?A recently passed Missouri bill included some amendments added at the last minute that may have significant implications for restrictive covenants, such as nonsolicitation and noninterference provisions that are commonly used to protect legitimate business interests in the event of the purchase or sale of the business.
The bill was sent to the governor’s desk on May 30. If passed, the law would take effect on Aug. 28.
Missouri lawmakers passed Senate Bill 103, limiting the time and scope of covenants between a business entity and an “owner” in which the owner promises not to solicit or interfere with the business’s employees and customers after the owner’s relationship with the business ends. Typically, this scenario would arise when the business is purchased or sold, but because the bill does not define “owner,” it could apply to individuals who own only part of a business.
Specifically, SB 103 would presume the enforceability of:
- A reasonable, written nonsolicitation or noninterference agreement that requires a promise “not to solicit, recruit, hire, induce, persuade, encourage, or otherwise interfere with … the employment of one or more employees or owners of a business,” if the covenant is not for more than two years following the end of the owner’s relationship with the business.
- A reasonable, written nonsolicitation or noninterference agreement that requires an owner to promise “not to solicit, induce, direct, or otherwise interfere with, directly or indirectly, a business entity’s customers, including any reduction, termination, or transfer of any customer’s businesses” for purposes of competing with the business. This applies if the covenant is limited to customers with whom the owner dealt and doesn’t last for more than five years following the end of the owner’s relationship with the business.
- A written provision by which an owner promises to provide prior notice of an intent to sell or dispose of an ownership interest in the business.
The bill would require courts to modify a covenant that is found to be “overbroad, overlong, or otherwise not reasonably necessary” to protect the interests of the business and enforce the modified version. Still, courts would be limited to provide “only the relief reasonably necessary to protect such interests.”
The bill states that it does not “limit an owner’s ability to seek or accept employment with another business entity immediately upon” or sometime after the end of the business relationship, whether that end was “voluntary or involuntary.” Further, the bill would not otherwise affect the validity or enforceability of noncompete agreements, nondisclosure agreements, confidentiality agreements, or other types of restrictive covenants.
Next Steps
The last-minute restrictions on nonsolicitation and noninterference covenants may come as a surprise to some businesses and could complicate the sale of businesses in Missouri. In most states, buyers of a business are able to enforce restrictive covenants on sellers who are actual owners as part of a purchase or sale agreement that contains stronger terms (i.e., geography, activity, and time) than might otherwise be enforceable. Notably, however, the new bill does not define “owner,” and it may include individuals who own even partial equity in a business.
Daniel Patrick Johnson is an attorney with Ogletree Deakins in Kansas City, Mo. Zachary V. Zagger is an attorney with Ogletree Deakins in New York City. © 2023. All rights reserved. Reprinted with permission.