Oklahoma Non-Compete Law: What You Need to Know

A Primer on Non-Competes

Non-compete agreements are contracts between employers and employees in which an employee agrees not to work for a competitors of the employer, or to start a competing business. Generally, non-compete agreements also include a time limitation , usually ranging from one to three years. There are several other restrictions which employers may place in non-compete agreements. These can include a geographical limitation. In Oklahoma non-compete agreements are enforceable; however they are presumptively invalid. This places the burden on the employer to show that that the agreement as a whole is reasonable.

Non-Compete Contract Enforceability in Oklahoma

Oklahoma is one of the states which has developed its non-compete law through judicial decisions rather than legislation. This has left it more open to policy variation and uncertainty regarding judicial interpretation than states which have legislated in the area. Oklahoma courts have held that a covenant not to compete will not be enforced: (1) If the restraint is broader than necessary to protect the goodwill acquired by the employer’s business; (2) If the restriction is greater than necessary to secure an adequate remedy for a noncompetition clause breach; (3) If the restriction is unduly harsh on the employee; (4) If the restriction contravenes public policy; or (5) If it is otherwise not reasonable and necessary. Loeffler v. Tidewater, 219 P.2d 585 (Okla. 1950) (syllabi) (quoting Restatement of Law, Contracts, Sec. 513). See also, Casey v. Case, 474 P.2d 182 (Okla. 1970)("In its enforcement a covenant not to compete must serve the interest of justice.") In a recent decision, the Oklahoma Supreme Court upheld Covenants Signed By Employees With No Time Of Service Limit, Relying On The Statute Of Limitations For Breach Of Contract, 12 O.S. §95(A)(1), Price v. New Okla. Kicks, Inc., 348 P.3d 519 (Okla. 2014).

Enforceability Tests in Oklahoma

The enforceability of non-competes in Oklahoma hinges on a case-by-case evaluation of several critical factors. Some of the more important of these factors include the following:
The reasonableness of the duration of the restriction;
The geographic scope of the restriction;
The type of business interests involved and the nature of the business;
The extent to which the employee or contractor is involved in the goodwill, customer relationships, and/or confidential information of the company; and
The amount of money or other consideration involved.
Oklahoma courts have not ruled out non-compete agreements for partners in a business who need special protection under the circumstances. There also appear to be no restrictions in Oklahoma on "anti-moonlighting" agreements, provided those agreements contain reasonable restrictions on an employee’s ability to operate a competing business, in addition to providing a legitimate business purpose.

Employee Rights and Responsibilities

Employees often have the most interest in the reasonableness of the restrictions in any non-compete agreement. An employee evaluation of any non-compete agreement should first consider whether there is or should be a reasonable prospect of engaging in some form of competitive activity. If there is no prospect of competitive activity because of an impending retirement, the non-compete restriction may be somewhat immaterial to the employee. However, at any point when an employee might be terminated, and the likelihood of future competitive activity exists, the non-compete should be of some concern. Non-compete agreements can include provisions that restrict post-termination conduct by the employee. Such agreements must not run for an unreasonable length of time or extend beyond the territory necessary to protect the employer’s business interest, taking into consideration the nature of the business of the employer and its relationships with others. The circumstances of each situation must be considered before one can determine whether a non-compete is reasonable .
In Oklahoma, a worker who is in competition with his employer by soliciting his employer’s customers or using confidential information or trade secrets may be enjoined, prohibited from soliciting such customers or using such information or trade secrets, even if he is not currently working for that employer. In such situations if the court is satisfied that the employee has breached his duty of loyalty and trust as well as the non-compete agreement, his post termination competition can be limited or prohibited. Thus in Oklahoma non-compete agreements, as with other contracts, are subject to the familiar burdens of proof.
If it is determined that the non-compete agreement is, in fact, unreasonable, it may void or unenforceable. In situations where an employer refuses to employ or continues to employ a party notwithstanding the existence of a restrictive covenant, the question of enforceability of that agreement is moot, and the employer is free to discharge or keep employed whomever it chooses, even if the contract cannot be enforced.

Recent Developments and Case Law

Oklahoma recently joined the growing number of states that have a publicly available database of civil court cases. The database, which Oklahoma calls "OPSCN" (short for Oklahoma Public Search Civil Non-casefinder), is hosted at http://www.oscn.net. The public can now access most of the civil filings in any Oklahoma district court directly from their computer, such as a smart phone or tablet. As an employee or other interested party you can do searches for your employer and obtain case information. As an employer or other interested party you can search for other parties in cases against your employees or your competitors. As a lawyer, you can search for all cases your clients are involved in and you can find cases to download for use "as fact patterns" in your cases to point out certain facts that are favorable (or unfavorable) to your client’s case.
Obviously, this database has a broad range of other uses to a wide variety of stakeholders in the public and private sectors. I believe that it will be very useful in practicing employment law because I can do a search on a defendant that my client has sued, or on defendants who have sued my client. From the initial searches I have done on a few defendants who have sued my client, I have seen that it is possible, through this database, to quickly identify cases in which the defendants were sued for violation of restrictive covenants. From the initial searches I did, I can see the potential for OSCN to completely alter the way that employment law cases are litigated in this state. If you have been following the number of cases that are submitted to the courts in Oklahoma involving non-compete agreements over the past couple of years, you have seen a dramatic increase in the number of cases filed in the Oklahoma Courts. This increased caseload seems to be a direct result of the proliferation of common law claims for injunctive relief to enforce non-compete agreements. This is the result of a new cause of action created in 2012, by the Oklahoma Supreme Court in the case of Endo Pharmaceutical Sales, Inc. v. Gill. ENDOTEC Holdings Limited Partnership, 2012 OK 94, 293 P.3d 83. This new cause of action, which is only available to the parties to a non-compete agreement who are both subject to Oklahoma law and service in Oklahoma, is a civil action sounding in tort that is independent of the terms of the contract between the parties. This is in addition to the "breach of the contract terms" cause of action.
In Gill, the Oklahoma Supreme Court held that:
Ultimately, the recognition of this new cause of action will create a body of published opinions that did not exist, as it was not the practice in Oklahoma to use Oklahoma terms in an Oklahoma non-compete agreement if service was occurring outside of Oklahoma. The use of this tort as a tool to enforce non-competes has already resulted in a marked increase in non-compete litigation in Oklahoma.

Advice for Employees and Employers

If you are an employer asked to sign a non-compete, or if you are an employer looking to draft or enforce a non-compete, you should strongly consider consulting with an attorney experienced in the area of employment law and non-competes. An attorney can draft an enforceable non-compete agreement or, if a prior employee has violated a non-compete agreement, an attorney can help you seek the relief you deserve from a court . If you are an employee, you should carefully consider whether it is in your best interest to agree to a non-compete. Too many employees sign a non-compete agreement when no attorney is present, and later regret that they did not ask questions or raise concerns before signing. So, in order to avoid future disputes, it is always best to consult with an attorney before you sign a non-compete.