From: [anonymous number]
The facts identified simply favor the suing party namely LCD Backlight as their former employee seems to be in violation of the No Competition agreement as justified by the Memo. Under Arkansas common law, covenants not to compete are valid and enforceable provided they are ancillary to an employment agreement and reasonable under the circumstances ((Bendinger v. Marshalltown Trowell Co., 994 S.W.2d 468, 472 (Ark. 1999); Rebsamen Ins. Co. v. Milton, 600 S.W.2d 441, 443 (Ark. App. Ct. 1980)). Specifically, the employer must have a valid interest to protect, the geographical restriction must not be overly broad, and the time limit must be reasonable. Rebsamen, 600 S.W.2d at 443-44. To be reasonable, the restraint imposed upon one party must not be greater than is reasonably necessary for the protection of the other, and not so great as to injure a public interest (Mercy Health Sys. of Nw. Ark. v. Bicak, 383 S.W.3d. 869, 874 (Ark. App. Ct. 2011)). The validity of a non-compete agreement depends on the facts and circumstances of the case, hence each situation or case differs.
Historically, covenants not to compete were not favored by the law (Statco Wireless, LLC v. Sw. Bell Wireless, LLC, 95 S.W.3d 13, 16 (Ark. App. Ct. 2003)). Since July 22, 2015, however, statutory law has allowed courts to reform covenants deemed unreasonable. Ark. Code Ann. § 4-75-101(f)(1)(A) (West 2017) (“[T]he court shall reform the covenant not to compete for an agreement to the extent necessary to  cause the limitations contained in the covenant not to compete for agreement to be reasonable.”).
Specifically, this memo addresses whether Brite Lite has a protectable interest.
- Reasonability Based on Geographic Scope of the Non-Compete Agreement
A good place to begin the proper defense for the client is by beginning to assess the enforceability of the Non-Compete agreement based on its ability or its clauses ability to appear reasonable before a court of law. When examining enforceability based on proper rationale the state law determined that there are a few aspects that must be addressed when it comes to the No Competition Covenant with a key one being the possible geographic scope of the agreement (Hutter, 1980). In the case of the client Brite Lite it clearly states in the agreement that covers the entire geographic scope of the United States for the stipulated period of three years. Under the AR Code § 4-75-101 (2015), the clause that covers on geographical clearly stipulates that “The covenant not to compete agreement is limited with respect to time and scope in a manner that is not greater than necessary to defend the protectable business interest of the employer.” The section further adds the feasibility of the scope is subject to assessment by the court. In this case, LCD Backlight has justified their geographic scope limit by having clients in all the states. This shows their objective to ensure No competition in their home market and loss of clients does not interfere with their business interest. Hence, the findings favor the suing part
Questioning Protectable Interest on the Part of Former Employer LCD Backlight
There is also another key subject matter that needs to be discussed in the case of Mr. Thomas, and this has to do with the reasonability or validity of the agreement. In this case on the basis of the whether the clauses truly protect the Business interest of the employer, or supersede this objective (Marx, Singh, & Fleming, 2015). Under this aspect, the paper finds LCD Backlight as justified in seeking legal settlement based on the business interest taken advantage of by Mr. Thomas, namely client list, and training. In this case, all of the effort directed towards the No Competition clause should provide justification by elaborating on the protectable interest that the company has (Estlund, 2006). It is the loss of such interest to former employees that validates the need for a No competition agreement/clause (Vanko, 2002). However, Arkansas State law is very clear on the issue providing that there has to be proper critical business interest that needs to be protected (Malony, 2011). Therefore, in this case, it is highly critical to identify whether there is a valid need for the class to exist based on the company’s business interest. A proper way to do this is by simply trying to identify the factors stipulated in AR Code § 4-75-101 (2015), as present in the case of LCD Backlight. Here one should simply to try and identify whether there exists protectable interest on the part of the company, through which they suffered a loss when these were leveraged by Thomas. The main, defense that the suing party can employ under the issue of protectable interest, is simply that of client list, upon which the defendant has been found to have one former client of LCD Backlight and thus in breach of contract. However, the strength of the enforceability concerning the agreement is weak seems generally considering that the technology and business approach of the suing company is easily replicable with the rise of startups as competition being noted in this case (Glick, Bush, & Hafen, 2002). Additionally, the training aspect will also be used by the suing party as this is a protected interest under Arkansas state law governing on No Competition agreements (Conrad, 2000). Hence, considering that the company did provide the defendant Mr. Thomas with the much-needed training in the select industry or sector, the fact that the period at which the client was to abstain from offering competition had not lapsed, LCD backlight definitely has a case.
Given the factors provided above it is now possible to identify whether the suing party has a case or not. In this case, the paper has strived to examine the key aspects that give the suing party's argument weight. On one side the issue of geographical scope favors the defendant with nationwide restriction appearing to be largely unfair on the part of the client and former employee Mr. Thomas. This is largely because, the interest of the No Competition should not have or place strong limitation on the individual consenting to it (Ingram, 2002). In cases, such as Girard v. Rebsamen Ins. Co., the court has still maintained the validity and need for No Competition covenants and ensured appropriate damages are awarded to businesses that genuinely suffer from competition brought forth by former employees. What this case and the other sources that have touched on it have brought up is the need for ensuring that company interest is upheld. Therefore, given the identified information for the suit against Mr. Thomas, it is possible to identify a ruling and the rationale behind such. In this case, the paper simply identifies that there are damages owed by Mr. Thomas and these are a result of the breach of contract on the client's part by beginning prior to the lapse of the stipulated wait period. Secondly, the issue of the former LCD backlight client, which is simply identified as a protected interest under Arkansas state law dealing with No Competition covenants (Pagan, 1989). Hence, simply put would be to try and ensure that damages for this breach of contract are minimized as much as possible on the part of Mr. Thomas.
At the beginning of the Memo, the main objective was simply to establish whether the suing party LCD Backlight had a valid case against Mr. Thomas. After a thorough review of Arkansas state law as it pertains to No Competition provisions, there were key findings that helped arrive at a proper solution. The Memo simply identifies that the breach of two clauses or provisions in the agreement justifies the suit leveled at Mr. Thomas by his former employer LCD Backlight. In their argument, the former employer simply addresses two major issues. The first one is simply the fact that Mr. Thomas business which is in direct competition with his former employer has breached the contract by starting prior to the stipulated end of the wait time (August 2017). Besides, the business interest as seen by the presence of the former client as a new customer for Mr. Thomas to be liable to damages given that he had fully expressed consent of the No Competition agreement while working in LCD Backlight. Further information concerning the loss of customers to former employees is also adequately addressed by state law under the Trade Secret Act (Malony, 2011). At the heart of the argument, there is simply the need to identify whether Mr. Thomas had benefited at the expenses of his former employer LCD Backlight. To solve this issue, the Memo looked into the subject matter of protectable business interest and identified three major factors that give strength to the suing party's case. The first strong aspect is that the client received training from his former employer and prior to this was largely unaware as well as unskilled of the business approaches of the business industry. The training aspect under Arkansas state law is considered protectable business interest and may validate the No Competition covenant. Secondly, the geographical scope was properly specified in the agreement with its nationwide factor being justified by the fact that the business had a client from each state in the country.
AR Code § 4-75-101 (2015), Arkansas
Bendinger v. Marshalltown Trowell Co., 994 S.W.2d 468, 472 (Ark. 1999)
Conrad, C. R. (2000). Bendinger v. Marshalltown Trowell Co.: The Need for Compromising Competition in Arkansas: A Look at the Limits of Covenants Not To Compete. Ark. L. Rev., 53, 903.
Dawson v. Temps Plus, Inc., 987 S.W.2d 722, 726 (1999)
Estlund, C. L. (2006). Between rights and contract: Arbitration agreements and non-compete covenants as a hybrid form of employment law. University of Pennsylvania Law Review, 379-445.
Girard v. Rebsamen Ins. Co., 685 S.W.2d 526 (Ark. Ct. App. 1985)
Glick, M. A., Bush, D., & Hafen, J. Q. (2002). The Law and Economics of Post-Employment Covenants: A Unified Framework. Geo. Mason L. Rev., 11, 357.
Hutter, M. J. (1980). Drafting Enforceable Employee Non-Competition Agreements to Protect Confidential Business Information: A Lawyer's Practical Approach to the Case Law. Alb. L. Rev., 45, 311.
Ingram, J. D. (2002). Covenants Not to Compete in the Professions. Fla. St. U. Bus. Rev., 3, 11.
Madison Bank and Trust v. First Nat’l Bank, 635 S.W.2d 268 (1982)
Malony, V. J. (2011). Employment Law-The Elusive Enforceability of Employment Covenants Not to Compete in Arkansas. UALR L. Rev., 34, 593.
Marx, M., Singh, J., & Fleming, L. (2015). Regional disadvantage? Employee non-compete agreements and brain drain. Research Policy, 44(2), 394-404.
Mercy Health Sys. of Nw. Ark. v. Bicak, 383 S.W.3d. 869 (Ark. Ct. App. 2011)
Pagan, J. R. (1989). Arkansas Courts and Covenants Not to Compete. UALR LJ, 12, 57.
Rebsamen Ins. Co. v. Milton, 600 S.W.2d 441, 443 (Ark. App. Ct. 1980)
Statco Wireless, LLC v. Sw. Bell Wireless, LLC, 95 S.W.3d 13, 16 (Ark. App. Ct. 2003)
Vanko, K. J. (2002). You're Fired-And Don't Forget Your Non-Compete: The Enforceability of Restrictive Covenants in Involuntary Discharge Cases. DePaul Bus. & Comm. LJ, 1, 1.