Updated January 18, 2023
An Arkansas non-compete agreement restricts an individual’s ability to work in a specific field or industry. This is common when an employer hires an individual and shares proprietary information. The non-compete protects the business from an employee being hired by a competitor and using their learned trade secrets against them.
Laws
Legally Enforceable?
Yes, as long as the non-compete includes is it ancillary to an employment agreement to the extent that:
- The employer has a “protectable business interest”; and
- It is limited to “time and scope in a manner that is not greater than necessary to protect the business.”
Source: Ark. Code § 4-75-101(a)
Protectable Business Interest
A protectable business interest includes the employer’s:
-
Trade secrets; -
Intellectual property; -
Customer lists; -
Goodwill with customers; -
Knowledge of his or her business practices; -
Methods; -
Profit margins; -
Costs; -
Other confidential business information that is confidential, proprietary, and increases in value from not being known by a competitor; -
Training and education of the employer’s employees; and -
Other valuable employer data that the employer has provided to an employee that an employer would reasonably seek to protect or safeguard from a competitor in the interest of fairness.
Source: Ark. Code § 4-75-101(b)
Continued Employment
Arkansas recognizes continued employment as sufficient consideration for a non-compete covenant.
Source: Ark. Code § 4-75-101(g)
Maximum Term
Two (2) years is presumed to be a maximum reasonable time period after employment termination unless, “the facts and circumstances of a particular case clearly demonstrate that two (2) years is unreasonable compared to the employer’s protectable business interest.” (Ark. Code § 4-75-101(d))
In addition to the duration, a geographical area is recommended to be specified but is not required. (Ark. Code § 4-75-101(c))
Blue Penciling
Arkansas law does allow a court to reform an otherwise unreasonable to the extent necessary to:
- Cause the limitations contained in the covenant not to compete agreement to be reasonable; and
- Impose a restraint that is not greater than necessary to protect the protectable business interest.
Source: (§ 4-75-101(f)(1))
Although, the courts have stated that if the non-compete is too far-reaching that:
“our rule is that when a restriction such as this one is too far-reaching to be valid, the court will not make a new contract for the parties by reducing the restriction to a shorter time or to a smaller area.”