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What constitutes a reasonable duration of a non-compete
restriction in your jurisdiction?
A reasonable duration for a non-compete in the employment
context has not been decided because non-competes are not
enforceable in California and are void as against public policy
(Cal. Bus. & Prof. Code § 16600 (2011)). For more
information, search Non-compete Laws: California
on practicallaw.com.
However, if a statutory exception applies relating to the sale
of a business, the seller of a business can be prohibited from
carrying on a like business within the geographic area in which the
business entity was sold or conducted, for as long as the business
is carried on by:
The buyer of the business interest.
Other partners, if the business entity is a partnership.
Other members, if the business entity is a limited liability
company.
Anyone who derives title to the goodwill or ownership interest
of the business from a buyer, partner or member, as described
above.
(Cal. Bus. & Prof. Code §§ 16601, 16602 and
16602.5 (2011).)
The duration contemplated by these provisions could be many
years.
What constitutes a reasonable geographic non-compete
restriction in your jurisdiction?
A reasonable geographic restriction for a non-compete in the
employment context has not been decided because non-competes are
not enforceable in California and are void as against public policy
(Cal. Bus. & Prof. Code § 16600 (2011)). For more
information, search Non-compete Laws: California on
practicallaw.com.
However, if a statutory exception applies relating to the sale
of a business, the seller of a business can be prohibited from
carrying on a like business within the geographic area in which the
business entity was sold or conducted (Cal. Bus. & Prof.
Code §§ 16601, 16602 and 16602.5 (2011)).
The geographic restriction may encompass only the territory in
which the business entity, partnership or limited liability company
was:
Sold.
Transferred.
Dissolved.
Transacting business.
(Cal. Bus. & Prof. Code §§ 16601, 16602 and
16602.5 (2011).)
Courts have applied a literal interpretation to the geographic
limitations in restrictive covenants in connection with the sale of
a business. For example:
A non-compete agreement signed by the seller of an insurance
business, which covered the entire state of California rather than
just the four counties in which the business principally carried
out its business, was held enforceable. The insurance company
provided its products to clients located throughout the state.
(Alliant Insurance Services, Inc. v. Gaddy, 159 Cal. App. 4th
1292 (2008).)
A non-solicit agreement signed by a seller of a business was
nullified because it was overbroad. The agreement prohibited the
seller from soliciting any of the buyer's employees or
customers, rather than just the customers and employees connected
to the sold business. (Strategix, Ltd. v. Infocrossing West,
Inc., 142 Cal. App. 4th 1068 (2006).)
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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