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Non-Compete Agreement Series: Everything You Need to Know (And Probably Don’t) About Covenants Not to Compete - Mississippi 

by James Collura, Justin Scott, Slates Veazey

Published: October, 2020

Submission: October, 2020

 



The next state in our series exploring non-compete agreements is the Magnolia State, Mississippi. Unlike Texas and Louisiana, Mississippi’s noncompete laws are purely creatures of the common law.  Mississippi has no statutory scheme in place governing covenants not to compete. For this chapter we are joined by my partners Justin Scott and Slates Veazey. Justin practices in our Houston office with me, and Slates, who is licensed in both Texas and Mississippi, practices out of our Jackson, Mississippi office. Like myself, Justin and Slates have handled several unfair competition matters.


While Mississippi has no statutory scheme on non-compete agreements, its general approach is similar to that of Texas in concept. Non-compete agreements are disfavored in Mississippi and are unenforceable unless drafted to be reasonable in geographic scope and duration.[1] Courts also evaluate the provision’s “effect on ‘the rights of the employer, the rights of the employee, and the rights of the public,’ and balance these respective interests.”[2]


Employers bear the burden of showing the provision is reasonable in geographic scope and duration, but also need to establish that the covenant is justified economically, is a necessary prohibition on free trade, and is no greater than required to protect the employer’s legitimate interest.[3] In Thames v. Davis & Goulet Ins., Inc., where the employer “simply offered the contract and proof as to alleged violations,” the Mississippi Supreme Court found that “this without more did not afford sufficient grounds for injunctive relief.”[4] In certain circumstances, however, if an employer is seeking to enforce a non-compete provision against an employee that has been terminated, if the “termination of the employee was arbitrary, capricious or in bad faith, equity can be extended and the chancellor may refuse to enforce the agreement.”[5]


Statutory Authority


As stated, Mississippi has no statutory scheme governing non-compete agreements.


Geographic Limitations


The geographical limitation analysis of non-compete agreements under Mississippi law focuses on whether the restrictions on the employee are oppressive or impose undue hardship. Below are some specific examples from Mississippi case law:  


  • Where “[t]he course of the defendant’s former employment…carried him to every corner of the state and most municipalities in between” a non-compete provision prohibiting the employee from engaging in the restricted activities “within a radius of 100 miles of any city, town, or village in the United States in which Employee has worked for the Employer” was “not unreasonable as to its territorial limitations.”[6]
  • Non-compete clause prohibiting employee from engaging in competitive activity within a 50-mile radius of existing employer locations as of date agreement containing non-compete clause found to be reasonable.[7]
  • Where an employer operates its business throughout the state of Mississippi, and its employees are subject to transfer anywhere in the state of Mississippi, a non-compete provision covering the entire state is not unreasonable.[8] However, where the evidence demonstrated that a particular employee’s activities were restricted to an area around a specific portion of the state (the area around Tupelo), the Mississippi Supreme Court reformed the non-compete provision to a radius of 50 miles around Tupelo.[9]
  • In Frierson v. Sheppard Bldg. Supply Company, the Mississippi Supreme Court found that a restricted area of 50 miles from the employer’s office in Jackson was “reasonable and enforceable”.[10]
  • In Bagwell v. H.B. Wellborn & Company, the Mississippi Supreme Court held that a restrictive covenant of “a seventy-five-mile radius from the corporate limits of the city of Meridian” was “valid and binding.”[11]

Restricted Period


Mississippi law does not define a duration of time that is per se deemed reasonable for covenants not to compete.  The below list exemplifies that Mississippi courts have enforced non-compete provisions with varied duration limitations, focusing on the broader analysis discussed in the preceding sections:


  • The U.S. District Court for the Southern District of Mississippi, in a matter involving a non-compete agreement related to the propane gas and appliance industry, found that a six-year time limitation on a non-compete provision was reasonable, particularly where the employee did not challenge the reasonableness of the limitation.[12]
  • In Donahoe v. Tatum, the Mississippi Supreme Court found that a non-compete provision of five years was reasonable, explaining that “[i]t is the law’s function to maintain a reasonable balance in this area. This ‘requires us to recognize that there is such a thing as unfair competition by an ex-employee as well as by an unreasonable employer.’ The circumstances of each case will be carefully scrutinized to determine whether it falls within or without the boundary of enforceability.”[13]
  • In Frierson, the Mississippi Supreme Court held that a two-year restrictive period under the geographic range discussed above was “reasonable and enforceable.”[14]

Restricted Scope of Activity


A non-compete agreement should “clearly delineate[ ] the scope of the employee’s permissible business activities following the termination of employment.”[15] 


Here are a few examples of non-compete agreements found to contain overly broad definitions of the employer’s business:


  • In Empiregas, Inc. of Kosciusko v. Bain, the Mississippi Supreme Court, in finding that an employee was terminated in bad faith, held that a non-compete provision prohibiting the employee from working for “any competitor, which operated within a fifty (50) mile radius of any location at which he had worked within twenty-four (24) months prior to termination” was unreasonable as it would have a “far more oppressive effect on Bain [the employee] than its non-enforcement would have on Empiregas [the employer].”[16]
  • In 2018, however, the U.S. District Court for the Southern District of Mississippi analyzed the Mississippi Supreme Court’s holding in Empiregas and found that where the employee resigned and was not terminated by the employer seeking to enforce the non-compete provision, the employee could not argue that the non-compete provision was unenforceable on equitable grounds.[17]

In contrast, here are a few examples of non-compete agreements whose definition of the employer’s business was sufficiently narrow:


  • Where the employer’s evidence demonstrated that the former employee’s “primary employment is that of a certified public accountant” and “nothing in the covenant not to compete…would prevent him from continuing in this occupation,” the U.S. District Court for the Southern District of Mississippi found that a provision prohibiting the former employee from engaging in “any activity competitive or adverse” to the former employer, a propane gas and appliance business, was reasonable.[18]
  • Non-compete provision prohibiting employee from engaging “in the business of boring, digging, or drilling horizontal holes or tunnels in the earth” found to be a reasonable restriction.[19]

Reformation/Blue Penciling


Mississippi courts will reform what they deem to be an unreasonable non-compete clause to include reasonable limitations.[20] Even without any limitation on geographic scope, courts in Mississippi may “reform the scope of the agreement to cover a reasonable area wherein [the employer] can prove the economic justification for its restraint, and excise any area wherein the restraint is not supported by economic justification.”[21]


Remedies in Action to Enforce Covenant Not to Compete


  • Damages and Injunctive Relief - A court may award an employer damages for loss of profit and injunctive relief under a covenant not to compete.[22]
  • Attorneys’ Fees - Generally, an employer may not recover its attorneys’ fees in an action to enforce a covenant not to compete. However, attorneys’ fees may be recoverable if contractually agreed upon by the parties, allowed by statute, or punitive damages are warranted.[23]

Statute of Limitations


For breach of contract, the limitations period in Mississippi is three years.[24]  


Interplay Between Non-Compete Agreements and Other Restrictive Covenants


Non-Solicitation Agreements - Mississippi courts generally determine the enforceability of non-solicitation agreements by using the same general standards applied to non-competition agreements.[25] However, in 2018, the U.S. District Court for the Southern District of Mississippi, in Brown and Brown of Mississippi, LLC v. Baker, found that “Mississippi courts have not yet addressed the issue of whether non-solicitation clauses are governed by the same standards as non-competition clauses, but other courts have held that these two types of clauses are ‘governed by separate inquiries’” and cited to a 2016 Southern District of Mississippi opinion analyzing Illinois’ law on covenants not to solicit.[26] Despite that statement, the Southern District of Mississippi in the Brown and Brown matter held “[n]nevertheless…the non-solicitation clause in the employment agreement at issue is reasonable and enforceable under the standards applied to non-competition clauses.”[27] Since non-solicitation clauses are often coupled with non-compete clauses, requiring they meet the same standards simplifies the enforcement of both types of clauses.


 


Footnotes:

[1] See Thames v. Davis & Goulet Ins., Inc., 420 So. 2d 1041, 1043 (Miss. 1982) (non-compete agreements are “cautiously considered, carefully scrutinized, looked upon with disfavor, strictly interpreted and reluctantly upheld”); but see Bus. Commc’ns, Inc. v. Banks, 91 So. 3d 1, 10-11 (Miss. Ct. App. 2011) (enforcing non-compete agreement that was reasonable in duration and geographic reach).


[2] Banks, 91 So. 3d at 11 (quoting Tex. Rd. Boring of Louisiana-Mississippi v. Parker, 194 So. 2d 885, 888 (Miss. 1967)).


[3] Thames, 420 So. 2d at 1043.


[4] Id.


[5] Redd Pest Control Co., Inc. v. Foster, 761 So.2d 967, 972 (Miss. App. 2000).


[6] Tex. Rd. Boring of Louisiana-Mississippi, 194 So.2d at 889.


[7] Herring Gas Co., Inc. v. Magee, 813 F.Supp. 1239, 1245 (S.D.Miss. 1993).


[8] Redd Pest Control Co. v. Heatherly, 248 Miss. 34, 157 So. 2d 133 (Miss. 1963).


[9] Id. at 136.


[10] Frierson v. Sheppard Bldg. Supply Company, 247 Miss. 157, 172, 154 So.2d 151, 156 (Miss. 1963)


[11] Bagwell v. H.B. Wellborn & Company, 247 Miss. 564, 156 So.2d 739 (1963).


[12] Herring Gas Co., Inc., 813 F. Supp. at 1246.


[13] Donahoe v. Tatum, 242 Miss. 253, 261, 134 So. 2d 442, 445 (Miss. 1961)


[14] Frierson, 154 So.2d at 156.


[15] Kennedy v. Metro. Life Ins. Co., 749 So. 2d 362, 367-68 (Miss. 2000). 


[16] See Empiregas, Inc. of Kosciusko v. Bain, 499 So. 2d 971, 976 (Miss. 1992).


[17] Brown and Brown of Mississippi, LLC v. Baker, 2018 WL8805937 (S.D.Miss. 2018).


[18] Herring Gas Co., Inc., 813 F. Supp. at 1245-1246.


[19] Tex. Rd. Boring of Louisiana-Mississippi, 194 So.2d at 887.


[20] Redd Pest Control Co.157 So. 2d at 136 (revising covenant not to compete drafted to apply to entire state to only apply to 50-mile radius from particular city).


[21] Taylor v. Cordis Corp., 634 F. Supp. 1242, 1249 (S.D. Miss. 1986). 


[22] See, e.g., Raines v. Bottrell Ins. Agency, Inc., 992 So. 2d 642, 647 (Miss. Ct. App. 2008) (lost profits awarded); Taylor v. Cordis Corp., 634 F. Supp. 1242, 1252 (S.D. Miss. 1986) (injunction granted).


[23] Stanton & Assoc., Inc. v. Bryant Constr. Co., Inc., 464 So. 2d 499, 502 (Miss. 1985).


[24]  Miss. Code Ann. § 15-1-49.


[25] Empiregas, Inc. of Kosciusko, 499 So. 2d at 976-77.


[26] Brown and Brown of Mississippi, LLC v. Baker, 2018 WL8805937 at *3 (citing TLS Mgmt. Servs., LLC v. Mardis Fin. Servs., Inc., No. 2016 WL 6999480 at *6 (S.D. Miss. 2016)).


[27] Id.



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