McBride Law Blog

Covenant Not To Compete When Buying or Selling a Business (Part I)

McBride Law Blog

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If your business employs skilled workers, or you have been one, you may be familiar with non-compete agreement, also known as covenant not to compete.  For those who are less familiar with the subject, it is a contractual provision under which one party agrees not to compete in the same business, usually for a specific time period and/or in a defined geographic area.  For example, in the context of employment, an employee may sign an employment agreement and agree not to work for a competitor of the employer for, say, three years after termination of the employment.  The current state of the laws in many jurisdictions aside, an employer might have a legitimate business interest in insisting upon a covenant not to compete when an employee is in a position to learn about the employer’s trade secrets or other proprietary and confidential information that it wants to protect from competitors.

A less known, but potentially more likely, scenario for business owners, though, is in the context of buying or selling a business.  While there are many benefits of buying or selling a thriving business, both sellers and buyers need to be aware of restrictive covenants as part of the contract for sale and think about how to define a competitive business and terms of the covenant, including the scope of activity, duration, and geographic area.  In this blog series, we will focus on non-compete agreements in the context of buying or selling a business by looking at cases from several states, including California, Florida, New York, and Texas.  While the cases discussed here are not intended to be a comprehensive survey of state laws, they are, nevertheless, illustrative examples of what can go wrong and what passes muster under state law.

This post was part of a multi-part series on covenant not to compete in the context of buying or selling a business.  You can find the other posts by searching our blogs at www.mcbrideattorneys.com.  In our next post, we will discuss non-competes under California law.

This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

Posted In: Business Management, California Law Update, New York Law Update, Texas Law Update, Uncategorized

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