Non-Compete Agreement Protection

noncompeteThe Missouri Supreme Court recently ruled that non-compete agreements between an employer and an employee are valid in certain limited situations. In its ruling, the Missouri Supreme Court stated:

Non-compete agreements are typically enforceable so long as they are reasonable. In practical terms, a non-compete agreement is reasonable if it is no more restrictive than is necessary to protect the legitimate interests of the employer. American Pamcor, Inc., v. Klote, 438 S.W.2D 287, 290 (Mo.App.1969). Non compete agreements are enforceable to the extent they can be narrowly tailored geographically and temporally. In addition, such restrictions are not enforceable to protect an employer from mere competition by a former employee, but only to the extent that the restrictions protect the employer’s trade secrets or customer contacts.

Healthcare Services of the Ozarks, Inc., d/b/a Oxford Healthcare v. Pearl Walker Copeland and Luann Helms, citations omitted.

The decision by the Missouri Supreme Court to protect the employer’s trade secrets and customer contacts is not surprising considering that in 2001, Missouri passed §431.202 which deals with the very same issues. Section 431.202.1(3) states:

A reasonable covenant in writing promising not to solicit, recruit, hire or otherwise interfere with the employment of one or more employees shall be enforceable and not a restraint of trade pursuant to subsection 1 of section 416.031 if: between an employer and one or more employees seeking on the part of the employer to protect: (a) Confidential or trade secret business information; or (b) Customer or supplier relationships, goodwill or loyalty, which shall be deemed to be among the protectable interest of the employer.

Healthcare Services, quoting Herbert Morris, Ltd., v Saxelby, citations omitted.

The Court reviewed the definition of a trade secret. The Court found that the following factors helpful in determining if the information sought to be protected is a trade secret:

(1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.

Healthcare Services, quoting Continental Research Corp. v. Scholz, citations omitted.

The Court next defined a customer contact as “essentially the influence an employee acquires of his employer’s customers through personal contact.” (Healthcare Services, quoting Schmersahl, Treloar & Co., P.C., v. McHugh, citations omitted). “The purpose of a non-compete agreement is ‘to keep the covenanting employee out of a situation in which he might be able to make use of contacts with customers to his former employer’s disadvantage.’” (Healthcare Services, quoting Osage Glass v. Donovan, citations omitted).

The Court realized that enforcing non compete agreements “...involves a delicate balance of practical business considerations. While the former employee is free to compete, the former employer is entitled to utilize non-compete agreements to protect itself from unfair competition by misuse of its trade secrets or misuse of the employee’s customers contact developed at its expense.” (Healthcare Services, citations omitted).

The Court realized that there is a difference between prohibiting the former employee from soliciting new customers versus existing customers and it specifically stated “That the issue is not reached in this case…”. (Healthcare Services, citations omitted).

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