Legal Question in Business Law in California
Noncompete Agreements and S-Corporations
It is my understanding that noncompete agreements are illegal (section 16600 of the Business & Professions Code) in the state of california, except in instances where trade secrets are at risk and in cases where a member of a partnership sells his interest in the company.
If a member of an S-Corporation sells his stock back to the corporation, does this fall under the �partnership� provision of the code, and would this restrict that ex-stockholder from contracting directly with a client of the S-Corporation either as an independent contractor or by becoming an employee.
3 Answers from Attorneys
Re: Noncompete Agreements and S-Corporations
Your question is obtuse to say the least. What is the first part have to do with the second part. What expertise to you have to determine whether a contract is incomplete and what is it have to do with your second question. More importantly, from Lee and minimal fact situation the question cannot be answered intelligently. Your question asks for a positive or negative answer when the answer could be something in the middle but there has to be substantially more facts given to allow someone to possibly intelligently answer this question. And, I would have to know who you are in relation to the person who is selling back the stock and if that person is the person who is contracting with a customer of the Yes Corp. by the way, they Meese may be something other than employees and or independent contractors.
Re: Noncompete Agreements and S-Corporations
Non competition agreements are not invalid but they are subject to close scrutiny and if not properly limited will be thrown out.
More facts would be needed to determine if that shareholder would be limited in its dealings/competition with a client of the corporation.
JOEL SELIK
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Re: Noncompete Agreements and S-Corporations
Yes, generally they are unenforceable. However, there are various tort theories they could assert. I would need to look at the contractual scheme. You may contact me.
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