No Hire Provisions Upheld by Alabama Supreme Court

Posted on December 26, 2006

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On December 15th, the Alabama Supreme Court in Ex Parte Howell Engineering and Surveying, Inc. upheld the enforceability of “no hire” clauses regardless of whether the employee involved in the situation has a non competition agreement. The no hire provision involved is a fairly typical no hire provision:

Contractor and Crown mutually agree not to solicit nor hire individuals actively employed by the other party’s respective organization during and for a period of one (1) year following termination of this Agreement, without the prior written consent if the other party, which consent will not be unreasonably withheld.

Previously, certain cases suggested that an underlying non compete agreement for the employee in question was required. However, the court in this case found the provision enforceable, regardless of such underlying agreement.

I have seen a number of instances where such a clause is effective and useful. Consulting companies often provide significant value to clients in locating and staffing projects. Without ‘no hire’ provisions in their contracts, a huge incentive arises to circumvent the original placement company in this context, and such acts are detrimental to the business.

However, I have concerns about this decision and the Alabama case law, which increasingly favors these restraints on alienation. First, the employee in this case is not a party to this contract. As the case law now stands, companies can make agreements concerning the livelihood of persons who have no say in the matter. From an employee’s perspective, your ability to move to another company is being restricted – without your consent. (See this article about this perspective and the antitrust concerns.)

Certainly in some situations the employee receives adequate consideration . All to often, however, the employer has a disproportionate bargaining position and often receives little to no consideration. (See this article)

Can continued employment really equate to adequate consideration? Often, employers give “test of loyalty”: requiring employees to sign non competes while at the same time continuing the employees to be ‘at will’.

My personal thought is that the pendulum has swung too far towards enforceability. Two thoughts: First, require real consideration- something more than just the right to continue to work here.

Second, require lawyers to live to the same standard. Currently, lawyers can not be restrained by non competes because these agreements restrict client choice. However, don’t all these agreements in some way limit the options of customers or clients? Why should lawyers get a free pass? Make these agreements applicable to all professions. I would surmise that is lawyers had to live with the same agreements they draft for their clients, more lawyers could persuade their clients against overbroad and unfettered use of these agreements. (See article about a recent New York case involving a non competition agreement.)

Mike Goodrich, Goodrich Law Firm, LLC

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