2007 Legislation
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SENATE BILL NO. 1203 – Protect employr legitimate business

SENATE BILL NO. 1203

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Bill Status



S1203......................................................by STATE AFFAIRS
EMPLOYERS - BUSINESS INTERESTS - Adds to existing law relating to
protection of employers' legitimate business interests through protective
covenants to provide a short title; to set forth legislative intent and
state policy; to define terms; to provide for the construction, enforcement
and modification of protective covenants; and to provide for preemption.

03/08    Senate intro - 1st rdg - to printing
03/09    Rpt prt - to Com/HuRes
03/14    Rpt out - rec d/p - to 2nd rdg
03/15    2nd rdg - to 3rd rdg
    Rls susp - FAILED - 16-18-1
      AYES -- Andreason, Bair, Broadsword, Cameron, Darrington, Davis,
      Goedde, Hammond, Heinrich, Hill, Keough, Lodge, McGee, McKague,
      Richardson, Siddoway
      NAYS -- Bilyeu, Burkett, Coiner, Corder, Fulcher, Gannon, Geddes,
      Jorgenson, Kelly, Langhorst, Little, Malepeai, McKenzie, Pearce,
      Schroeder, Stegner, Stennett, Werk
      Absent and excused -- Bastian
    Floor Sponsor - Goedde
    Filed in Office of the Secretary of Senate

Bill Text


                                                                        
                                                                        
  ]]]]              LEGISLATURE OF THE STATE OF IDAHO             ]]]]
 Fifty-ninth Legislature                   First Regular Session - 2007
                                                                        
                                                                        
                                       IN THE SENATE
                                                                        
                                    SENATE BILL NO. 1203
                                                                        
                                 BY STATE AFFAIRS COMMITTEE
                                                                        
  1                                        AN ACT
  2    RELATING TO PROTECTION OF EMPLOYERS'  LEGITIMATE  BUSINESS  INTERESTS  THROUGH
  3        PROTECTIVE  COVENANTS; AMENDING TITLE 44, IDAHO CODE, BY THE ADDITION OF A
  4        NEW CHAPTER 27, TITLE 44, IDAHO CODE, TO PROVIDE A  SHORT  TITLE,  TO  SET
  5        FORTH LEGISLATIVE INTENT AND STATE POLICY, TO DEFINE TERMS, TO PROVIDE FOR
  6        THE CONSTRUCTION, ENFORCEMENT AND MODIFICATION OF PROTECTIVE COVENANTS, TO
  7        PROVIDE FOR PREEMPTION AND TO PROVIDE SEVERABILITY.
                                                                        
  8    Be It Enacted by the Legislature of the State of Idaho:
                                                                        
  9        SECTION  1.  That Title 44, Idaho Code, be, and the same is hereby amended
 10    by the addition thereto of a NEW CHAPTER, to be known and designated as  Chap-
 11    ter 27, Title 44, Idaho Code, and to read as follows:
                                                                        
 12                                      CHAPTER 27
 13              PROTECTION OF EMPLOYERS' LEGITIMATE BUSINESS INTERESTS ACT
                                                                        
 14        44-2701.  SHORT TITLE. This chapter shall be known and may be cited as the
 15    "Protection of Employers' Legitimate Business Interests Act."
                                                                        
 16        44-2702.  STATEMENT OF LEGISLATIVE INTENT AND STATE POLICY. (1) The legis-
 17    lature finds that:
 18        (a)  Employers  may place certain employees and independent contractors in
 19        positions of prominence and stature within their business or industry, and
 20        may be willing to do so only if the parties agree to certain resolutions;
 21        (b)  One means of protecting the employer's investment in goodwill, infor-
 22        mation, technologies and its  employees  and  independent  contractors  is
 23        through protective covenants;
 24        (c)  Employees  and  independent  contractors  should be free to engage in
 25        legitimate employment  and  business  pursuits  following  termination  of
 26        employment  or  a contract, provided that such employment or business pur-
 27        suits do not violate or harm the  legitimate  business  interests  of  the
 28        former employer;
 29        (d)  Parties  have  the  right to enter into agreements freely and to have
 30        the ability to determine the terms of those agreements;
 31        (e)  Such parties should be able to rely  upon  the  enforcement  of  such
 32        agreements; and
 33        (f)  Protective  covenants play an important role in protecting legitimate
 34        business interests of employers.
 35        (2)  It is hereby declared to be the policy of the state of Idaho:
 36        (a)  To encourage business and industry to develop goodwill,  technologies
 37        and  information  that may be of significant value to economic development
 38        in the state of Idaho;
 39        (b)  To encourage employers to train and promote employees and independent
 40        contractors and to put them into positions of  prominence  and  influence;
 41        and
                                                                        
                                       2
                                                                        
  1        (c)  That protective covenants are to be generally upheld.
                                                                        
  2        44-2703.  DEFINITIONS.  For  purposes  of this chapter only, the following
  3    terms shall have the following meanings:
  4        (1)  "Employer" means any person employing an employee or entering into  a
  5    contractual relationship with an independent contractor.
  6        (2)  "Key  employee"  means  an  employee who, by reason of the employer's
  7    investment of time, money, trust, exposure to the public, or exposure to  cus-
  8    tomers,  vendors  or  other  business  relationships  during the course of the
  9    employee's employment with the employer:
 10        (a)  Has gained a high level of notoriety, fame, reputation or public per-
 11        sona as the employer's representative or spokesperson; or
 12        (b)  Has gained  a  high  level  of  influence  or  credibility  with  the
 13        employer's customers, vendors or other business relationships.
 14        (3)  "Key  independent contractor" means an independent contractor who, by
 15    reason of the employer's investment of time, money,  trust,  exposure  to  the
 16    public, or exposure to customers, vendors or other business relationships dur-
 17    ing  the  course of the independent contractor's contractual relationship with
 18    the employer:
 19        (a)  Has gained a high level of notoriety, fame, reputation or public per-
 20        sona as the employer's representative or spokesperson; or
 21        (b)  Has gained  a  high  level  of  influence  or  credibility  with  the
 22        employer's customers, vendors or other business relationships.
 23        (4)  "Legitimate  business  interest"  means an employer's interest in its
 24    customer, vendor and business relationships, and its investment in key employ-
 25    ees and key independent contractors.
 26        (5)  "Protective covenant" means a  written  agreement  signed  by  a  key
 27    employee  or  key  independent  contractor under which the key employee or key
 28    independent contractor  agrees  for  a  period  of  time,  which  may  include
 29    postemployment,  to refrain from competing with the employer or working for or
 30    consulting with a competitor of the employer.
                                                                        
 31        44-2704.  CONSTRUCTION OF PROTECTIVE COVENANTS. (1)  Protective  covenants
 32    that  provide reasonable protection to legitimate business interests shall not
 33    be deemed void as against public policy or as against public interest.
 34        (2)  Protective covenants shall not be construed or interpreted by employ-
 35    ing any rule of contract construction that  construes  a  protective  covenant
 36    narrowly, against the restraint, or against the drafter of the contract.
                                                                        
 37        44-2705.  ENFORCEMENT  OF  PROTECTIVE  COVENANTS. (1) Protective covenants
 38    are generally enforceable and not void as against public policy or as  against
 39    public interest provided they are:
 40        (a)  In writing;
 41        (b)  Supported  by  consideration,  which includes, but is not limited to,
 42        continued employment or contractual relationship;
 43        (c)  Reasonable in time and geographic scope; and
 44        (d)  Reasonably necessary to protect a legitimate business interest.
 45        (2)  For purposes of subsection (1)(c) of this section:
 46        (a)  With respect to key employees or key independent contractors who have
 47        been employed or under contract with an employer for  less  than  eighteen
 48        (18)   months,   protective  covenants  that  restrict  postemployment  or
 49        postcontract activity for twelve (12) months or less in duration are  pre-
 50        sumed to be reasonable as to time;
 51        (b)  With respect to key employees or key independent contractors who have
 52        been  employed or under contract with an employer for eighteen (18) months
                                                                        
                                       3
                                                                        
  1        or  longer,  protective  covenants   that   restrict   postemployment   or
  2        postcontract  activity  for  eighteen  (18) months or less in duration are
  3        presumed to be reasonable as to time; and
  4        (c)  With respect to postemployment and postcontract restrictions of  geo-
  5        graphic  scope,  restrictions  within the geographic area in which the key
  6        employee or key independent contractor  routinely  provided  services  are
  7        presumed to be reasonable. Nationwide or worldwide geographic restrictions
  8        shall  not  be  deemed unreasonable if the key employee or key independent
  9        contractor had substantial nationwide or worldwide exposure or  prominence
 10        as an employer's representative.
 11        (3)  Protective  covenants  which  restrict postemployment or postcontract
 12    activity that exceed the time and geographic limits  specified  in  subsection
 13    (2)  of  this  section  may  also be reasonable, which reasonableness shall be
 14    determined with reference to all relevant facts and circumstances.
 15        (4)  Although there may be circumstances under which a protective covenant
 16    restricting postemployment or postcontract activity may be overbroad or unrea-
 17    sonable, if the activity sought to be enjoined in  a  particular  circumstance
 18    would  invade  the  legitimate business interest of the party seeking enforce-
 19    ment, the protective covenant  shall  be  enforced  notwithstanding  potential
 20    overbreadth.  As  set forth in section 44-2706, Idaho Code, if a contractually
 21    specified restraint is not reasonable as to time or geographic  scope,  or  is
 22    not  otherwise  reasonably necessary to protect the legitimate business inter-
 23    est, the court shall modify the restraint  so  as  to  grant  the  appropriate
 24    relief  necessary  to  reasonably  protect  an  employer's legitimate business
 25    interest.
                                                                        
 26        44-2706.  MODIFICATION OF PROTECTIVE COVENANTS. A court shall not  void  a
 27    protective covenant as drafted if the court finds that the protective covenant
 28    is overly broad. If any term or portion of a protective covenant is found by a
 29    court  to be unreasonable or unenforceable, the court shall interpret and mod-
 30    ify the protective covenant so as to be reasonable, and if the court is unable
 31    to interpret or modify an otherwise unenforceable provision,  then  the  court
 32    shall  strike  or refuse enforcement of only such unenforceable provisions and
 33    shall enforce the remainder of the protective  covenant  so  as  to  give  the
 34    broadest effect possible to the remaining enforceable provisions.
                                                                        
 35        44-2707.  PREEMPTION  OF OTHER LAW. The criteria for the enforceability of
 36    a protective covenant as provided in this chapter shall preempt any other cri-
 37    teria for the enforceability of a protective covenant under common law.
                                                                        
 38        44-2708.  SEVERABILITY. The provisions of this chapter are hereby declared
 39    to be severable and if any provision of this chapter  or  the  application  of
 40    such  provision to any person or circumstance is declared invalid for any rea-
 41    son, such declaration shall not affect the validity of the remaining  portions
 42    of this chapter.

Statement of Purpose / Fiscal Impact



                       STATEMENT OF PURPOSE

                             RS 17155

Idaho businesses invest a substantial amount of time and
training in their workforce.  In some instances companies place
certain employees in positions of prominence within the company and
entrust them with confidential and proprietary information. 
Additionally many employers utilize these key employees to develop
and maintain customer, vendor and other business relationships. 
Often employers seek to protect these legitimate business interests
through contracts containing "protective covenants."

This legislation provides that such contracts with "key
employees" are consistent with public policy as they encourage
business growth and development.  Further, the legislation provides
a definition of "key employees."



                           FISCAL NOTE

There is no impact to the general fund.


Contact
Name: Alex LaBeau 
Idaho Association of Commerce and Industry 
Phone: 208-343-1849



STATEMENT OF PURPOSE/FISCAL NOTE                        S 1203