All about Oklahoma non compete law – from the employer and employee perspective. Is your non compete enforceable? What can an employer do to protect itself from an employee taking it property or customers? Answers to these questions and more about Oklahoma non compete law.
The law on Oklahoma non-compete agreements remains clear: non-competes are unenforeceable except in a couple of narrowily defined circumstances. That doesn’t mean some people won’t continue to try to accomplish indirectly what cannot be done directly.
This is where the back-door non compete comes in. What is a back-door noncompete?
It is a contract clause that despite not expressly limiting the former employee from working, effectively creates a market so small, it is like being prohibited from competing. Consider this example:
Employee covenants and agrees that during the period of time while employed by SMITH CO, and for a period of two years after the date of termination of such employment, whether voluntarily or involuntarily, with or without cause, the Employee shall not directly or indirectly render widget-making services of any type, including, but not limited to, traditional and Internet, to any person or entity, that during the 24-month period
immediately prior to Employee’s termination of employment with SMITH CO:
o SMITH CO provided any services to such person or entity;
o SMITH CO offered to provide any services to such person or entity; and/or
o Such person or entity requested SMITH CO to pitch or bid to provide any services.
Notice of a couple of things:
➜at first glance while the former employee is limited from providing certain services, the limitation appears to be itself limited.
➜however, the limitation is written so broadly that it could apply to nearly every customer or potential customer the former employee would encounter.
➜while the employee can open a business, she simply can’t talk with most of the universe of customers that might be natural prospects.
Its one thing for an employee to have reasonable post-employment restrictions in an employment agreement, but this clause exceeds even the most zealous restrictions I have seen.
This clause arises out of the securities industry which from my experience is notoriously thorough and probing in areas such as competition.
6. No Interference with Business.
(a) The Employee hereby agrees that from the date hereof and for a period of twelve (12) months after the termination or expiration of the Employee’s services hereunder, however occurring (the “Restricted Period”), the Employee will not (other than as an Employee of the Company and on the behalf of the Company and its Affiliates), in any manner or capacity, directly or indirectly, through or on behalf of an Affiliate (as defined above) or otherwise, (i) render any Financial Services or any other service rendered by an of the Companies (the “Competing Services”) to any present or prospective client or customer of any of the Companies, (ii) interfere with the services of any of the Companies to any of their clients, including clients introduced by the Employee to any of the Companies, (iii) solicit, induce, influence or have any other business contact with any present or prospective client or customer of any of the Companies, or (iv) induce any client of any of the Companies, to terminate or modify and/or consider terminating and/or modifying his/her/their/its relationship with any of the Companies. For the purposes of this Agreement: (i) a “prospective client” or “prospective customer” shall be one that had been specifically identified during the term of this Agreement as a prospective client or customer and in respect of whom or which the Company or any of its Affiliates had undertaken some demonstrable initiative towards being retained to render Competing Services; and (ii) a “client” or “customer” shall be one who has purchased or received or has entered into an agreement to purchase or receive for himself, itself or others, any of the Competing Services from any of the Companies at any time during the twelve (12) month period immediately preceding the termination or expiration of the Employee’s services hereunder. Notwithstanding anything to the contrary in this Agreement or otherwise and with the exception of any and all previous and/or existing clients of Employee as set forth on the attached Exhibit E, regardless of whether services are performed through any of the Company’s Affiliates any and all clients serviced by the Employee pursuant to this Agreement shall be considered clients of the Company.
(b) The Employee further agrees that during the Restricted Period, the Employee will not directly or indirectly, communicate, reveal, disclose to anyone, or use or otherwise exploit for the Employee’s own benefit or for the benefit of anyone else, the terms of this Agreement, including without limitation, the compensation paid to the Employee hereunder and the other provisions of this Agreement. In the event Employee is no longer employed by Company, the Company will be agreeable to disclosing such information to potential employers related to salary and production information upon the request from Employee.
(c) The Employee hereby further agrees during the Restricted Period, the Employee will not in any manner or capacity directly or indirectly (through or on behalf of an Affiliate or otherwise) employ any employees or agents of any of the Companies to discontinue such employment or agency or other relationship with any of the Companies unless any of the Companies terminates any such employee(s) or agent(s) and grants the Employee prior written authorization to employ such employee(s) or agent(s).
(d) The parties acknowledge that rendering Financial Services can involve, as to certain clients or customers, close personal relationships and that it is not unforeseeable that upon a termination of the Employee’s services hereunder some clients or customers may on their own initiative elect to discontinue the relationship with any of the Companies and seek to continue a relationship with the Employee. The parties also acknowledge that it is not in either parties’ interest to have a client or customer of any of the Companies discontinue its relationship with any of the Companies because of the departure of the Employee AND have the Employee be precluded by the terms of Section 6(a) from continuing a relationship with such client or customer insofar as such result would amount to a loss by both parties. Therefore, the parties agree that in any case where (i) a client or customer of any of the Companies terminates its relationship with any of the Companies (a “Former Client”), (ii) such termination has not been encouraged, solicited, or induced by the Employee in violation of his undertakings under Section 6(a), and (iii) the Former Client retains the Employee, an Affiliate of Employee or any other company, partnership, firm, association, person or other business with which the Employee and/or any of the Employee’s Affiliates has an agreement relating in any way to Financial Services (a “Successor Advisor”), to render Financial Services, then the Employee agrees to pay to the Company (or its applicable financial services Affiliate) the fees and/or commissions payable or earned by the Former Client to the Employee and/or the Successor Advisor with respect to Financial Services rendered during the first twelve (12) months after the Employee and/or Successor Advisor is retained by the Former Client. Notwithstanding anything to the contrary in this Agreement or otherwise and with exception of any and all previous and/or existing clients of employee as set forth on the attached Exhibit E, regardless of whether services are performed through any of the Company’s Affiliates, any and all clients serviced by the Employee pursuant to this Agreement shall be considered clients of the Company. By execution of this Agreement, the Employee agrees that this provision shall be binding on any Successor Advisor. Finally, the parties acknowledge and agree that it can be difficult to ascertain the circumstances of a client’s departure and the damages Company might suffer. Therefore, the parties stipulate and agree that the provisions of this Section 6(d) are reasonably calculated to compensate the Company for losses it might sustain under these circumstances and that any such payment shall constitute liquidated damages and not a penalty. The Employee agrees that during the Restricted Period it shall permit the Company to review the Employee’s books and records, and those of any Successor Advisor, relating to the identity of his or its clients and customers in order to enable Company to assure itself of the due performance by the Employee of his obligations under this Section 6. The Company agrees that it shall exercise its rights hereunder at reasonable times during regular business hours and in a manner which does not unreasonably interfere with the conduct of the Employee’s subsequent activities, to the extent properly conducted by the Employee under this Section 6, or those of the Successor Advisor. Any persistent refusal to allow such review shall suspend the Employee’s rights to perform Financial Services for a Former Client (but not the Company’s rights to recover damages on account thereof).
No one goes into a new employment situation believing it will end badly. But the facts are that all relationships are going to end; from the time the relationship starts, the clock is ticking toward the end. And by its very nature, many times the *end* comes with difficulty.
For that very reason, you must consider the end before you sign a non-compete agreement. While in many circumstances, Oklahoma non-compete agreements are unenforceable, you must be painstakingly careful.
These questions are a starting place for understanding what you are getting yourself into by signing the non-compete agreement:
1⃣ What does the agreement prohibit me from doing?
2⃣ What can I still do if I sign the agreement?
3⃣ If I am terminated without a good reason is the non-compete still enforceable?
4⃣ How likely is my employer to enforce the agreement if I leave?
In the coming days I am going to discuss each question in more detail, so check back here when you have a chance.
While I frequently post about Oklahoma non-compete agreements, I rarely use graphics to illustrate my points. This post is one of those rare occasions. I created this diagram to illustrate the flow and process I might go through in analyzing an Oklahoma non-compete agreement.
The Diagram is by no means a replacement for consulting an attorney but it should provide a glimpse at the issues and decision-making for initial analysis of a non-compete agreement controlled by Oklahoma law. Enjoy.
For more Oklahoma business law tips, sign up for the email list below.
If you have read this blog much, you have heard about Oklahoma non-compete agreements. The primary source of law on Oklahoma non-compete agreements is Title 15 O.S. section 219.A.To make the statute a little easier to read and to use, I am going to do a line by line (and at times phrase by phrase) breakdown of what it says and what it actually means. Lets start with the text of the statute:
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.
A person who makes an agreement with an employer. . .
At the heart of most relationships is an agreement and with Oklahoma non-compete law it is no different: the employee and employee must agree, there must be a meeting of the minds and each side must give the other something of value (consideration). Without an agreement, the analysis need proceed no farther.
Whether in writing or verbally. . .
The agreement can (and should) be in writing or could even be verbal. However, it is very difficult to enforce a verbal agreement for the sale of a sofa, much less a restriction on a former employee’s ability to earn a living. Get it in writing.
Not to compete with the employer after the employment relationship has been terminated,
This part targets agreements that wipe out an employee’s right to work in a job or start a business that could cost a former employer money. An agreement doesn’t have to use the word “non-compete” if it has the effect of preventing an employee from working in the field for which he is trained and qualified.
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.
Perhaps the clearest language in the statute and remarkably clear and decisive for just about any statute. A contract that has language that prohibits competition is void and unenforceable. “Void” is important because that means the language is meaningless and no one has to file a lawsuit to prove it. If the statute said “voidable” that usually means someone has to file a lawsuit challenging the language and get an order form the Court acknowledging the restriction is unenforceable.
For more Oklahoma business law tips and a steady stream of non-compete informatiom, sign up for the email list below.
One word. One word in a document that often contains thousands of words will determine whether your employment contract is enforceable or not. This principle applies whether it is the employer or the employee. What is that one word? It is Oklahoma, Texas, Pennsylvania or any other state. The word is the law of the state that controls the employment agreement.
An employment agreement usually provides something like “the laws of the State of [__________________] shall control this Agreement”. That means the parties to the agreement are choosing a particular state’s law to control how the agreement is interpreted. If both employer and employee are in the same state, the issue isn’t that significant. But when an employer has multi-state locations, the decision of which state’s law will apply is critical.
Consider the non-compete agreement. This clause typically prohibits an employee from working in any business that competes with a previous employer. Most non-compete restrictions are broad and have the effect of shutting off an employee’s option of working in a particular industry. Non-compete restrictions are, however, not treated the same in every state. For example, an Oklahoma non-compete agreement is essentially void except for a few limited circumstances. But in the state of Pennsylvania, the law is much different and probably would allow most reasonable non-compete agreements.
It all comes down to that one word: Is it Oklahoma or Pennsylvania? The answer will likely determine whether the non-compete agreement is enforceable or unenforceable. Be careful in the words you choose when negotiating and signing a contract. If you need any help, please contact me because I deal with these issues on a daily basis.
Q: What is a non-disclosure agreement?
A: Any agreement that prohibits or limits an individual’s ability to share information or knowledge. Typically, non-disclosure agreements are used in a setting where confidential and proprietary information or novel ideas are shared.
Q: Do Oklahoma courts enforce non-disclosure agreements between businesses and individuals?
A: Yes. A properly drafted non-disclosure agreement signed between employer and employee or a business and a contractor is enforceable.
Q: What is the different between a non-compete agreement and a non-disclosure agreement?
A: A non-compete agreement prohibits an employee from working in a specific industry or field or with certain businesses. A non-disclosure agreement prohibits an employee or individual from using or disclosing certain confidential information.
Q: What are some critical questions to ask before signing a non-disclosure agreement?
A: Is the definition of “confidential information” specific enough to be workable?
Is the material being protected actually worthy of protection?
Which state’s law is the agreement going to be controlled by?
Who is allowed to see the confidential information?
To get information like this by email, sign up for our mailing list.
For a term that is used as much as “non compete” I think the details of the agreement and parameters are not well understood. One way I am trying to help in this area is by offering a collection of posts titled “Oklahoma Non-Compete Agreements.” You can find an index to the posts below and watch the video above for a brief explanation of the series.
Over past year I have written several articles about non-compete agreements under Oklahoma law. Below is a collection of the links to each article and a snippet of the article. You can access the full articles from here and also bookmark this page to ensure that you can always access all the articles.
Is my Oklahoma non compete agreement enforceable?
The short answer is that if you are in Oklahoma the non compete agreement it is not enforceable. With a couple of exceptions, Oklahoma law is clear that an individual is allowed to work in his or her chosen business or industry even if a piece of paper says otherwise. While competition is allowed, Oklahoma law prohibits a former employee from soliciting the established customers of the former employer.
Non compete Agreements are still not OK in Oklahoma
I wrote a few months ago about how Oklahoma law prohibits non compete agreements for former employees and touch on exceptions here. Yesterday, the Oklahoma Court of Civil Appeals reiterated that any agreement which restricts a former employee’s ability to work in the same field as the former employer is void under Oklahoma law.
4 critical points to consider in a non disclosure agreement [before you sign it]
1. Is the definition of “confidential information” specific enough to be workable? For the non disclosure agreement to have any value, both sides must understand what is being protected. I routinely see non disclosure agreements that have wonderfully frightening all inclusive definitions of “Confidential Information.”