Covenants not to compete are utilized by employers to restrict an employee’s ability to work or to perform services of the nature to those which the employee performed for the former employer. Such covenants are generally enforceable in the State of Arizona. That being said, restrictive covenants which are likely to prevent an employee from pursuing his or her chosen vocations are disfavored and are strictly construed against the employer. Despite this disfavor, it has been clearly established that restrictive covenants which are ancillary to a valid employment contract and are reasonable in scope are typically upheld. This requires that the covenants must first be part of a valid contract of employment. Simply having an employee sign a one-page document identifying restrictions to future employment and nothing else will not be enforced by the courts. In addition, the covenants must be reasonable as to both duration of time and geographical area. An employer may not use a restrictive covenant solely to eliminate competition. Restrictions crafted for this purpose are unlikely to be enforceable in Arizona and may very well be illegal under federal law. In addition, in professions such as medicine and law, such covenants have been effectively eliminated. The duration of the restrictive covenants should be no greater than the amount of time needed to allow an employer sufficient time to train a new employee. As a general rule, the restrictions should not exceed six months in length nor exceed a geographical area of more than one county (or at most two).
Under what is commonly known as the “blue pencil” doctrine, a court has the option of modifying the stated terms of a restrictive covenant if the original terms are deemed to be unreasonable. The court may “re-write” the agreement for the parties and then enforce it under the modified terms. Many judges are unwilling to exercise their discretion to take such action and view this as an improper re-writing of the agreement. Also, the contract containing the restrictive covenants will most often contain a “choice of law” provision which identifies which states’ laws are to be used to enforce the agreement. The law addressing the enforceability of restrictive covenants differs vastly from state to state. Employers will often specify the applicable law of a state which allows broad enforcement of such covenants. The Arizona courts will not, however, apply the law of a state which has absolutely no connection to the parties or whose laws permit application of the covenants far in excess of the limitations generally permitted by Arizona courts. While California law prohibits covenants not to compete, other states permit covenants to extend over considerable geographical areas and for several years. It is unlikely that an Arizona court will adopt and enforce the law of a state which permits covenants not to compete of far greater duration or geographical area typically recognized in this state.
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Employers, Employees and Covenants Not to Compete, or any other personal injury, please feel free to contact Employment Law Attorney Brad Gardner at 480.461.5300, log on to udallshumway.com, or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.