and
35 (D) The terms and conditions of an employment or
36 employment agreement.
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1 (2) Existing common law standards governing these types of
2 agreements shall remain in effect.
3 (j) This section shall not:
4 (1) Be read to impair, limit, or change a party's protections
5 and rights under the Arkansas Trade Secrets Act, § 4-75-601 et seq.; or
6 (2) Apply to a person holding a professional license under
7 Arkansas Code Title 17, Subtitle 3.
8 (a)(1) A "covenant not to compete" means a covenant or agreement,
9 including a provision of a contract of employment, between an employer and
10 employee that restrains, prohibits, or otherwise restricts an individual's
11 ability, following the termination of the individual's employment, to compete
12 with his or her former employer.
13 (2) A covenant not to compete includes every written or oral
14 covenant, agreement, or contract by which an employee or independent
15 contractor is prohibited or restrained from engaging in a lawful profession,
16 trade, or business of any kind.
17 (3) A covenant not to compete does not include a:
18 (A) Nonsolicitation agreement;
19 (B) Confidentiality agreement;
20 (C) Covenant prohibiting use or disclosure of trade
21 secrets or inventions;
22 (D) Covenant entered into by a person purchasing or
23 selling the goodwill of a business or otherwise acquiring or disposing of an
24 ownership interest; or
25 (E) Covenant entered into by a franchisee when the
26 franchise sale complies with the Arkansas Franchise Practices Act, § 4-72-201
27 et seq.
28 (b) A covenant not to compete agreement is prohibited in this state.
29 (c) An individual who makes an agreement with an employer, whether in
30 writing or verbally, not to compete with the employer after the employment
31 relationship has been terminated, shall be permitted to engage in the same
32 business as that conducted by the former employer or in a similar business as
33 that conducted by the former employer as long as the former employee does not
34 directly solicit the sale of goods, services, or a combination of goods and
35 services from the established customers of the former employer.
36
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