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Competitive Advantage? “Professional Exemptions” to Non-Compete Agreements in Alabama

By William Stewart & Tom McKnight

“There are multitudes of businesses, but few professions.” So declared the Alabama Civil Court of Appeals in a decision from 1980.

Generally speaking, professionals are exempt from the acceptable restraints of non-compete agreements as governed by Alabama’s restrictive covenant law. Yet who counts as a professional in the state?

The restrictive covenant law was significantly amended in 2016 to codify years of case law that interpreted what once was a broad, loosely defined and rather ambiguous statute. The statutory scheme is based on a legal presumption that an employer has a “protectable interest” in governing how and whether a former employee can work for competing businesses or perform work of the same character. Alabama Code § 8-1-191 lists protectable interests such as trade secrets, confidential information, existing customer relationships, good will “and specialized and unique training involving substantial business expenditure specifically directed” toward the former employee.

However, Alabama Code § 8-1-196 reads: “Nothing in this article shall be construed to eliminate any professional exemption recognized by Alabama law.” That begs the question: What professional exemptions are actually recognized by the courts in Alabama? How exactly is this determined?

The amended statute does not enumerate any specific professional categories for the exemption, therefore defining a professional exemption is one major gray area remaining five years after the recent restrictive covenant statutory revisions.

 

Who are some of the “professionals” the Alabama courts have recognized to date?

Alabama courts have found the following occupations to be “professionals”:

 

How do the courts analyze whether an occupation should be deemed a “profession?”

A recent Alabama court case discusses in depth the modern “professional exemption.” In Benchmark, the Federal District Court, applying Alabama law, considered whether physical therapists should be found to be professionals.

An earlier case cited by the Benchmark Court, the Friddle ruling on veterinarians, set forth three prongs for distinguishing a professional from a non-professional:

  1. Professional training, skill and experience required to perform certain services
  2. The delicate nature of the services offered
  3. The ability of the employee and need to make instantaneous decisions

Additional case law cited in Benchmark points to client relationships dependent on “personal confidence,” something that separates a “client” from a “customer.”

Drawing from precedent, the Benchmark Court did indeed declare that physical therapists qualified as professionals who claim an exemption from non-compete agreements. The Court also reasoned that physical therapists must be registered and licensed within the state in order to practice legally. To attain licensure, physical therapists are also subject to written examination, and to maintain licensure, physical therapists must satisfy continuing education requirements.

Much like attorneys and doctors, the Benchmark court noted that physical therapists also face discipline for any demonstrated incompetence, gross negligence, unethical or criminal behavior, and other potential offenses.

Finally, the Court pointed out that physical therapists make independent judgments and determine the course of care based on their evaluations of their patients’ condition.

These factors guided the Benchmark in ruling that physical therapists are to be considered professionals.

Are there protectable interests other than non-competition agreements that can still be enforceable against a professional?

The Benchmark Court also ruled there can be a boundary to how freely a professional may practice after termination of employment if a business interest of the employer outweighs the public interest of the physical therapist in treating and rehabilitating patients in need.

The Court included investment in a competing physical therapy practice and business consulting on behalf of other physical therapy practices of examples of activities that could still be restricted if the therapist does not treat patients at those facilities.

 

What occupations should be deemed professions?

Our firm takes no position on which occupations not yet deemed professionals by the courts should be declared professionals using the three-prong test from Benchmark.

It is important to note, however, that as the Benchmark case suggests, licensure in a particular discipline alone is likely not enough to demonstrate whether one may be a “professional” in the eyes of the law. The other two prongs matter as well.

We can also point to instances where the court has ruled that a particular job category or occupation could not be deemed a “profession” under the law. These include:

It must be noted the court’s decision in Rogers regarding securities brokers, the most recent decision we cite in this article, hinged on a lack of sufficient evidence presented by the plaintiff. The Alabama Civil Court of Appeals affirmed that it is the plaintiff who carries the evidentiary burden of proving he or she should be seen as a professional under the law. This is something to remember if you are in a similar situation and must fight for or against a “professional exemption” from a non-compete provision.

If one believes that a particular occupation should or should not be covered under the “professional exemption” exception for the purposes of nullifying a non-compete agreement, seek the advice of an attorney.

 

Alabama Rules of Professional Conduct require that the following language accompany any communication concerning a lawyer’s services: “No representation is made that the quality of the legal services to be performed is greater than the quality of legal services to be performed by other lawyers.”

 

Need advice on a non-compete provision of an employment agreement? Contact a Wallace Jordan attorney today. William Stewart and Tom McKnight can assist you on these matters.