Employee Non-Compete Agreement and Enforceability Memo — Arizona

ARIZONA Employee Non-Compete Agreement and Enforceability Memo

Quick-Reference Summary

Part A — Enforceability Memo

MEMORANDUM

TO: [CLIENT NAME]
FROM: [ATTORNEY NAME], [EMPLOYMENT GROUP]
DATE: [__/__/____]
RE: Enforceability of Proposed Non-Compete Covenant — [EMPLOYEE NAME] — Arizona Law

I. Question Presented

Whether the proposed non-compete covenant between [EMPLOYER] and [EMPLOYEE], restricting [EMPLOYEE]'s post-termination ability to engage in [COMPETITIVE ACTIVITY] within [GEOGRAPHIC AREA] for [DURATION], is enforceable under Arizona common-law and A.R.S. § 23-494.

II. Short Answer

[☐ Likely enforceable as drafted] [☐ Likely enforceable if narrowed as recommended below] [☐ Statutorily prohibited — broadcast employee (A.R.S. § 23-494)] [☐ Unlikely to be enforceable without material revision]. Arizona courts STRICTLY construe non-competes against employers and DISFAVOR blue-pencil reformation. Overbreadth in any dimension (function, geography, duration) risks total invalidation.

III. Threshold Statutory Check

A.R.S. § 23-494 — Broadcast Employee Ban. Is the Employee employed by a "broadcast employer" — defined as a television station, television network, radio station, or radio network? [☐ Yes → covenant UNLAWFUL; do not require, do not enforce] [☐ No → proceed].

IV. Common-Law Reasonableness (Valley Medical)

The Arizona Supreme Court in Valley Medical Specialists v. Farber, 194 Ariz. 363, 982 P.2d 1277 (1999), held that a restrictive covenant is enforceable only if:

1. Protects a legitimate business interest;
2. Is no broader than necessary to protect that interest; AND
3. Is not contrary to public policy.

The covenant in Valley Medical — a 3-year ban on a pulmonologist within a 5-mile radius — was held unenforceable because public-policy concerns (patient access, continuity of care for AIDS/HIV patients and brachytherapy candidates) outweighed the employer's protectable interests.

A. Legitimate Business Interest. Arizona recognizes: confidential information / trade secrets; customer relationships in which the employer invested time, effort, and money; specialized training; and goodwill (especially in professional-services and sale-of-business contexts). Hilb, Rogal & Hamilton Co. v. McKinney, 190 Ariz. 213 (App. 1997).

Here, the employer asserts: [DESCRIBE — e.g., proprietary customer relationships, confidential pricing, $[___] training investment]. [☐ Strong] [☐ Moderate] [☐ Weak] showing.

B. No Broader Than Necessary. Each of function, geographic scope, and duration must be tightly tailored.

• Function: [Describe restricted activity precisely; avoid "any role" or "any business engaged in [industry]."]
• Geographic scope: [Limit to areas of actual employee activity and customer contact.]
• Duration: [Typically 6 months to 2 years.]

C. Public Policy. Heightened scrutiny applies for healthcare, professional services, and roles in scarcity markets. [Assess.]

V. No Reliable Blue-Pencil

Arizona disfavors judicial reformation. In Olliver/Pilcher Ins., Inc. v. Daniels, 148 Ariz. 530 (1986), the Supreme Court declined to redraft an overbroad covenant. Bryceland v. Northey, 160 Ariz. 213 (App. 1989), permits severance of grammatically distinct overbroad portions, but courts will NOT add language or rewrite. Drafters must therefore err on the side of narrowness from the start. Step-down or cascading "alternative scope" provisions are viewed skeptically.

VI. Consideration

[☐ Initial employment — sufficient] [☐ Mid-employment — independent consideration recommended: $[___] signing payment / promotion / equity grant / bonus].

VII. Recommendations

1. [☐ Confirm Employee is NOT a broadcast employee under A.R.S. § 23-494]
2. [☐ Define function with specificity — role and duties, not industry]
3. [☐ Narrow geographic scope to: ____________________]
4. [☐ Limit duration to ___ months (6–24 typical)]
5. [☐ Avoid healthcare-provider overreach (heightened Valley Medical scrutiny)]
6. [☐ Document independent consideration if mid-employment covenant]
7. [☐ Pair non-compete with NDA / trade-secret covenant (Arizona UTSA, A.R.S. § 44-401 et seq.) and narrowly tailored non-solicit]
8. [☐ Do NOT rely on step-down / cascading provisions]

VIII. Conclusion

[CONCISE FINAL ASSESSMENT — 2–4 sentences.]

Part B — Non-Compete Agreement

EMPLOYEE NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY AGREEMENT

This Employee Non-Competition, Non-Solicitation, and Confidentiality Agreement (the "Agreement") is entered into as of [__/__/____] (the "Effective Date") between [EMPLOYER LEGAL NAME], an Arizona [ENTITY TYPE] with its principal place of business at [ADDRESS] ("Company"), and [EMPLOYEE FULL LEGAL NAME], residing at [ADDRESS] ("Employee").

1. Statutory Eligibility Representation

The Company represents, and the Employee acknowledges, that the Company is NOT a "broadcast employer" within the meaning of A.R.S. § 23-494 (i.e., the Company is not a television station, television network, radio station, or radio network). This Agreement may not be applied to any individual employed by a broadcast employer.

2. Recitals and Consideration

A. The Company is engaged in [DESCRIBE BUSINESS — specific].

B. The Employee will have access to (i) Confidential Information; (ii) customer and prospect relationships developed through Company investment; and (iii) [☐ specialized training] [☐ trade secrets].

C. In consideration of [☐ initial employment] [☐ signing payment of $[___]] [☐ promotion to [____] with salary increase of $[___]] [☐ equity grant] [☐ other independent consideration: __________], and the mutual covenants, the Parties agree as follows.

3. Definitions

"Competitive Business" means a business that [DESCRIBE WITH SPECIFICITY — products/services that compete directly].

"Confidential Information" means non-public Company information regarding [customers, pricing, methods, financials, technology], excluding information that is publicly known, lawfully obtained from a third party, or already known to the Employee before disclosure.

"Restricted Period" means the period of Employee's employment plus [______] months following termination of employment for any reason.

"Restricted Territory" means [DEFINE NARROWLY — e.g., the Arizona counties in which the Employee performed services or had material customer contact during the 12 months preceding termination; or a [___]-mile radius of the Company's [LOCATION] office].

"Restricted Role" means a role that involves the same or substantially similar duties to those the Employee performed for the Company during the 12 months preceding termination — specifically, [LIST DUTIES].

"Restricted Customers" means customers and actively-pursued prospects of the Company with whom the Employee had material contact, or about whom the Employee received Confidential Information, during the 12 months preceding termination.

4. Confidentiality

The Employee shall not, during or after employment, use or disclose Confidential Information except in the proper performance of duties or as required by law. Upon termination, the Employee shall return or destroy all Confidential Information. This Agreement does not prohibit reporting possible violations of law to a government agency.

5. Non-Competition

During the Restricted Period and within the Restricted Territory, the Employee shall not engage in a Restricted Role for any Competitive Business. This restriction does not prohibit the Employee from accepting employment with a Competitive Business in a role materially different from the Restricted Role.

6. Non-Solicitation of Customers

During the Restricted Period, the Employee shall not solicit any Restricted Customer for purposes of providing products or services that compete with the Company.

7. Non-Solicitation of Employees

During the Restricted Period, the Employee shall not solicit any Company employee with whom the Employee worked or had material contact during the 12 months preceding termination to terminate employment with the Company.

8. Acknowledgments

The Employee acknowledges that the restrictions are reasonable, necessary to protect legitimate business interests, and that the Employee has had an opportunity to consult with counsel.

9. Remedies

The Company may seek temporary, preliminary, and permanent injunctive relief in the Superior Court of Arizona, Maricopa County (or county where the Employee resides or competes), in addition to monetary damages and reasonable attorneys' fees as available under A.R.S. § 12-341.01 and this Agreement.

10. Severability

If any provision of this Agreement is held overbroad or otherwise unenforceable, the Parties acknowledge that Arizona courts disfavor judicial reformation. The Parties have drafted each restriction narrowly with this rule in mind. If any provision is held unenforceable, only that provision shall be severed; the remaining provisions shall continue in full force.

11. Governing Law and Forum

This Agreement is governed by the laws of the State of Arizona. Exclusive forum: Superior Court of Arizona, Maricopa County.

12. Entire Agreement; Counterparts

This Agreement is the entire agreement of the Parties on its subject matter. Executable in counterparts including electronic signatures.

13. Signatures

Part C — Pre-Signing Checklist

☐ Confirmed Company is NOT a broadcast employer under A.R.S. § 23-494
☐ Identified legitimate protectable business interest (trade secrets / customer relationships / specialized training / goodwill)
☐ Defined "Competitive Business" with specificity — not the entire industry
☐ Defined "Restricted Role" by reference to actual employee duties
☐ Narrowed geographic scope to areas of actual employee activity and customer contact
☐ Limited duration to no more than [_____] months (typically 6–24)
☐ Avoided step-down / cascading "alternative scope" provisions
☐ For healthcare providers: rigorously evaluated public-interest impact (patient access, continuity of care) per Valley Medical
☐ Confirmed independent consideration if mid-employment covenant
☐ Paired covenant with NDA / trade-secret covenant (Arizona UTSA, A.R.S. § 44-401 et seq.) and narrow non-solicit
☐ Specified Arizona governing law and Maricopa County forum
☐ Drafted each restriction narrowly — no reliance on blue-pencil
☐ Provided Employee reasonable opportunity to review and consult counsel
☐ Retained executed original; provided executed copy to Employee
☐ Calendared termination-event re-review (re-assess enforceability before sending cease-and-desist or filing suit)

Sources and References

• Valley Medical Specialists v. Farber, 194 Ariz. 363, 982 P.2d 1277 (1999) — https://www.azcourts.gov/Portals/0/23/pdf1999/cv970488.pdf
• Olliver/Pilcher Ins., Inc. v. Daniels, 148 Ariz. 530, 715 P.2d 1218 (1986)
• Bryceland v. Northey, 160 Ariz. 213, 772 P.2d 36 (App. 1989)
• Hilb, Rogal & Hamilton Co. v. McKinney, 190 Ariz. 213, 946 P.2d 464 (App. 1997)
• Compass Bank v. Hartley, 430 F. Supp. 2d 973 (D. Ariz. 2006)
• A.R.S. § 23-494 (Noncompete clause prohibition; broadcast employees) — https://www.azleg.gov/ars/23/00494.htm
• A.R.S. § 44-401 et seq. (Arizona Uniform Trade Secrets Act) — https://www.azleg.gov/arsDetail/?title=44 (Chapter 4)
• A.R.S. § 12-341.01 (Discretionary attorney fees in contract actions) — https://www.azleg.gov/ars/12/00341-01.htm
• Maricopa County Superior Court — https://superiorcourt.maricopa.gov/
• Disclaimer: This template does not constitute legal advice. Consult licensed Arizona counsel.