In July 2008, and in response to a trend by Idaho courts to limit the enforceability of non-compete agreements, the Idaho Legislature enacted Title 44, Chapter 27 of the Idaho Code entitled “Agreements and Covenants Protecting Legitimate Business Interests” (APLBI). APLBI set forth presumptions for enforceable non-compete agreements and reduced the burdens on employers who are forced to file lawsuits to enforce non-compete agreements.
As we have shared before:
Under the APLBI, Idaho employers may use non-compete agreements to protect their “legitimate business interests” by precluding “key” employees (or independent contractors) from engaging in employment that is in “direct competition with the employer’s business after termination of employment.” The APLBI has provided definitions for “key” employees and “legitimate business interests.” Non-compete agreements are also required to be reasonable in duration, geographical area and type of employment. In other words, a non-compete agreement must not impose a greater restraint than is reasonably necessary to protect an employer’s business interests.
The APLBI also sets forth several important presumptions: First, a non-compete agreement’s duration of 18 months or less is presumed to be reasonable. Second, it is presumed that a geographical limitation is reasonable if it is restricted to the areas in which an employee provided services or had a significant presence or influence. Third, it is presumed reasonable if a non-compete agreement is limited to the type of employment or line of business conducted by the key employee while working for the employer. Finally, an employee that is among the highest paid five percent of an employer’s employees is considered to be “key.”
Significantly, the APLBI expressly authorizes a court to “limit or modify” an otherwise unreasonable and unenforceable non-compete agreement to make it reasonable and enforceable. This is commonly referred to as the “blue pencil rule.” But the question remains: Will courts be more willing to modifying parties’ contractual agreements given that they are now statutorily authorized to?
Although Idaho courts have had little opportunity to interpret the APLBI in recent years, there are a few noteworthy cases that may provide additional guidance for interpretation, particularly in the context of modifying contractual agreements.
In Brand Makers Promotional Products, LLC v. Archibald, plaintiff Brand Makers asserted several claims, including breach of contract, against defendant Nathan Archibald, a prior employee and co-founder of the company. The breach of contract claim was based on allegations that Archibald breached a non-solicitation and confidentiality agreement by competing with the company and soliciting its customers.
The Brand Makers court held the agreement was unreasonable, and therefore unenforceable, because the contract imposed a greater than necessary restraint on Archibald in the company’s attempt to protect its business interests. Specifically, the court noted the contract was silent with regard to the limitation of scope of employment or line of business, and silent with regard to geographical limitations, which in turn “impose[d] a greater restraint than is reasonably necessary to protect the employer's legitimate business interests.”
Notably, the Archibald court declined to modify, or blue-pencil, the agreement, despite acknowledging its ability to do so, stating: Section 44-2703 “does not require the court to insert terms into a non-compete agreement in order to render it reasonable when such terms are absent on the face of the provision,” possibly narrowing the scope of Idaho’s blue-penciling statute, or at least, indicating the court’s apprehension to insert terms into an otherwise valid contract.
In contrast, in NAVEX Global. Inc. v. Stockwell, NAVEX sought a preliminary injunction against its former employee, and in so doing, had to establish that it was likely to succeed on the merits; that it was likely to suffer irreparable harm in the absence of such preliminary relief; that the balance of equities tips in his favor; and that an injunction is in the public interest. NAVEX brought, among other claims, a breach of contract claim. To establish a likelihood of success on the merits, NAVEX must have been able to establish the requisite elements necessary regarding a breach of contract claim. NAVEX offered evidence to show that the parties executed a valid contract, which contained a noncompetition provision. Stockwell’s contended the noncompete clause was overbroad, and therefore, unenforceable. Although not completely silent with regard to the geographical limitations, the agreement was still arguably vague, restricting NAVEX from “(1) the city, county, or geographic area in which Stockwell had a “significant presence or influence; (2) the particular region or country in which Stockwell was involved in providing Restricted Products; and (3) any city, county, or similar geographic region in which a Customer resides.” Regardless of these discrepancies and vagueness of the provision, the court held that NAVEX was indeed likely to succeed on the merits “because the noncompete clause may be modified in a manner to make it reasonable and therefore enforceable.” Evidently, the court in NAVEX seems comfortable with utilizing the blue-pencil authority awarded by Section 44-2703.
Takeaways:
- Due to the limited caselaw on APLBI, it is yet to be determined whether courts will limit the enforceability of non-compete agreements. Courts have acknowledged that the “blue pencil rule” can be used to modify an unenforceable noncompete agreement. It appears courts are hesitant to re-write the agreement or create essential provisions which were missing, however, are willing to modify an agreement in a manner to make it reasonable, and therefore enforceable.
- It would serve you well to review your non-compete agreements and make sure they fall within the presumptions set forth by the APLBI – i.e., duration, geographical area, type of employment, and key employees. This is critical because having your non-compete agreements fall within these presumptions will place the burden on your prior employee to show that their non-compete agreement is unreasonable. Further, you cannot rely upon courts to completely rewrite your non-compete agreements using the “blue pencil rule.”
- Make sure that your non-compete agreements are directed at “key” employees. Your best interests may be served by having an attorney draft the non-compete agreements for your high-level employees.
- Many other issues may arise when addressing non-compete agreements in Idaho. If you have any questions or concerns, consult your attorney for advice. It may save you time and money in the long run.
Serena Buchert and Slade D. Sokol are attorneys in the Boise, Ida. office of Parsons Behle & Latimer. Serena can be reached at 208-562-4859 or sbuchert@parsonsbehle.com. Slade can be reached at 208-562-4889 or ssokol@parsonsbehle.com.
