Arkansas Appellate Decision Bolsters Enforceability of Non-Competes
A recent decision from an Arkansas appellate court raises two important issues of enforceability of non-competition agreements: (1) the enforceability of a non-compete after expiration of the contractual non-compete period and (2) the applicable standard for determining whether a valid protectable interest exists.
In Bud Anderson Heating & Cooling, Inc. v. Neil, the plaintiff Bud Anderson Heating and Cooling, Inc. (“BAHC”), a HVAC vendor and service provider, appealed a lower court’s denial of BAHC’s petition for a one-year prospective injunction seeking to enforce an expired non-compete agreement with defendant Neil, which was allegedly violated when Neil joined a competitor located within BAHC’s territory and subsequently successfully solicited a BAHC customer. Before addressing the merits of BAHC’s complaint, the appellate court considered—and ultimately rejected—Neil’s argument that BAHC’s appeal was moot since the injunction sought extended beyond the contract’s one-year-from-date-of-termination period. In so holding, the court relied on (1) caselaw from other jurisdictions finding that extension of a noncompetition period is within a court’s broad equitable powers and (2) application of the “capable-of-repetition-yet-evading-review exception to the mootness doctrine,” previously unapplied in this context.
Turning to the merits of the appeal, the appellate court found that the trial court should have applied an “able to use,” not an “actual use” standard in determining whether to grant BAHC’s injunction. Under an “able to use standard,” a petitioner need only demonstrate the ability of a former employee to use the former employer’s proprietary information to obtain an unfair competitive advantage; proof that the employee actually used such information is not required.
The Bud Anderson decision is noteworthy in two respects. First, Arkansas employers may be able to enforce non-competes after expiration of the non-compete period, thereby achieving longer non-compete periods that would ordinarily be deemed by courts unreasonable and invalid. Second, Arkansas employers seeking to enforce non-competes can take advantage of an “able to use” standard, which is easier to meet than an “actual use” standard. However, given that the Bud Anderson decision presents not one but two issues of first impression, it would not be surprising if the case were to ultimately end up before the Arkansas Supreme Court.
Notwithstanding these developments in Arkansas, employers should note that other courts have reached different conclusions on both of these issues. As always, it is critical to know the state-specific law in the applicable jurisdiction.