If you use non-competes, make sure you complete all the steps to make them enforceable. It may be your practice to ask the employee to sign it and then not sign it yourself. While we seldom see challenges to this practice, the Alabama Supreme Court recently took an unusually close look at this issue, clarifying Alabama’s non-compete statute.
The Facts of the Case
During their hiring process, the employer presented various agreements to an employee, and a few of them were explicitly connected. Specifically, the employer presented an Employment Agreement that had two attachments. (Addenda 1 and Addenda 2). The employee signed Addenda 1 and so did the employer. Some time later, the employee signed the Employment Agreement and Addenda 2 (which contained the non-compete), but the line for the employer signature was left blank on both. Nearly two years later, the employee resigned and began working for a competitor of the employer. The employer then sought to enforce the non-compete in Addenda 2.
The Alabama Supreme Court Decides a Noncompete Has to Be Signed by All Parties
Alabama’s non-compete statute provides that a valid non-compete agreement
“shall be reduced to writing, signed by all parties, and be supported by adequate consideration.”
The statute does not say what constitutes signing. It was not totally clear whether this required an actual physical signature or, like in other contexts outside of non-competes, there were alternative ways to show that all parties consented to an agreement. The Alabama Supreme Court clarified what this statute means and held that, under these circumstances, the non-compete was unenforceable because the employer did not physically sign the addendum that contained the non-compete agreement. This case signals that other arguments about what constitutes “signed by all parties” will generally no longer be enough. Instead, an actual signature is now best practice. The opinion contains a strongly worded dissent, indicating that this may be a blip on the radar. However, until we get another Alabama Supreme Court case overturning or further clarifying this one, this is the law.
If you use non-competes in Alabama, here are a few steps to consider:
- Review any form non-compete agreements and make sure that you have included a signature line for both the employee and your company representative.
- Check existing non-competes to identify any that don’t have all of the signatures. If you have not been signing your non-compete agreements or any addendum to agreements that contain non-compete provisions, go ahead and sign them.
- Sign all your non-competes from now on.