Consideration in Non-Compete Agreements: A Comparative Overview of Colorado, Iowa, Kansas, Missouri, Nebraska, and South Dakota

Nebraska

Nebraska common law governs non-compete agreements. Although such agreements are recognized as partial restraints of trade, Nebraska courts will enforce them only to prevent improper and unfair competition rather than ordinary competition.

When determining enforceability, Nebraska courts consider whether: (1) the restriction is harmful to the public; (2) the restriction is greater than reasonably necessary to protect the employer’s legitimate interests; and (3) the covenant is unduly harsh or oppressive to the employee. To distinguish unfair competition from ordinary competition, courts focus on the employee’s ability to appropriate customer goodwill and the employee’s access to confidential information or trade secrets.

Nebraska courts have enforced restrictions of up to two years where they are narrowly tailored to protect legitimate business interests and prevent unfair competition. In general, non-competition clauses can go no further than restricting or prohibiting the former employee from contacting, soliciting or doing business with those former customers and clients with whom the former employee had personal contact or actually did business, to be enforced by a Nebraska court. Available remedies may include injunctive relief and monetary damages, including lost profits or revenue attributable to the breach. Nebraska courts may also enforce reasonable liquidated damages provisions that are not punitive in nature.

Iowa

Iowa common law governs non-compete agreements. Courts will enforce restrictive covenants only when they are necessary to protect a legitimate business interest, do not impose an undue hardship on the employee, and are not injurious to the public interest.

In evaluating enforceability, Iowa courts consider factors such as the employee’s access to customers, confidential information, and goodwill, as well as the nature of the employee’s position within the organization. Iowa courts generally recognize employers’ interests in protecting customer relationships, goodwill, confidential information, and specialized training when enforcement is reasonably necessary. As a general matter, Iowa courts typically uphold restrictions lasting two to three years, while significantly longer restrictions are scrutinized more closely.

Kansas

Kansas common law governs non-compete agreements. Kansas courts apply a four-factor reasonableness analysis that considers: (1) the employer’s legitimate business interests; (2) the burden imposed on the employee; (3) potential injury to the public welfare; and (4) the reasonableness of the restriction’s duration and geographic scope.

Kansas courts generally construe employment-related non-compete agreements narrowly, while applying greater flexibility to covenants associated with the sale of a business. Employers may use restrictive covenants to protect legitimate interests such as customer relationships, goodwill, confidential information, trade secrets, training investments, referral sources, and business reputation.

The permissible duration of a covenant depends heavily on the surrounding circumstances. While employment-based restrictions are typically subject to closer scrutiny, Kansas courts have, in certain circumstances, particularly in the sale-of-business context, enforced restrictions extending beyond the durations commonly upheld in employment agreements.

A party harmed by a breach may seek injunctive relief, economic damages, including lost profits, and other contractually authorized remedies, such as reasonable liquidated damages and attorney’s fees.

Colorado

Colorado law expressly governs non-compete agreements under Colo. Rev. Stat. § 8-2-113. Colorado strongly disfavors non-compete agreements and generally deems them void unless they fall within limited statutory exceptions. In recent years, the legislature significantly narrowed the circumstances under which employers may impose restrictive covenants, including the use of compensation thresholds and heightened requirements for restrictions designed to protect trade secrets. Even when a covenant falls within a statutory exception, it must be narrowly tailored to protect a legitimate business interest and be no broader than reasonably necessary in its duration, geographic scope, and restricted activities.

Employers seeking to enforce a valid non-compete may pursue injunctive relief and recover damages resulting from a breach, including lost profits where appropriate. Given Colorado’s evolving statutory framework and strict limitations on restrictive covenants, employers should take particular care to ensure compliance with all statutory requirements before seeking enforcement.

Missouri

Missouri common law governs non-compete agreements. A restrictive covenant is generally enforceable when it is no more restrictive than necessary to protect the employer’s legitimate business interests and is reasonably limited in both duration and geographic scope.

Missouri courts recognize several protectable interests, including confidential business information, trade secrets, customer relationships, supplier relationships, goodwill, and protection against unfair competition. Courts also recognize an employer’s interest in preventing former employees from exploiting customer contacts developed through the employer’s efforts.

The temporal scope of a non-compete must be reasonable under the circumstances and limited to what is necessary to protect the employer’s legitimate interests. When a breach occurs, Missouri courts may award economic damages, including lost sales or profits, and grant injunctive relief. Courts may also enforce contractual provisions allowing recovery of attorney’s fees and other agreed-upon remedies.

South Dakota

South Dakota governs non-compete agreements primarily through statute. See S.D. Codified Laws §§ 53-9-8 through 53-9-12. Unlike many states that rely heavily on common-law reasonableness standards, South Dakota begins with a statutory prohibition on restraints of trade and then authorizes certain limited exceptions.

Under South Dakota law, an employee may agree not to engage in the same business or profession as the employer for a period not exceeding two years following termination of employment, provided the covenant satisfies the statutory requirements concerning geographic scope and the employer continues to conduct a like business within the restricted area. Because South Dakota’s approach is largely statutory, courts focus first on whether the covenant fits within the applicable statutory exception.

In addition to satisfying statutory requirements, restrictive covenants remain subject to judicial scrutiny to ensure they are appropriately limited and consistent with public policy. South Dakota courts may enforce valid non-compete agreements through preliminary and permanent injunctive relief.