If you have signed an agreement that contains a non-compete clause, you should consult with top-tier business attorneys to see if there are legal methods of getting around the clause. A non-compete clause/agreement generally bars a person from competing against the business with which the non-compete has been signed. Typically, these are inserted into employment agreements and when a business is sold. Depending on the non-compete provision and the circumstances, there are many potential legal theories available.
To begin, in many states, non-compete clauses and agreements are unlawful and cannot be enforced (particularly in an employment setting). For example, in California, non-compete agreements (also called “restrictive covenants”) are, in general, prohibited. See Cal. Bus. & Prof. Code, § 16600 which states in pertinent part: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” This is because non-compete agreements and clauses prevent persons from engaging in employment that would be essential for self-support and support of family and are generally anti-competitive and, in theory, impose burdens on innovation.
That being said, there are exceptions where non-competes will be enforced in California mostly involving the sale of a business and its associated goodwill. As part of the purchase/sale agreement, the previous owners can lawfully be prohibited from competing against the business just sold. There is a similar statutory provision with respect to partners who are disassociated from a partnership. But even when allowed, the non-compete clause or agreement must be reasonable in geographic area and in duration. Other states that ban or severely limit non-compete clauses/agreements include North Dakota, Montana, and Oklahoma. Other states, such as Colorado and the District of Columbia, are moving to enact legislation that would bar or restrict non-compete clauses/agreements. So, in contemplating how to get around a non-compete clause/agreement, the first step is to retain experienced business lawyers to review your non-compete and provide counsel with respect to local and state law.
Another well-known and often successful attack on non-compete agreements/clauses flows from the requirement that they be reasonable. As noted above, a non-compete must be geographically and temporarily reasonable. Generally, the geographical component relates to where the business operates. If the business operates nationally, then some courts will hold that it is reasonable for a non-compete to have a national geographic limitation. By contrast, if the business operates only in, say, Detroit, most courts would hold it UNREASONABLE for a non-compete to extend to the whole of the country. In terms of duration, generally, two years or less is deemed reasonable. Again, experienced and proven non-compete lawyers can review your non-compete clause/agreement and provide counsel with respect to the reasonableness of the clause/agreement.
Another possible legal avenue of attack concerns the legitimate business reasons for the non-compete clause/agreement. Say, for example, that the business requiring a non-compete clause/agreement is legitimately concerned to protect trade secrets and confidential business methods and operations. A court might hold it reasonable to impose a non-compete clause/agreement on an employee who had access to that data/information. However, just as likely, a court would hold such an agreement unreasonable for an employee who had no access to the data/information. A court might hold that such an agreement was punitive and arbitrary.
Other potential arguments include:
- Arguing lack of consideration for the non-compete clause/agreement
- Arguing that the business breached the contract first nullifying the non-compete clause/agreement
- Arguing that there is no breach since the new employment/business is not competing with the previous employer/business
Contact a Non-Compete Lawyer at Revision Legal
If you need help evaluating the validity of a non-compete clause/agreement, contact the employment and business lawyers at Revision Legal at 231-714-0100.