Restrictive Covenants in Arizona Employment

In today’s information-driven business environment, Arizona employers often rely on restrictive covenants to protect their confidential information and customer relationships. These agreements limit employees’ ability to compete with the employer after the term of employment ends. However, Arizona law takes a balanced approach when it comes to enforceability of such agreements, recognizing both the employer’s interest in protecting its business and the employee’s right to earn a living. 

There are three main types of restrictive covenants commonly found in Arizona employment agreements:

• Non-compete agreements — Non-competes prevent former employees from working for a competitor within a specific geographic area for a set period of time. Arizona courts generally will enforce these agreements only if they are narrowly tailored to protect a legitimate business interest, such as trade secrets or highly specialized customer relationships.
• Non-solicitation agreements — These agreements restrict former employees from soliciting the employer’s clients or other employees for a certain period of time. Arizona courts are more receptive to non-solicitation agreements, as they protect the employer’s investment in building customer loyalty and are not interruptive of the former employee’s career advancement.
• Non-disclosure agreements — NDAs prohibit former employees from disclosing the employer’s confidential information, such as trade secrets, customer lists or marketing strategies. Arizona courts readily enforce non-disclosure agreements, as long as the information being protected is truly confidential.

Factors Considered for Enforceability

When an employer seeks to enforce a restrictive covenant, the court will weigh the following factors to determine its reasonableness:

• Legitimate business interest — The employer must have a legitimate business interest justifying the restriction. This could include trade secrets, customer goodwill, or a specialized workforce.
• Geographic scope — The territory covered by the covenant must be limited to what is truly necessary to protect the employer. Restrictions that encompass a vast area are unlikely to be upheld.
• Time period — The duration of the restriction should be no longer than necessary to protect the employer’s interest. Courts typically look at such factors as the time it takes to train a replacement employee or to develop customer relationships.
• Employee’s harm — The covenant should not unduly burden the employee’s ability to earn a living in their chosen field. Courts consider the employee’s skill set, experience level and the availability of alternative jobs in the area.
• Public interest — The covenant cannot unreasonably harm competition or the public’s access to essential services.

If a court finds any part of a restrictive covenant is unreasonable, it may apply what is known as the “blue pencil rule” — crossing out that part of the agreement and upholding the rest. 

An experienced employment law attorney can help Arizona businesses draft enforceable covenants that protect their legitimate business interests while complying with state law. Additionally, if an employer needs to enforce a restrictive covenant against a former employee, an attorney can guide them through the legal process. 

Law Offices of Donald W. Hudspeth P.C. assists Arizona businesses with the development and enforcement of restrictive covenants. To schedule a consultation, call our Phoenix firm today at 866-696-2033 or contact us online.