What is a Non-Compete Agreement?
A non-compete agreement in general terms is an agreement, understanding, contract, or contractual term in which an employee or prospective employee agrees not to compete against an employer or prospective employer or agrees not to accept positions with a competitor of the employer or prospective employer following the termination of a business or employment relationship between the employee or prospective employee and the employer or prospective employer.
What are the four competing concerns at issue with non-compete agreements in Missouri?
Under Missouri law, “[t]here are at least four valid and conflicting concerns at issue in the law of non-compete agreements. First, the employer needs to be able to engage a highly trained workforce to be competitive and profitable, without fear that the employee will use the employer’s business secrets against it or steal the employer’s customers after leaving employment. Second, the employee must be mobile to provide for his or her family and to advance his or her career in an ever-changing marketplace. This mobility is dependent upon the ability of the employee to take his or her increasing skills and put them to work from one employer to the next. Third, the law favors the freedom of parties to value their respective interests in negotiated contracts. And fourth, contracts in restraint of trade are unlawful.” Healthcare Services of the Ozarks, Inc. v. Copeland, 198 S.W. 3d 604, 609 - 610 (Mo. banc 2006).
When are non-compete agreements enforceable against a former employee under Missouri law?
“Missouri Courts balance these concerns by enforcing non-compete agreements in certain limited circumstances. 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. 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.”
Missouri law in this regard follows the “modern rule,” which Lord Atkinson summarized in Herbert Morris, Ltd. v. Saxelby,[1] as follows:
“He (employer) is undoubtedly entitled to have his interest in his trade secrets protected, such as secret processes of manufacture which may be of vast value. And that protection may be secured by restraining the employee from divulging these secrets or putting them to his own use. He is also entitled not to have his old customers by solicitation, or such other means enticed away from him. But freedom from all competition per se apart from both these things, however lucrative it might be to him, he is not protected against. He must be prepared to encounter that even at the hands of a former employee.”
Id., 198 S.W. 3d at 610 – 611. The employer has the burden to prove the reasonableness of the non-compete agreement. Whelan Sec. Co. v. Kinnebrew, 379 S.W. 3d, 835, 842 (Mo. banc 2012).
How are trade secrets defined under Missouri law?
“A ‘trade secret’ can be ‘any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.’” Sigma-Aldrich Corp. v. Vilkin, 451 S.W. 3d 767, 773-74 (Mo. Ct. App. 2014).[2] “Missouri Courts have found the following factors should be considered in determining whether the given information 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 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.” Copeland, 198 S.W. 3d at 610-11. “The burden of proof rests upon an employer to substantiate its asserted interest in its trade secrets.” Mo-Kan Central Recovery Co. v. Hedenkamp, 671 S.W. 2d 396, 400 (Mo. Ct. App. 1984). And “[e]vidence of purported ‘trade secrets’ must be more than general assertions, but must be sufficiently specific to allow a determination by the court.” Id. “Matters of public knowledge or information that are generally known within a given industry cannot be appropriated as a trade secret.” Sigma-Aldrich, 451 S.W. 3d at 774. Lastly, “[t]he protection does not extend to knowledge that is a natural product of the employment or known throughout the industry.” Id.
What are “Customer Contacts” under Missouri law?
Under Missouri law, “[c]ustomer contacts have been defined as essentially the influence an employee acquires over his employer’s customers through personal contact.” Copeland, 198 S.W. 3d at 611. “The quality, frequency, and duration of an employee’s exposure to an employer’s customers are crucial in determining the covenant’s reasonableness.” Id. “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.” Id.
Are there time limits on how long non-compete agreements can keep former employees from working for a competitor?
As set forth above, non-compete agreement are enforceable to the extent they can be narrowly tailored geographically and temporally. Pursuant to Missouri statute, employee covenants are presumed to be reasonable if their postemployment duration is no more than one (1) year.[3] Consequently, non-compete agreements longer than one (1) year require closer examination.
Are there also geographic limitations on the enforcement of non-compete agreements?
Under Missouri law, courts can enforce non-compete agreements without geographic limitation when other limitations on the prohibited conduct exist. Sigma-Aldrich, 451 S.W. 3d at 771. This means that a balancing act is required. The broader the non-compete covenant is geographically then the more specific the non-compete agreement must tailor the work or conduct the former employee must avoid. The narrower the non-compete is geographically then the broader the limitations may be on the work or conduct the employee must avoid.
What is the future of non-compete agreements in Missouri?
House Bill No. 1201 that was introduced in the 101st General Assembly of the Missouri legislature that would have made non-compete agreements void and unenforceable appears to have died with the end of the session. Whether this bill will be re-introduced or not is anyone’s guess.
Since matters such as trade secrets and “customer contacts” are complicated and ruled on a case-by-case basis, it can be helpful to hire an attorney that specializes in such areas. Cosgrove Law Group has experience dealing with these questions. If you are an employee being threatened with the enforcement of a non-compete agreement against you, or a prospective employee that wants a legal review of one before it is signed and would like to speak with one of our licensed attorneys, call 314-563-2490.
[1] [1916] 1 A.C. 688, 702.
[2] A “trade secret” is also defined by Missouri statute as information, including but not limited to, technical and non-technical data, a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Section 417.453(4), RSMo (2020).
[3] Section 431.202(2), RSMo (2020).