On March 4, 2025, Arkansas Governor Sarah Huckabee Sanders signed into law Senate Bill 139, now Act 232 (the “Act”), which amends the state’s non-compete statute to provide that non-compete covenants that “restrict the right of a physician to practice within the physician’s scope of practice” are void. The term “physician” includes any person authorized or licensed to practice medicine under the Arkansas Medical Practice Act and any person licensed to practice osteopathy under Arkansas law. The Act will take effect 90 days after adjournment of the current legislative session, likely resulting in a mid-July 2025 effective date.

Arkansas’s Existing Non-Compete Statute

Arkansas Code Section 4-75-101, entitled “Covenant not to compete agreements,” provides statutory factors for determining the enforceability of non-compete agreements signed after July 22, 2015 (the statute’s initial effective date).  A non-compete agreement is enforceable where it is ancillary to an employment relationship or part of an otherwise enforceable employment agreement and if (1) the employer has a protectable business interest and (2) the covenant is limited with respect to time and scope in a manner that is not greater than necessary to defend the protectable business interest of the employer. 

The statute sets forth a non-exhaustive list of specific examples of protectable business interests, including an employer’s trade secrets, intellectual property, customer lists, goodwill, methods, costs, the employer’s business practices or training of its employees, and other confidential information or valuable employer data. It also discusses factors for determining the reasonableness of the covenant, including the presumptive reasonableness of a two-year time restriction and that the lack of a geographic restriction alone does not make the agreement unenforceable. Additionally, the statute instructs courts to judicially reform (blue pencil) overbroad agreements to make the restrictions reasonable to the extent necessary “to protect the protectable business interest.”

The statute does not apply to non-compete agreements that are ancillary to other types of contractual relationships, such as the sale of a business, or to employee non-solicit and confidentiality agreements.  While the former category is excluded from the statute, Arkansas courts often look to non-competition enforcement principles when analyzing non-solicit and non-disclosure agreements. Importantly, the statute also explicitly states that it does not apply to “a person holding a professional license under Arkansas Code Title 17, Subtitle 3,” which includes physicians and several other health care professionals.

Although physicians and other health care professionals were carved out of the non-compete statute, that did not mean that non-compete agreements could never be enforced with those employees. Rather, any such agreements were controlled by Arkansas common law and potentially could be enforced if they satisfied the three-part common law test. However, under the common law, physician non-competes often had to be narrower in scope to pass muster and overcome public policy concerns similar to what the Act aims to protect. See, e.g., Mercy Health Sys. of Northwest Ark., Inc. v. Bicak, 2011 Ark. App. 341, 383 S.W.3d 869 (discussing, in part, public policy disfavoring noncompete covenants that “unduly restrict the public’s access to the physicians of their choice”).

Act 232 “Clarifies” that Non-Competes with Physicians are Unenforceable

The subtitle of the Act states that is “[t]o clarify that a covenant not to compete agreement is unenforceable for certain licensed medical professionals.” The Act amends Section 4-75-101 by, in relevant part, adding a new subsection (k). This new subsection provides that “[a] covenant not to compete agreement that restricts the right of a physician to practice within the physician's scope of practice is void.”  Subsection (k) further defines “physician” to mean “a person authorized or licensed to practice medicine under the Arkansas Medical Practices Act, § 17-95-201 et seq., § 17-95-301 et seq., and § 17-95-401 et seq., and a person authorized to practice osteopathy under § 17-91-101 et seq.”   

It is not clear whether the statute’s amendment will apply retroactively to agreements signed before the legislation’s effective date. See Box v. J.B. Hunt Transp., Inc., 2017 Ark. App. 605 533 S.W.3d 603 (explaining that Arkansas Code Annotated § 4-75-101 did not apply to four agreements signed before the statute took effect). Generally, under Arkansas law, statutes are presumed to operate prospectively only, especially absent a provision stating they apply retroactively. The Act does not have any language stating that it applies retroactively. The amendment does say that it is “clarify[ing]” the existing statute, which leaves the question open as to whether it is truly a new standard going forward or applies retroactively to simply make an existing standard clearer. Employers seeking guidance about the retroactive application of the Act should confer with counsel to evaluate the potential application of the Act to agreements signed before the Act’s effective date.

Next Steps

Arkansas joins several other states, most recently Pennsylvania in 2024, in restricting non-compete agreements with certain health care professionals. Entities that employ licensed medical providers in Arkansas should consult legal counsel and evaluate their post-employment restrictions.