Arkansas has now become a state that permits a court to “blue-penciling” of a non-compete agreement.
Governor Asa Hutchinson signed a statute (S.B. 998 or Act 921) permitting courts the flexibility to enforce those portions of a non-competition agreement that are reasonable and to delete overbroad, unenforceable provisions. Arkansas courts no longer have to strike down the entire covenant not to compete simply because one portion is unreasonable.
Under the wording of the Act, a covenant not to compete will be enforced if the agreement is ancillary to an employment relationship or part of an otherwise enforceable employment agreement or contract to the extent that:
the employer has a protectable business interest (such as trade secrets, customer lists, confidential information, intellectual property, customer lists, goodwill with customers, knowledge of business practices, methods, profit margins, costs, and other confidential information that increases in value by not being known to a competitor, training, and “other valuable employer data that the employer has provided to an employee that an employer would reasonably seek to protect or safeguard from a competitor”); and
the non-compete agreement is limited with respect to time and scope in a manner that is not greater than necessary to defend the protectable business interest.
Further, Act 921 states that the absence of a specific or defined geographic descriptive restriction in a non-compete agreement does not make the agreement overly broad if the agreement is limited with respect to time and scope in a manner that is not greater than necessary to defend the protectable business interest of the employer.
Moreover, under the new law, courts are given the authority to determine the reasonableness of the agreement and “shall” reform overly broad covenants. Prior to enactment of this statute, Arkansas did not allow blue-penciling, and a non-compete agreement had to be valid as written — the court could not narrow the overbroad provision. Employers doing business in Arkansas now have some statutory guidance, whereas before, it was “your guess is as good as mine.