It’s Time to Reexamine Your Company’s Restrictive Covenant Agreement

Last month, the Arizona Court of Appeals adopted a narrow view of the enforceability restrictive covenant agreements in a case brought by Orca Communications Unlimited, LLC (“Orca”) against its former President, Ann Noder.  Orca alleged that Noder started a competitive business and solicited Orca customers in violation of the restrictive covenant agreement (the “Agreement”) she signed during her employment at Orca.

The court struck down the confidentiality, non-compete and non-solicitation covenants contained in the Agreement, finding “the covenants restrict too much information and too much activity.”  For example, the Court held that the definition of confidential information was too broad because it included public information that was only  available through “substantial searching of published literature” or that had to be “pieced together” from a number of publications or sources, as well as any information that Noder came across during her employment at Orca.  Also, the customer non-solicitation provision was deemed too broad because it prohibited the solicitation of persons or entities Orca was “planning to solicit” and former Orca customers.

While the court rejected Orca’s breach of contract claim, it allowed several business tort claims to proceed against Noder based on her alleged disloyal conduct before she resigned. 

Although the Orca case is subject to further appellate review, it is the current law in Arizona and should prompt review of your company’s restrictive covenant agreements to ensure compliance with this new legal standard.