United States: Alabama's New Non-Compete Statute Places New Restrictions On Employers

Executive Summary: Effective January 1, 2016, Alabama passed a new non-compete and non-solicitation statute, repealing § 8-1-1 of the Alabama Code (the "New Act"). The New Act attempts to codify principles the Alabama courts have previously addressed. It sets out explicitly the types of agreements allowed, including:

  1. Agreements preventing the seller of the good will of a business from opening a competing business or soliciting the buyer's customers within a specified geographic area;
  2. Agreements preventing an employee from engaging in a similar business (i.e., a non-compete agreement), and
  3. Agreements preventing an employee from soliciting current customers (i.e., a non-solicitation agreement).

The New Act defines the "protectable interests" that can support a restrictive covenant, including access to trade secrets and certain confidential information (including pricing and customer lists); relationships with specific prospective or current customers, clients, patients or vendors; the good will associated with a business's customers, clients, patients or vendors; and specialized training that involves significant expense as long as that training is set forth in the agreement as the reason for the restraint.

The New Act explicitly permits the long-used practice of "blue penciling" by the courts, allowing a court to modify or restrict the duration or geographic scope of an agreement (without invalidating the entire agreement) where it finds either term to be excessive.

The New Act also sets reasonable time limits for restrictive covenants, including the following:

  1. Two years is presumed to be reasonable for a non-compete agreement.
  2. Eighteen months is presumed to be reasonable for a non-solicitation agreement.
  3. One year or less is presumed to be reasonable for a non-compete or non-solicitation agreement arising out of the sale of the good will of a business.

What Changes are in the New Act?

New Presumptive Time Limits. The most notable change in the New Act is the implementation of presumptive time limits of one year, 18 months, and two years, respectively, for restrictive covenants in the sale of a business, non-solicitation agreements, and non-compete agreements. The new provision regarding the sale of the good will of a business may be the most disturbing as Alabama courts have upheld non-compete and non-solicitation agreements with a term of five years that arise out of the sale of a business.

Non-solicitation Agreements are Specifically Regulated. The New Act's treatment of non-solicitation agreements is a significant change in the law. The Alabama Supreme Court held in 2006 that Alabama's prior version of § 8-1-1 did not govern partial restraints of trade. Thereafter, some courts held that non-solicitation agreements did not require identification of a protectable interest and were only governed by a notion of reasonableness in scope and duration. The New Act, however, now seems to require that an employer possess a protectable interest to enforce a non-solicitation agreement and appears to impose other requirements similar to those needed to enforce non-compete agreements.

Non-solicitation Agreements Can Apply Only to Current Customers. While the New Act applies to non-solicitation agreements, it only allows agreements prohibiting solicitation of current customers and not prospective or past customers with whom an employer hopes to establish or re-establish a relationship.

Agreements Prohibiting Employee Solicitation are Severely Limited. The New Act, while unclear on the subject, appears to regulate agreements preventing solicitation of a company's employees. Such non-solicitation agreements previously were considered partial restrictions of trade not subject to § 8-1-1. The New Act seemingly allows such agreements, while restricting their application to prevent a departing employee's solicitation of a current employee who "holds a position uniquely essential to the management, organization, or service of the business." The New Act does not define that provision, and it will be left up to the courts to interpret and to apply it.

"Commercial Entity" Replaces "Employer." The New Act applies to non-compete and non-solicitation agreements entered into by commercial entities (instead of just "employers," as provided in the prior statute). This expansion raises the questions of whether restrictive covenants may be used by non-profit, religious, and charitable entities and whether they can be applied to independent contractors. The New Act also specifically references franchises, finding that a protectable interest includes customer, vendor and client good will in connection with an ongoing franchise. This provision allows franchises to enter into restrictive covenants to protect these interests, and likely subjects those agreements to the time limits set forth in the New Act.

Does the New Act Apply Retroactively?

The New Act is silent on whether it applies to agreements entered into before the effective date, but there is a strong presumption that it does not. Alabama courts do not apply state laws retroactively if they impact substantive rights as opposed to procedural or remedial rights. The Alabama Supreme Court has also stated on multiple occasions that a statute should not apply retroactively unless it contains an express provision of legislative intent to do so. Thus, a strong presumption exists that this statute will apply only prospectively because there is no clear and explicit intention otherwise. An exception exists for statutes that are merely remedial, which are those that do not impair any contracts or vested rights and do not disturb any past transactions. The New Act's provisions reducing the normal time limits of agreements that the courts will enforce and, for example, limiting non-solicitation agreements to current customers would certainly impact substantive rights in contracts if applied retroactively. There could be an interesting debate with those who argue that the New Act is merely an attempt to codify common law principles already applied by Alabama courts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions