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

July 21, 2016

Texas.

In Texas, as in many other states, a covenant not to compete is enforceable if: (i) it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made; (ii) it is reasonable as to time, geographic area, and scope of activity to be restrained; and (iii) the restraint imposed is no greater than is necessary to protect the goodwill or other business interests at issue.[1]  If the first two conditions are met but the restraint imposed is greater than necessary, Texas courts have the authority to reform the covenant to the extent necessary to make it reasonable as to time, geographic area, and scope of activity.… Read the rest

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

July 14, 2016

New York: Sale of Business and Good Will Beyond the Label.

In New York, non-competes used to be strongly disfavored by courts.[1]  Over time, however, courts came to recognize that there are situations in which it was not only desirable but essential to enforce non-competes.[2]  For example, in the context of a sale of a business along with its good will as a going concern, New York courts enforce a covenant not to compete because a seller of a business should not be allowed to recapture the good will of the very business he or she transferred for value by competing against the buyer.… Read the rest

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

July 5, 2016

Florida: Reasonableness Matters.

In Florida, restrictive covenants are not prohibited, so long as they are reasonable in time, area, and line of business.[1]  In the context of the sale of a business or professional practice, Florida courts generally presume reasonable if the restriction is less than three years in duration and unreasonable if more than seven years in duration.  Additionally, the person seeking to enforce a restrictive covenant must: (i) show the existence of a legitimate business interest justifying the restriction, such as trade secrets, other valuable confidential business or professional information, substantial relationships with customers/patients/clients, goodwill, or special training; and (ii) prove that the restraint is reasonably  necessary to protect the legitimate business interest.… Read the rest

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

June 28, 2016

California: It All Comes Down to Goodwill.

Generally speaking, non-competes are void under California law.[1]  Exceptions do exist.  In the context of the sale of goodwill in a business, for example, the seller may agree not to compete with the buyer so long as the buyer carries on a like business.[2]  This makes sense because it would be unfair for the seller to engage in a competitive business that diminishes the value of the business sold.  So how does this work in practice?… Read the rest

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

June 16, 2016

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. … Read the rest

All postings are intended to be planning tools to familiarize readers with some of the high-level issues discussed therein. No posting is intended 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.