Are Non-Compete Agreements With Step-Down Provisions Enforceable?

An interesting article entitled "Non-Compete Agreements with Step-Down Provisions: Will Courts in "Blue-Pencil" States Enforce Them?" by Ray Harris and Ali Farhang in the July 2006 edition of The Computer & Internet Lawyer questions whether non-compete agreements with step-down provisions are enforceable in light of a recent decision by a District Court in Arizona upholding such a non-compete. Compass Bank v. Hartley, 2006 WL 11333325 (D. Ariz. April 28, 2006).

A non-compete with a step-down provision has restrictive clauses which "step-down" to clauses of lower restriction should the court find that the original clause was too broad to be enforceable. For example, the article discusses a non-compete agreement with a time period of the employee's entire life, or if that is held to be unenforceable, a five year time period, or if that is held to be unenforceable, a six month time period.

The article questions whether states that are willing to "blue pencil" an agreement to reduce the severity of unenforceable clauses should enforce agreements with step-down provisions. For example, the article questions whether it is good public policy to allow employers to use such clauses. It also questions whether an enforceable contract can be arranged when the parties do not know what a court would determine to be enforceable.