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Missouri Supreme Court Upholds Non-Compete But Strikes Provisions Related to Clients

In what many will view as a split decision, the Missouri Supreme Court has once again upheld the right of employers to have post-employment restrictive covenants. However, the Missouri Supreme Court ruled that a restriction which bars competition with all clients, regardless of the employee’s involvement invites scrutiny and will possibly be struck down.

The Missouri Supreme Court issued its opinion, Whelan Security v. Kennebrew, et al., Case No. SC92291 (Mo. Banc. 2012) on Tuesday, August 14, 2012, the first opinion on non-competes since Healthcare Services of the Ozarks, Inc . vc. Copeland, 198 S.W.3d 604 (Mo. 2006).

This case involved a security company and its effort to enforce a multi-pronged non-compete agreement. The employee, Kennebrew, and another employee, Morgan, had the following restrictions: a) a customer non-solicitation agreement; b) an employee non-solicitation agreement; and c) a territorial non-compete agreement.

As to the customer non-solicitation, the Court ruled that they were overly broad because they prohibited Kennebrew and Morgan from soliciting both any customer of Whelan for two years and also prohibited their solicitation of prospective customers who sought business from Whelan in the twelve months before they left employment. The Court ruled that the customer non-solicitation was a nationwide prohibition that had no geographic limitation nor was it limited by customers who Kennebrew and Morgan would have known. As a result, and based on the facts before the Court, the Court ruled that the restriction was too broad. Likewise, the Court ruled that the restriction as to prospective customers was overly broad. Had Whelan’s agreement been more limited in this regard, the Court more than likely would have upheld the agreement. The Court limited the restrictions as to customers to those that Kennebrew and Morgan dealt with.

Kennebrew and Morgan also had an employee non-solicitation agreement. These agreements can be referred to as “no raiding” agreements to prohibit a former employee from “raiding” all the employees from his former employer. In this case, the Court ruled that a one year employee non-solicit was per se reasonable and an agreement longer than one year might be reasonable if facts suggested it was for a valid purpose such as protecting customer relationships. The Court said it could not rule on the two year agreement’s enforceability since there weren’t enough facts to determine what the purpose was and it remanded that portion of the case back to the trial court.

As to the general non-compete agreement, the Court reviewed a non-compete that barred competition in a 50 mile radius of where Kennebrew worked for a period of two years. The Court upheld this as clearly enforceable in Missouri. The Court left open the issue of whether or not Kennebrew had violated it.

Today’s Takeaway:

Non-compete agreements which bar an employee from competing within 50 miles of their last place of employment for as long as two years are enforceable in Missouri. Employee non-solicits of one year or less are enforceable without question. Employee non-solicit agreements longer than one year might be enforceable. Finally, client non-solicitations that go beyond clients that an employee knew or had knowledge are unlikely to pass scrutiny with the Courts.