Will a Montana court enforce this non-competition / non-solicitation covenant?
Generally no, unless it fits one of three escape routes: two statutory, one judge-made. The default is voidness: “Any contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind”, otherwise than as §§ 28-2-704 and 28-2-705 provide, “is to that extent void” (§ 28-2-703, MCA). The two named statutory exceptions are narrow: a seller of a business's GOODWILL may covenant not to compete in the city, the county, an adjacent county's city, or an adjacent county where the business's principal office sits, for as long as the buyer (or its successor in title) carries on a like business there (§ 28-2-704); and on DISSOLUTION OF A PARTNERSHIP the partners may agree that one or more of them will not compete within that same geography (§ 28-2-705). Outside those two fact patterns, which covers most employment non-competes, the Montana Supreme Court has carved out a third, judge-made route: a covenant that is only a PARTIAL restraint (not a bar on the whole trade or profession) escapes § 28-2-703 entirely if it satisfies a three-part reasonableness test. Dobbins, DeGuire & Tucker, P.C. v. Rutherford, MacDonald & Olson states it: “(1) the covenant should be limited in operation either as to time or place; (2) the covenant should be based on some good consideration; and (3) the covenant should afford a reasonable protection for and not impose an unreasonable burden upon the employer, the employee or the public,” a test that “requires a balancing of the competing interests of the public as well as the employer and employee,” on which basis the Court held the accounting-firm covenant before it “do[es] not constitute a restraint prohibited by Section 28-2-703, MCA.” Montana courts apply this same test to ordinary employee non-competes: Wrigg v. Junkermier and Access Organics, Inc. v. Hernandez both treat a partial restraint as reviewed for reasonableness under the Dobbins factors, not automatically void under § 28-2-703. Since 2011 there is a FOURTH requirement, and it comes first. Wrigg added a threshold the Dobbins list does not contain: “We adopt expressly the requirement that an employer must establish a legitimate business interest as a threshold step to our analysis of the reasonableness of a covenant.” A legitimate business interest means a restriction “necessary to protect an employer’s good will, customer relationships, or trade information”, and the court reaches reasonableness only if the employer clears that step first.
The trap
Two traps run in opposite directions. First: do not assume an employee non-compete is void just because it is not a goodwill sale or partnership dissolution: Montana's courts read § 28-2-703 as reaching only a COMPLETE restraint (“We void covenants that act as a full restraint on trade and in absence of an express statutory exception”), so a partial, reasonable-in-time-and-place covenant is reviewed for reasonableness even though it fits neither § 28-2-704 nor § 28-2-705 on its face. Reviewed is not upheld, and the reported results run the employer's way far less often than that framing suggests: of the three employee and partnership covenants analysed this way, Dobbins upheld one, and BOTH of the others failed. Wrigg refused enforcement because the employer had ended the relationship (“JCCS elected to terminate its employment relationship with Wrigg, and, accordingly, cannot enforce its covenant under these circumstances”), and Access Organics held that “[t]he agreement violates § 28-2-703, MCA, and is unenforceable” for want of consideration. Mungas analysed the § 28-2-705 dissolution exception and held it inapplicable because the partnership had not in fact dissolved. Second, and cutting the other way: do not assume the Dobbins test rescues a FULL restraint: a covenant that bars the whole profession or business, not merely a partial slice of it, gets no benefit of the judicial carve-out and is void under § 28-2-703 unless it is one of the two named statutory exceptions. Two consequences a drafter can act on. CONSIDERATION AND TIMING: an offer of employment already made is spent. “Access Organics’s initial offer of employment to Hernandez is past consideration and may not serve as consideration for the non-compete agreement signed four months later.” An existing employee's covenant needs its own independent consideration, and the court names the ordinary forms: “an employer may provide an employee with a raise or promotion in exchange for signing a non-compete agreement”, which must be given in exchange for the covenant and not before it. TERMINATION: “We agree that an employer normally lacks a legitimate business interest in a covenant when it chooses to end the employment relationship”, so an employer that lays off or declines to renew will usually have no covenant left to enforce. SEVERABILITY cuts the other way for the employer: § 28-2-604 provides that where a contract “has several distinct objects of which one at least is lawful and one at least is unlawful, in whole or in part, the contract is void as to the latter and valid as to the rest”, so a void covenant does not take the rest of the agreement down with it. Separately, an employee covenant not to compete extending beyond one year must also satisfy Montana's statute of frauds (§ 28-2-903(1)(a), MCA, agreements not to be performed within a year): get it in writing.
19 authorities
- statuteMont. Code Ann. § 28-2-703enactment date not established
The words that state the rule
Any contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, otherwise than is provided for by 28-2-704 or 28-2-705 , is to that extent void.
- statuteMont. Code Ann. § 28-2-704enactment date not established
The words that state the rule
A person who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business within the areas provided in subsection (2) so long as the buyer or any person deriving title to the goodwill from the buyer carries on a like business in the described areas.
- statuteMont. Code Ann. § 28-2-705enactment date not established
The words that state the rule
Partners may, upon dissolution of the partnership, agree that one or more of them may not carry on a similar business within the areas provided in 28-2-704 (2).
- case708 P.2d 577Dobbins, DeGuire & Tucker, P.C. v. Rutherford, MacDonald & OlsonMont.decided 1985read it at the source ↗
The words that state the rule
a covenant is a reasonable restraint on the profession of public accounting: “(1) the covenant should be limited in operation either as to time or place; (2) the covenant should be based on some good consideration; and (3) the covenant should afford a reasonable protection for and not impose an unreasonable burden upon the employer, the employee or the public.” This test requires a balancing of the competing interests of the public as well as the employer and employee. We hold that the written contract provisions do not constitute a restraint prohibited by Section 28-2-703, MCA.
- case265 P.3d 646Wrigg v. Junkermier, Clark, Campanella, Stevens, P.C.Mont.decided 2011read it at the source ↗
The words that state the rule
Wrigg agrees that the JCCS covenant imposes a partial restraint on trade. We review for reasonableness covenants that impose a partial restraint on trade.
- statuteMont. Code Ann. § 28-2-903enactment date not established
The words that state the rule
The following agreements are invalid unless the agreement or some note or memorandum of the agreement is in writing and subscribed by the party to be charged or the party's agent: (a) an agreement that by its terms is not to be performed within a year from the making of the agreement;
- statuteMont. Code Ann. § 28-2-704enactment date not established
The words that state the rule
The agreement authorized in subsection (1) may apply in: (a) the city where the principal office of the business is located; (b) the county where the principal office of the business is located; (c) a city in any county adjacent to the county in which the principal office of the business is located; (d) any county adjacent to the county in which the principal office of the business is located; or (e) any combination of the areas in subsections (2)(a) through (2)(d).
The words that state the rule
To be upheld as reasonable, a covenant not to compete must meet three requirements: 5 (1) [I]t must be partial or restricted in its operation in respect either to time or place; (2) it must be on some good consideration; and (3) it must be reasonable, that is, it should afford only a fair protection to the interests of the party in whose favor it is made, and must not be so large in its operation as to interfere with the interests of the public.
The words that state the rule
An agreement not to compete must satisfy all three prongs of the reasonableness test in order to be upheld.
The words that state the rule
As noted above in ¶ 21, § 28-2-703, MCA, provides that a contract which is determined to unreasonably restrain trade “is to that extent void.” Section 28-2-604, MCA, titled “when contract partially void,” provides that a contract with several distinct objects of which one is lawful and one is unlawful, the contract is void as to the latter and valid as to the rest. Therefore, the noncompetition covenant in the Clinic partnership agreements would be severable from the remainder of the agreement should a determination be made that it is unlawful.
- case265 P.3d 646Wrigg v. Junkermier, Clark, Campanella, Stevens, P.C.Mont.decided 2011read it at the source ↗
The words that state the rule
We void covenants that act as a full restraint on trade and in absence of an express statutory exception.
- case265 P.3d 646Wrigg v. Junkermier, Clark, Campanella, Stevens, P.C.Mont.decided 2011read it at the source ↗
The words that state the rule
We adopt expressly the requirement that an employer must establish a legitimate business interest as a threshold step to our analysis of the reasonableness of a covenant.
- case265 P.3d 646Wrigg v. Junkermier, Clark, Campanella, Stevens, P.C.Mont.decided 2011read it at the source ↗
The words that state the rule
These cases demonstrate that a legitimate business interest in a covenant requiresthat a restriction on post-employment activities be necessary to protect an employer’s good will, customer relationships, or trade information.
- case265 P.3d 646Wrigg v. Junkermier, Clark, Campanella, Stevens, P.C.Mont.decided 2011read it at the source ↗
The words that state the rule
We agree that an employer normally lacks a legitimate business interest in a covenant when it chooses to end the employment relationship. Maintenance of the employment relationship represents an employer's best method to prevent competition from an employee.
- case265 P.3d 646Wrigg v. Junkermier, Clark, Campanella, Stevens, P.C.Mont.decided 2011read it at the source ↗
The words that state the rule
JCCS elected to terminate its employment relationship with Wrigg, and, accordingly, cannot enforce its covenant under these circumstances. Rao, 718 F.2d at 224. We reverse and remand with instructions to the District Court to vacate its declaration that JCCS can enforce its covenant and enter judgment in Wrigg’s favor.
The words that state the rule
Access Organics’s initial offer of employment to Hernandez is past consideration and may not serve as consideration for the non-compete agreement signed four months later.
The words that state the rule
Non-compete agreements entered into by existing employees may be supported by independent consideration. For example, an employer may provide an employee with a raise or promotion in exchange for signing a non-compete agreement. In such instances, the salary increase or promotion serves as good consideration.
The words that state the rule
Since the agreement between Hernandez and Access Organics lacks consideration, we need not reach the other two prongs. The agreement violates § 28-2-703, MCA, and is unenforceable.
- statuteMont. Code Ann. § 28-2-604enactment date not established
The words that state the rule
Where a contract has several distinct objects of which one at least is lawful and one at least is unlawful, in whole or in part, the contract is void as to the latter and valid as to the rest.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.