Oklahoma Non-Compete Law: What You Need To Know

Oklahoma Non-Competes: The Basics

As a part of most every employment agreement or contractor arrangement, companies in Oklahoma – particularly in the tech space that I specialize in with the Boesen Law Firm — will require non-compete agreements, which are sometimes also referred to as restrictive covenants. These non-competes (a form of a non-solicit) are contracts in place that are meant to restrict the individual from competing with the company for an agreed upon period of time after they leave their employment. For example, a company may enter into an agreement with an employee that they unable to compete for a period of 18 months.
The non-compete agreement is one of the most important elements of the employment contract, and one that many employees often overlook. There are several forms of the non-compete agreement , and generally speaking they are an agreement whereby the employee agrees not to compete with the employer for a specified period of time after leaving their employment.
An overview of the statute regulating non-compete agreements in Oklahoma. The Oklahoma legislature passed a law that governs non-compete agreements, and in order to protect the legitimate business interest owners. The law requires that a non-compete agreement must be: Oklahoma non-compete agreements allow for so much flexibility, and the Oklahoma Supreme Court allows for non-compete agreements to extend to only certain counties, which allows you to restrain employees by geographic area. That’s something unique about Oklahoma non-competes.

The Legal Landscape of Non-Compete in Oklahoma

The legal framework governing non-competes in Oklahoma is primarily set forth in the Oklahoma Restrictive Covenants Act. The Act provides that non-compete agreements are "void" and "unenforceable" in that they are void if their terms are not meticulously complied with and are unenforceable if the restrictions fall into one of the following categories: The Act also provides that if the "extent of the time, geographical limitation or scope of activity" is determined to be unreasonable, the court shall reform any restrictions imposed to the "extent necessary to make them reasonable" and then enforce them "as reformed". The Act is the Court’s guide, if not its mandate, to narrowly construe such restrictive covenants. The Court is reluctant to create restrictions that do not exist in the contract or agreement without some clear justification for going beyond the words of the contract which essentially is what happens when the Courts re-write an unreasonably lengthy restriction to a shorter geographic timeframe. The Act does contain some guidance on unlawful restraints, but the public policy of freedom to contract will apply where the post-termination duties to protect confidentiality and refrain from solicitation following termination are typically not prohibited. Although non-competes are generally disfavored, in order to the protect the legitimate business interests of a business, courts allow limited restrictions in the form of non-solicitation and non-disclosure agreements. A proper non-compete will limit its restrictions to the period of time and geographical area where the business has an established customer base as well as its plans to expand its customer base in the immediate future. In other words, it is essential that the agreement be restricted to what is actually necessary to protect a business from having its proprietary information and trade secret poached by former employees and competitors. Non-competition provisions prohibiting employment with a competitor anywhere could be overly-broad and unenforceable.

The Enforceability of Oklahoma Non-Competes

Enforceability of a non-compete agreement is a fact question. This means that the courts begin with a presumption that the law favors competition. Therefore, courts will assess the validity of a non-compete agreement on a case-by-case basis, evaluating the specific facts of the situation.
The factors that determine whether a non-compete is enforceable in Oklahoma include the time and geographic scope of the non-compete, in addition to the legitimate business interest sought to be protected. If an employer wants to protect its customer relations, sales volume, property, or confidential information, this will be scrutinized in terms of what will be permissible.
Oklahoma courts have held that the more competitive the industry, the greater the concern about competition. And in a competitive market such as residential or business property sales, those restraints may be needed to protect legitimate interests.

Oklahoma Non-Competes: The New Developments

Representatives Tracy Jerrestadt (R-Jenks, 87th District) and Marcus McEntire (R-District 51) are working together to limit non-compete agreements in Oklahoma.
For the past several years, there has been a bill of some form introduced in the legislature that would limit the duration and scope of non-compete agreements in Oklahoma. The most recent bill, HB 1067, would:

• (1) Limit the duration of non-compete agreements to one year; and a "non-compete agreement shall cease when the employee or agent, officer or partner, whichever applies, is no longer employed by the employer.";
• (2) Prohibit "restricting competition . . . regarding all gainful employment."
• (3) Expand the list of exceptions to the general rule of enforceability of non-compete agreements by adding circumstances under which "an employee shall have the right to record his or her employment with a respective competitor".
• (4) Prohibit employers from seeking attorney fees and expenses "in relation to a non-compete agreement" unless the attorneys fees and costs were incurred in relation to "[a] breach of contract claim, proprietary information or trade secret claim, or substantive legal claim."
• (5) Require an agreement to not compete to "be reasonable .
• (6) Allow employees to disclose the existence of the non-compete agreement "for the sole purpose of pursuing or negotiating any proposed employment, and not for any other purpose."
• (7) Make void a non-compete agreement or parts of an agreement that is "unreasonable as to duration, geographical area covered or scope of activity."

An earlier bill introduced by Rep. Jerrestadt would have prohibited using non-compete agreements in employment agreements. Rep. Jerrestadt has been adamant for several years that businesses are fearful of using Tulsa and Oklahoma City as a preferred landing spots for businesses because the laws support their employees and inhibit competition with the company.
Of course, Employers have fought back against these legislative efforts. Employers argue that non-compete agreements are too important to the long term future of a company to be limited by statute. Thus far they have succeeded.
But with two similar bills being presented to the Oklahoma Legislature for the upcoming session, it’s clear the issue will draw legislation’s attention once again.
Other trends are emerging as well. Companies have become much more protective of their confidential and proprietary information. For example, they have begun using customized confidentiality and non-disclosure agreements to protect their trade secrets. In addition, there has been a trend of drafting non-compete agreements that are narrowly tailored to be able to defeat future challenges.
However, the Oklahoma courts have also become much more careful about enforcing non-compete agreements.
Thus, in the last 5 years, Oklahoma law regarding non-compete agreements has become much more uncertain than it was just a few years ago.

Non-Compete Exceptions and Alternatives

Exceptions to Enforceability: Contractual Clauses Outside the Non-Compete Framework
While the general rule in Oklahoma is that for non-competition covenants to be enforceable, they must be (1) in writing signed by the party to be charged, (2) supported by consideration, and (3) reasonable as to time and space. Okla. Stat. tit. 15, § 219. However, there are certain exceptions to this general rule. For example, an exception exists where a non-compete is necessary to protect the buyer’s right under an asset purchase agreement or the seller’s goodwill rights of the seller of a business. See Okla. Stat. tit. 15, § 219A. Liquidated damage provisions contained with these clauses may lead to the Court’s determination that the non-competition covenant is reasonable and not between a special employer and employee.
There are also contractual alternatives to non-competes that may accomplish many of the same goals. Many times, employees agree not compete but are still provided with post-employment compensation from the former employer. Similar to covenants not to compete, the parties may agree to a post-employment amount for the employees submission to the agreement. For example, if an employee is leaving one position for another position both parties may agree that the former employer will continue to pay insurance, benefits or a similar payment for an agreed upon period of time. This may serve to avoid competitive concerns while helping the employee transition to the new employer. Similarly , the parties may agree to severance payments as a means to accomplish similar ends.
There are also other contractual agreements that may accomplish similar ends. These agreements include, but are not limited to, non-solicitation agreements, trade secret agreements, confidentiality agreements and non-disclosure agreements. It is important to note, Oklahoma has a common law "inevitable disclosure" doctrine that provides that "a former employee cannot be barred from working for a competitor simply because the employee will inevitably disclose protected trade secrets to the competitor." In re NAHC, Inc., 154 F.3d 128, 136 (3rd Cir. 1998). Whether or not the disclosure of trade secrets will "inevitably" occur is determined during litigation based on the uniqueness of an employee’s skill set and what a restrictive covenant may prohibit. In other words, the inevitable disclosure doctrine does not prohibit an employer from preventing a former employee from working for a competitor if the work would place him/her in a position to disclose trade secrets. An employer may only prohibit employees from disclosing trade secrets that the employer has taken on reasonable measures to protect. Some examples of trade secret precautions include lock Keycards, ID Badges, Signing-on Confidentiality Agreements, Executives and managers secrecy provisions in Employee Policies and Procedures.

Oklahoma Non-Compete Advice For Employers and Employees

Employers
While many employers in Oklahoma may want to use non-compete agreements to protect their trade secrets and customer relationships, they must be cautious. Non-compete agreements that do not meet the requirements of the six-factor analysis set forth above are more likely to be unenforceable. There is no guarantee that any non-compete agreement will be enforced, even if it meets the legal requirements.
Employers should review their existing non-compete agreements to ensure that they satisfy all of the legal requirements. If they do not satisfy those requirements, the employer should consider revising the agreements before seeking to enforce them against a current or former employee.
An employer should also take care when considering whether to use a non-compete agreement in connection with a sale of a business. While the use of a non-compete agreement in connection with business sales is not express prohibited, it is highly disfavored under Oklahoma law and will be carefully scrutinized by the courts.
Employees
Most employees agree to sign non-compete agreements because they need employment and have little power to insist on not signing or to negotiate more favorable terms. An employee should carefully review any proposed non-compete agreement, especially the duration of the restrictions and the geographic area that they will cover once the employee leaves employment.
Employees should consult an Oklahoma employment lawyer for assistance in negotiating or analyzing the enforceability of a non-compete agreement.

Oklahoma Non-Compete Conclusion: The Future In Oklahoma

The body of law that governs non-competes in Oklahoma is not likely to substantially change in the next five to ten years. There are no pending changes to the law that would affect non-competes and it is very likely that the non-compete case law which has developed over the last 25 years will continue to govern the enforceability of these agreements for the foreseeable future. Given the uncertain nature of true non-compete law, it is important to carefully draft and limit non-competes for every position if the employer desires a valid agreement.
It is unlikely that there will be a play like the infamous U.S. Supreme Court case, IBM v. Watson, that will pit Judge versus Judge in a search for a better answer to non-compete law . The courts on the Coasts may be more willing to cut back on non-competes and consider them not only competitive restraints but also restraints on trade that stifle innovation and competition. Oklahoma as a generally business-friendly state is less likely to be the state where the law is changed to prevent all but the most narrowly defined non-compete situations. This is particularly true in considering the impact of the gig economy and the floods of new employees coming from these arrangements. It is more likely that the law will continue to become more focused on protecting the employer’s interest while giving greater rights to employees who have more than a de minimus investment in the employer’s trade secrets or confidential information.