Legal Question in Business Law in California

Re: Sold Business- Will Non Compete Hold Up?

The law disfavors restrictions on employees, but businesses are free to contract anything they like. It may be enforceable, to some degree, depending on how well the language was drafted. You'll need to consult and review the document. Feel free to contact me if serious about doing so.

Re: Sold Business- Will Non Compete Hold Up?

I respectfully dissent from the prior opinion. A noncompete clause in a sale-of-business contract will be enforced as a means to protect the value of the "goodwill" purchased by the buyer. The simplest definition of goodwill is that it is the portion of the purchase price attributable to a buyer's expectation of continued patronage because of the reputation, location, customer loyalty, etc. that make the business worth more as a going concern than its breakup value.

The concept is codified in section 16601 of the Business and Professions Code, and is a relatively narrow exception to the policy against non-compete clauses.

Therefore, the clause must be reasonably tailored to protect the goodwill purchased. usually requiring a time and geographical limitation. Ten years is pushing the limit; I can't say that makes the clause invalid, but many of them are written for two, three or maybe five year durations. Non-compete clauses must be geographically reasonable, too... maybe a five-mile radius for a liquor store, or a three-county territory for a heavy-equipment franchise.

Finally, damages for breach of a non-compete clause would probably be limited to the unamortized amount of the purchase price treated by the parties as goodwill, since that would be regarded as defining the maximum harm from a seller's breach.

Re: Sold Business- Will Non Compete Hold Up?

There was a new case that came down in August 2008 that indicates that California non-competition clauses will not be upheld for employees but specifically can be upheld in certain narrow exceptions including the sale of a business. The scope of the non-competition restriction must still be "reasonable" so have an attorney take a look at the actual language in your particular agreement.