Print Friendly SENATE BILL NO. 1203 – Protect employr legitimate business
SENATE BILL NO. 1203
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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,
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
]]]] 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;
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
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
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
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."
There is no impact to the general fund.
Name: Alex LaBeau
Idaho Association of Commerce and Industry
STATEMENT OF PURPOSE/FISCAL NOTE S 1203