Stricken language would be deleted from and underlined language would be added to present law.
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State of Arkansas 1
94th General Assembly A Bill 2
Regular Session, 2023 HOUSE BILL 1628 3
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By: Representatives S. Meeks, Gazaway 5
By: Senator M. Johnson 6
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For An Act To Be Entitled 8
AN ACT TO PROHIBIT C OVENANT NOT TO COMPE TE 9
AGREEMENTS; TO AMEND THE LAW CONCERNING A COVENANT 10
NOT TO COMPETE AGREE MENT; AND FOR OTHER PURPOSES. 11
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Subtitle 14
TO PROHIBIT COVENANT NOT TO COMPETE 15
AGREEMENTS; AND TO AMEND THE LAW 16
CONCERNING A COVENANT NOT TO COMPETE 17
AGREEMENT. 18
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BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS: 21
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SECTION 1. Arkansas Code § 4 -75-101 is amended to read as follows: 23
4-75-101. Covenant not to compete agreements — Prohibited — Definition. 24
(a) A covenant not to compete agreement is enforceable if the 25
agreement is ancillary to an employment relationship or part of an otherwise 26
enforceable employment agreement or contract to the extent that: 27
(1) The employer has a protectable business interest; and 28
(2) The covenant not to compete agreement is limited with 29
respect to time and scope in a manner that is not greater than necessary to 30
defend the protectable business interest of the employer. 31
(b) For the purposes of subsection ( a) of this section, the 32
protectable business interest of the employer includes the employer's: 33
(1) Trade secrets; 34
(2) Intellectual property; 35
(3) Customer lists; 36 HB1628
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(4) Goodwill with customers; 1
(5) Knowledge of his or her business practices; 2
(6) Methods; 3
(7) Profit margins; 4
(8) Costs; 5
(9) Other confidential business information that is 6
confidential, proprietary, and increases in value from not being known by a 7
competitor; 8
(10) Training and education of the employer's employees; and 9
(11) Other valuable employer data that the employer has provided 10
to an employee that an employer would reasonably seek to protect or safeguard 11
from a competitor in the interest of fairness. 12
(c)(1) The lack of a specific or defined geographic descript ive 13
restriction in a covenant not to compete agreement does not make the covenant 14
not to compete agreement overly broad under subdivision (a)(2) of this 15
section if the covenant not to compete agreement is limited with respect to 16
time and scope in a manner that is not greater than necessary to defend the 17
protectable business interest of the employer. 18
(2) The reasonableness of a covenant not to compete agreement 19
shall be determined after considering: 20
(A) The nature of the employer's protectable busines s 21
interest; 22
(B) The geographic scope of the employer's business and 23
whether or not a geographic limitation is feasible under the circumstances; 24
(C) Whether or not the restriction placed on the employee 25
is limited to a specific group of customers or other individuals or entities 26
associated with the employer's business; and 27
(D) The nature of the employer's business. 28
(d) A post-termination restriction of two (2) years is presumptively 29
reasonable as to length of time under subdivision (a)(2) of this section 30
unless the facts and circumstances of a particular case clearly demonstrate 31
that two (2) years is unreasonable compared to the employer's protectable 32
business interest. 33
(e)(1) In a private court action, a court may award the employer 34
damages for a breach of a covenant not to compete agreement, appropriate 35
injunctive relief, or both, if appropriate. 36 HB1628
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(2) The immediate harm associated with the breach of a covenant 1
not to compete agreement shall be considered irreparable to establish the 2
appropriateness of a preliminary injunction. 3
(3) This subsection does not limit: 4
(A) Any other defense available to a party against a claim 5
for preliminary injunctive relief; or 6
(B) An employer's right to monetary damages for breach of 7
a covenant not to compete agreement. 8
(f)(1) If restrictions in a covenant not to compete agreement are 9
found to be unreasonable and impose a greater restraint than is necessary to 10
protect the protectable business interest of the employer under subdivision 11
(a)(1) of this section, the court shall reform the covenant not to compete 12
agreement to the extent necessary to: 13
(A) Cause the limitations contained in the covenant not to 14
compete agreement to be reasonable; and 15
(B) Impose a restraint that is not greater than necessary 16
to protect the protectable business interest. 17
(2) The court shall enforce the covenant not to compete 18
agreement under the reformed terms and conditions. 19
(g) An employee's continued employment is sufficient consideration for 20
a covenant not to compete agreement. 21
(h)(1) This subsection does not apply to a covenant not to compete 22
agreement that is ancillary to other contractual relationships, including any 23
type of agreement for the sale and purchase of a business, franchise 24
agreement, and any o ther agreement not ancillary to an employment 25
relationship or employment contract. 26
(2) Existing common law standards governing a covenant not to 27
compete agreement outside the employment background shall remain in effect. 28
(i)(1) This section shall not apply to other types of agreements 29
between employers and employees that do not concern competition or 30
competitive work, including: 31
(A) Agreements not to solicit, recruit, or hire employees; 32
(B) Confidentiality agreements; 33
(C) Nondisclosure agre ements; and 34
(D) The terms and conditions of an employment or 35
employment agreement. 36 HB1628
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(2) Existing common law standards governing these types of 1
agreements shall remain in effect. 2
(j) This section shall not: 3
(1) Be read to impair, limit, or change a party's protections 4
and rights under the Arkansas Trade Secrets Act, § 4 -75-601 et seq.; or 5
(2) Apply to a person holding a professional license under 6
Arkansas Code Title 17, Subtitle 3. 7
(a)(1) A "covenant not to compete" means a covenant or agreem ent, 8
including a provision of a contract of employment, between an employer and 9
employee that restrains, prohibits, or otherwise restricts an individual's 10
ability, following the termination of the individual's employment, to compete 11
with his or her former employer. 12
(2) A covenant not to compete includes every written or oral 13
covenant, agreement, or contract by which an employee or independent 14
contractor is prohibited or restrained from engaging in a lawful profession, 15
trade, or business of any kind. 16
(3) A covenant not to compete does not include a: 17
(A) Nonsolicitation agreement; 18
(B) Confidentiality agreement; 19
(C) Covenant prohibiting use or disclosure of trade 20
secrets or inventions; 21
(D) Covenant entered into by a person purchasing or 22
selling the goodwill of a business or otherwise acquiring or disposing of an 23
ownership interest; or 24
(E) Covenant entered into by a franchisee when the 25
franchise sale complies with the Arkansas Franchise Practices Act, § 4 -72-201 26
et seq. 27
(b) A covenant not to compete agreement is prohibited in this state. 28
(c) An individual who makes an agreement with an employer, whether in 29
writing or verbally, not to compete with the employer after the employment 30
relationship has been terminated, shall be permitted to engage in the same 31
business as that conducted by the former employer or in a similar business as 32
that conducted by the former employer as long as the former employee does not 33
directly solicit the sale of goods, services, or a combination of goods and 34
services from the established customers of the former employer. 35
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