Are non-compete agreements enforceable in Arizona?

A non-competition agreement (or “NCA” for short) is an essential component of any employment contract. NCAs can safeguard a successful veterinary practice by restricting a former employee’s ability to join a competitor after termination. For example, a typical NCA may restrict an employee from competing with the employer’s business within a 10-mile radius for 2 years, depending on the size and location of the practice. Without a well-drafted NCA, a former employee is free to use all of the experience and knowledge gained from the employer in opening his or her own practice, or to join a competitor and compete directly with the employer’s practice.

Frequently we are asked, “What time period or what distance from my practice is legal for a non-competition restriction?” Unfortunately, there are no bright-line rules for time or geographic distances in employee non-competition agreements.  NCAs are generally disfavored under Arizona law.  An NCA will be enforceable only if the employer has a legitimate business interest in preventing the former employee from competing directly with the practice. An NCA designed to prevent any competition with the business would be unenforceable, and would cause a hardship if the employee is prevented from finding any gainful employment in their field. NCAs must be reasonable in both geographic and time restrictions, and will generally not be enforced if they are broader than necessary to protect the legitimate business interests of the employer. What is considered “reasonable” varies from case to case, and should be determined after consultation with a competent business attorney to ensure that the NCA is enforceable if challenged.

Employers should take the following steps to ensure that non-competition agreements (NCAs) are enforceable against former employees:

  • Include the terms of the NCA in the initial offer letter to the employee
  • Narrowly draft the NCA to be limited in scope, based on the legitimate business interests of the employer
  • Upon hiring, have the employee sign the NCA and keep a copy on file while the NCA remains in effect
  • Upon termination, issue a termination letter reminding the employee of his or her obligations under the NCA

In addition to an NCA, employers may also want to include provisions in their employment contracts to protect confidential and proprietary information following termination, and a non-solicitation provision to prevent the former employee from soliciting current or former clients of the practice. These added protections will allow the employer to take appropriate legal action if a former employee mishandles confidential information or attempts to solicit business from the practice after termination.