Arkansas Enacts Noncompete Law

Author: Marta Moakley, XpertHR Legal Editor

April 14, 2015

Arkansas has enacted Senate Bill 998, a law that clearly explains when covenants not to compete, or noncompete agreements, would be enforceable in the context of an employment relationship. In a remarkable change from current rulings, the new law enables courts to "blue pencil," or reform, an agreement to make it enforceable if the agreement's provisions are ruled to be overbroad. This legal change may assist an Arkansas employer that previously struggled to find the exact wording to make noncompetes broad enough to protect business interests effectively and yet narrow enough to pass legal scrutiny.

Although Arkansas law has historically disfavored noncompete agreements as an undue restraint on trade, state courts would routinely enforce noncompete provisions if their duration and geographic scope were reasonable under the particular circumstances of a case. However, if any part of the agreement were deemed too restrictive or unreasonable, then an Arkansas court would invalidate the entire agreement. Under the new law, an Arkansas court will be able to reform the agreement to more adequately tailor the restrictions in order to comply with the law.

The new law allows employers to enforce noncompete agreements that address protectable business interests, which are defined expansively and include:

  • Trade secrets;
  • Intellectual property;
  • Customer lists;
  • Goodwill with customers;
  • Knowledge of business practices;
  • Training and education of employees; and
  • Other confidential business information that is proprietary and increases in value from not being known by a competitor.

The new statute specifically addresses noncompete provisions within the employment law context. However, existing common law standards continue to apply with respect to other contractual relationships, such as those concerning the sale of a business or a franchise agreement.

In addition, the law does not apply to certain employees that hold professional licenses in medical fields. Finally, the law does not concern confidentiality agreements or nondisclosure agreements, which generally do not result in a restraint of trade. However, an employer should be mindful that federal agencies, such as the Securities and Exchange Commission, continually regulate these agreements.

The new law will take effect on August 6, 2015.