How to Create an Enforceable Non-Compete Agreement

For a variety of reasons, many of our business clients desire to enter into non-compete agreements with specified individuals. In general, non-compete agreements are void in California. As stated in Business & Professions Code Section 16600, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” However, there are exceptions to this rule, which can be particularly useful to California businesses and business owners. These exceptions are discussed below.

The first exception occurs when a person sells his or her business. Business & Professions Code Section 16601 lists the persons who can be subject to a valid non-compete agreement in California. In essence, a person selling the goodwill of a business, or a person selling “all or substantially all” of its assets with goodwill, can potentially enter into a valid non-compete agreement.

To be valid, a non-compete agreement in this situation must be limited to a prohibition on a “similar” business as the buyer. The non-compete must also be limited to a particular geographic area where the business to be sold has operated. Additionally, the buyer must carry on a business that is similar to that prevented by the non-compete agreement.

Other exceptions are similar in nature. Business & Professions Code Section 16602 allows non-compete agreements by a partner when a partnership is being dissolved, or the agreeing party is being disassociated from the partnership. Section 16602.5 allows non-compete agreements in connection with the dissolution of a limited liability company, or the termination of the agreeing individual’s interest in the company.

When our clients plan on purchasing the business of another, it is often important that the selling business owner cannot simply start up a new competing business after the transaction. Lobb & Plewe attorneys are experienced in drafting non-compete agreements for such situations that will stand up under California law. In addition, our attorneys can ensure that individuals selling their businesses are protected, and if a non-compete agreement is necessary, that the non-compete provisions are appropriately limited. Our litigation team can also handle matters when non-compete agreements are breached, as well as defending individuals from claims of such a breach.

Our team of experienced attorneys is well-versed in any issues concerning non-compete agreements under California law. If any of the above matters become important to you or your company, our team is ready to assist you.

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