Non-Compete

When buying or selling an established business with goodwill, a valid non-compete agreement can enable you to get injunctive relief in the event of a breach.  When seeking such relief, damage is presumed to be irreparable, and a remedy at law (damages) is seen as inadequate.  The buyer need not first show special pecuniary damages or an actual loss of customers in order to receive such relief.  Injunctive relief is proper where there are only nominal or even no actual damages.

Often, people will attack a non-compete by claiming that they are so vague and ambiguous that they are void as a matter of law.  However, courts are told to favor a finding that a contract is sufficiently definite.  They are to construe the contract in a way so as to give effect to the reasonable intentions of the parties that entered into the contract.  A contract need not have every detail to which the parties are agreeing, and certain phrases can be defined using outside sources.  Parol evidence can be properly admitted to explain and make certain any ambiguity.  Parol evidence refers to extraneous evidence such as an oral agreement (a parol contract), or even a written agreement, that is not included in the relevant written document.  Parol evidence will often be admitted absent an integration clause, and even with an integration clause to define certain words.  An integration clause often is written like the following: This Agreement constitutes the entire agreements and supersedes all prior and contemporaneous agreements, negotiations, arrangements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof, and is not intended to confer upon any person, other than the parties, any rights or remedies.

Non-compete clauses are considered a restrictive covenant.  Courts used to view restrictive covenants as prohibiting a person form earning a livelihood and thus against public policy.  However, Courts today, depending on the jurisdiction allow a for a restrictive covenant if it is limited both in time and space and doesn’t refrain the person from engaging in all business.  The validity is to be tested by the restrictive covenants reasonableness with respect to the protection that it is providing and the public interest involved, and is incidental to another lawful contract or sale involving some interest that is to be protected.

This blog is meant to be informative and does not constitute legal advice, and while I do encourage others to post and discuss this topic, I can not and will not respond to any questions as it can create a conflict of interest and possible ethical violations.

 

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