Is Your Non-Compete Agreement Enforceable Under Oklahoma Law?
It is a staple of contract law that the non-breaching party should be compensated for the “benefit of the bargain.” However, when the bargain is struck between an employer and an employee in a non-competition covenant, ordinary contract law principles may be outweighed by policy considerations.
As in many states, non-competition covenants in Oklahoma are seen as a restraint on trade and are not favored by the courts. The Oklahoma legislature’s attitude toward non-competition covenants is reflected in Section 217 of Title 15 of the Oklahoma statutes. Section 217 provides that every contract by which any one is restrained from exercising a lawful profession, trade or business of any kind is void. The Oklahoma legislature’s idea behind Section 217 is that a person should be able to go work for a company, leave that company (whether voluntarily or involuntarily), and then go to work for a competitor in order to earn a living.
Section 217 provides two (2) narrow exceptions to the general rule that non-competes are void and unenforceable: Section 218 of Title 15 of the Oklahoma statutes, which allows the use of a non-compete agreement entered into as part of the sale of goodwill of a business; and Section 219 of Title 15 of the Oklahoma statutes, which allows the use of a non-compete agreement entered into as part of the dissolution of a partnership. I will address these exceptions in more detail in another blog post.
In 2001, the Oklahoma legislature amended Oklahoma law on covenants not to compete and provided a framework for when an employer and employee may enter into a contract that includes an enforceable covenant not to compete after an employer-employee relationship has ended. This legislation is found in Section 219A of Title 15 of the Oklahoma statutes, which provides as follows:
A. A person who makes an agreement with an employer, whether in writing or verbally, not to compete with the employer after the employment relationship has been terminated, shall be permitted to engage in the same business as that conducted by the former employer or in a similar business as that conducted by the former employer as long as the former employee does not directly solicit the sale of goods, services or a combination of goods and services from the established customers of the former employer.
B. Any provision in a contract between an employer and an employee in conflict with the provisions of this section shall be void and unenforceable.
Therefore, while an Oklahoma employer cannot prohibit or restrict a departing employee from engaging in the same business as that conducted by the employer, or going to work for a competitor of the employer, an Oklahoma employer is permitted to enter into non-solicitation agreements to prohibit or restrict a former employee from “directly” soliciting the sale of goods, services, or a combination of goods and services from the “established customers” of a former employer. A non-compete agreement written in this manner should be valid and enforceable.
The foregoing is only a summary of Oklahoma’s non-compete law as it pertains to Oklahoma employers and their employees. While Section 219A does bring some clarity to restrictive employment covenants, it does not address the following questions: (1) how long after employment is terminated may a non-competition clause be enforced?; (2) what is the geographic area in which a non-competition clause may be enforced?; (3) who is an “established customer”?; and (4) what constitutes “directly” soliciting a customer? Therefore, it is advisable to consult an attorney before drafting or entering into a covenant not to compete. Oklahoma courts have addressed some of these issues, and having an understanding as to how these laws have been interpreted and applied is essential in determining whether or not the agreement is enforceable under Oklahoma law.
In conclusion, it cannot be understated how important non-compete agreements have become today. While employers strive to protect their businesses and maintain a competitive edge by requiring their key employees to sign a non-compete agreement, employers must not unlawfully hinder the ability of those employees to find suitable employment after they leave the employ of the company. From an employee’s perspective, the terms and parameters of a non-compete agreement could be a major consideration when deciding where to go to work.
If you are an employer needing help drafting a non-compete agreement, or if you are an employee that needs help negotiating a non-compete agreement or determining if your existing non-compete agreement is valid and enforceable, then please feel free to call me at (405) 235-6500.