§ 1.5.7 Limitations on Competitive Activities. The limitations placed by a restrictive covenant on a former employee's "competitive" activities are also carefully scrutinized by the courts. A restrictive covenant that generally prohibits competition is too broad because all that is reasonably necessary to protect the former employer is a limitation upon the solicitation of the employer's customers.98 The burden is on the party wishing to enforce the covenant to demonstrate that the restraint is no greater than necessary to protect the employer's legitimate interest, and that such interest is not outweighed by the hardship to the employee and the likely injury to the public.99
For example, in Orca Communications Unlimited, LLC v. Noder,100 a public relations firm ("Orca") and its president, Ann Noder ("Noder"), executed a Confidentiality, Non-Solicitation, and Non-Competition Agreement ("the Agreement"). The Agreement contained four restrictive covenants: (1) the Confidentiality Covenant, which prohibited Noder from using or disclosing confidential information without the company's consent for any purpose other than for the company's benefit; (2) the Non-Compete Covenant, which prohibited Noder from providing conflicting services; (3) the Customer Non-Solicitation covenant, which prohibited Noder from soliciting any customer or "potential customer"; and (4) the Employee Non-Solicitation Covenant, which prohibited Noder from hiring current or certain former employees.101
Noder served as Orca's president for over six years from 2002 to 2009.102 During that time, she full access to and control over Orca's financial information, customer information, contracts with vendors and customers, and customer and employee relationships. Moreover, Noder had no professional experience in public relations before joining Orca; Orca provided her extensive on-the-job training regarding the public relations industry. In early 2009, Noder and Orca negotiated for Noder to purchase Orca, but those negotiations failed. Instead, Noder decided to start her own public relations firm, which would directly compete with Orca. She approached several of Orca's customers and informed them that she was starting a new company. Noder urged the customers to do business with her new company instead of Orca. Noder resigned from Orca in 2009 and formed a new company which offered the same or similar services as Orca. Orca subsequently filed an action against Noder and her company for violating the Agreement's restrictive covenants as well as for using confidential and trade secret information to form the new company.103
The trial court granted Noder's Rule 12(b)(6) Motion to Dismiss for failure to state a claim for which relief could be granted.104 The court of appeals evaluated the enforceability of three out of the four restrictive covenants.105 Starting with the established premise, while contemplating Arizona case law, that restrictive covenants tending to prevent an employee from pursuing a similar vocation after termination are disfavored and strictly construed against the employer, the court of appeals analyzed each restrictive covenant in turn and found them unenforceable.106
The Confidentiality Covenant prohibited Noder from "directly or indirectly circumventing or competing with [Orca] with regard to any Confidential Information."107 The Agreement defined "Confidential Information" as "knowledge or information not generally known to the public or in the public relations industry that Noder learned from her employment with Orca that related to Orca, its business partners, or the business of its customers or potential customers. This included any information Noder learned of, possessed as a result of, or accessed through Noder's employment."108 The Agreement defined "publicly known" information as "information readily accessible to the public in a written publication." This definition also included information that was only available through "substantial searching of published literature" or that had been "pieced together" from a number of publications or sources."109
While this covenant purported to protect "truly confidential information"?information or knowledge "not generally known in the public relations industry"?the Agreement's definition of "Confidential Information" extended far beyond information that was truly confidential.110 The court noted that the Agreement's definition of public information properly classified information that is available in written publications as non-confidential public information. The definition, however, improperly carved out an exception and classified as confidential information that the public would have to conduct "substantial searching" to find or that has to be "pieced together" from a number of sources or publications.111 Further, the covenant deemed any information that Noder may have come across during her employment with Orca to be confidential, regardless of whether the information was truly confidential.112 The definition's overbreadth thus made the Confidentiality Covenant unenforceable because it impermissibly prohibited Noder from using public information and it prohibited Noder from using any information she may have learned from her employment with Orca. This was nothing more than an "unlimited restriction against competing with Orca."113
By classifying the Confidentiality Covenant as an "unlimited restriction against" competition, the court then considered the covenant to be a noncompetition covenant. A noncompetition covenant must be limited as to time and geographic scope.114 Because the Confidentiality Covenant did not have any geographical or temporal limitations, the...
