Then, analyzing the second element, the court observed that Or-Cal’s business was not found throughout the United States, but only in four western states (Oregon, Washington, California, and Texas). The court found that Or-Cal’s business interests are already protected (especially through the confidentiality clause), so the non-compete clause served no legitimate business purpose. So the court then analyzed the non-compete clause from a business reasonableness perspective-i.e., whether the clause is necessary to protect a legitimate business interest. In analyzing the first element, the court found that this non-compete clause, which was in a contract between a customer and a supplier, was not ancillary to an employment contract or a sale of a business. The court observed that Arizona law tends to disfavor non-compete clauses, but will enforce non-complete clauses if they are (1) ancillary to employment contracts or contracts for a sale of a business, and (2) reasonably limited in their time and territory. Though this case was filed in federal court, the court looked to Arizona law. So Or-Cal sued TKI in federal court, seeking, among other things, to force TKI to honor the non-compete clause. And in 2014, TKI informed Or-Cal that TKI intended to no longer honor the non-compete clause of their contract. In 2013, TKI informed Or-Cal that TKI intended to terminate their contract. However, in 2007, through a business acquisition, TKI itself began manufacturing, marketing, and selling lime sulfur products. Or-Cal would place an order with TKI and then TKI would ship the products to Or-Cal’s customers in the western U.S. Pursuant to the contract, over the next several years, Or-Cal purchased large amounts of lime sulfur from TKI. The contract and these clauses were heavily negotiated by the parties, both of which were represented by legal counsel. The contract also included a confidentiality agreement that protected the companies’ proprietary information. This non-compete clause was limited to TKI’s sales in agricultural markets of the United States for a term of two years following the termination of the contract. In their contract, Or-Cal and TKI included a covenant not to compete which prohibited TKI from competing with Or-Cal in sales of the products. The products were specifically listed in the contract. Under the contract, TKI agreed to “manufacture, formulate, label, package, and ship” certain lime sulfur products to Or-Cal’s customers according to Or-Cal’s specifications.
(“TKI”), a subsidiary of a Delaware corporation headquartered in Phoenix, Arizona. In 2009, Or-Cal entered into a contract with a company called Tessendero Kerley Inc. is an Oregon corporation that produces lime sulfur products for use in agriculture and water treatment applications. Non-Compete Clause in Manufacturing Contract Held to Be Unenforceable Arizona Society of Civil Engineers Newsletter, March 2015