Employment: Non-Compete Agreements Invalid Except Under Three Circumstances

11.01.11

In a recent case, Scanline Medical, L.L.C., a distributor of medical products, sued to prevent Chris Brooks, a sales representative, from selling similar competitive medical devices. Scanline entered into two sales representative agreements with Brooks, where he agreed not to distribute, market, promote, or sell competing products after the termination of the agreements. After the termination of his relationship with Scanline, Brooks continued to sell similar products through a different distributor. Scanline sued Brooks for allegedly breaching the sales representative agreements. The court, ruling for Brooks, determined that the sales representative agreements violated Oklahoma public policy and were unenforceable under Oklahoma law.

In Oklahoma, companies are generally not allowed to restrain another from exercising a lawful profession, trade, or business of any kind. In Scanline, the court summarized Oklahoma law -

a non-compete agreement which prevents the former employee from any work in the same business as that conducted by the former employer or in a similar business as that conducted by the former employer is not enforceable.

There are, however, three exceptions to the general rule.

First, where the seller of an existing business sells the goodwill of the business, the seller may agree with the buyer to refrain from carrying on a similar business within a specified county and county or counties contiguous thereto, so long as the buyer carries on the business.

Second, partners may, upon dissolution of a partnership, agree that none of them will carry on a similar business within a specified county and any county or counties contiguous thereto.

Third, an employer who has a non-compete agreement with an employee, either verbally or in writing, may prevent a former employee from directly soliciting the sale of goods, services, or a combination of goods and services from the established customers of the employer. Accordingly, a non-compete agreement which precludes a former employee from dealing with established customers of the former employee is enforceable under Oklahoma law.

Bottom line: Non-compete agreements are disfavored by Oklahoma courts and are upheld in very limited circumstances. If you are negotiating non-compete agreements with employees and prospective employees, make sure the proposed agreement will be enforceable.

Our employment group is always available to answer any questions or concerns about the validity of your non-compete agreements.

By Kenneth T. Short, kshort@dsda.com

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Rebecca D. Bullard

Rebecca D. Bullard

Rebecca represents clients primarily in labor and employment litigation and counsels clients regarding everyday employment matters. 

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