Restrictive Employment Covenants in Oklahoma

by Cara Nicklas

Restrictive employment covenants are becoming more commonplace.  Employers have an interest in protecting against the unfair competitive advantage employees gain by access to an employer’s customers, trade secrets, business decisions, etc.  Employees may betoo desperate for work and unequipped to negotiate such covenants, so they sign without much thought.  Both employer and employee should make sure they understand the restrictive employment covenant they sign and ensure it makes sense for their particular industry and situation.

Restrictive employment covenants are governed by state law rather than federal law.  Therefore, employers should exercise caution before using “free and easy” downloadable agreements from the internet.  They are not “one-size-fits-all” type of agreements.  Employees should carefully consider the impact of a proposed restrictive covenant when the employment relationship ends and should seek advice as to the enforceability of the particular provisions in order to understand the potential risks in signing an employment agreement.  

Restrictive employment covenants may include the following provisions:

  1. A non-compete provision prohibits the employee from working for competitors during a specified period of time and within a defined geographical area.   General non-compete agreements are not permitted in Oklahoma.  A broadly worded contract that restrains a person from exercising a lawful profession, trade or business is void as a violation of Oklahoma public policy except as provided by Oklahoma statute.  In an agreement to purchase another’s business, which includes the goodwill of the business, the parties may agree that the seller will refrain from carrying on a similar business (bear in mind such provision can affect the tax consequences of the sale of a business).  Similarly, partners who dissolve a partnership may agree that none of them will carry on a similar business within a specified geographical area.
  2. A non-solicitation provision bars the employee from soliciting the business of the employer’s customers.  The Oklahoma Legislature created a third statutory exception to the general prohibition against contracts in restraint of trade.  An agreement prohibiting a former employee from directly soliciting the sale of goods and services from the “established customers of the former employer” is not a contract in restraint of trade and may be enforced in Oklahoma.  Courts will likely enforce such agreements only if the agreement includes a reasonable length of time as opposed to a permanent ban.  Courts will be left to define terms such as “established customers” but employers are clearly permitted to prohibit direct solicitations of its “established customers” by former employees.   
  3. A nonrecruitment provision or anti-raiding provision bars the employee from recruiting the employer’s employees and contractors for a subsequent or concurrent employer.  Effective November 1, 2013, the Oklahoma Legislature expanded the exception to the prohibition against restrictive employments contracts by authorizing employers or businesses to prohibit its employees or independent contractors from soliciting its employees or independent contractors to work for their new employer/business.
  4. A confidentiality/nondisclosure provision prohibits the disclosure of the employer’s confidential and proprietary information.  Oklahoma law permits confidentiality/non-disclosure agreements.  Such provisions are common in employment agreements but often poorly written.   A written agreement specifying an employee’s obligations regarding the employer’s confidential and proprietary information should 1) clearly define what is “confidential” and “proprietary” so the employee understands what information is protected, 2) state the duration of the obligation, and 3) identify the specific prohibitions on disclosure or use of confidential and proprietary information.   Vague provisions are difficult to enforce.