California is famously hostile to covenants not to compete. In fact, Section 16600 of the California Business & Professions Code provides "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." Therefore, I always take note when I see a published opinion upholding a covenant not to compete.
In Blue Mt. Enters. v. Owen, 2022 Cal. App. LEXIS 73, the defendant transferred his ownership interests in several firms to a new limited liability company (Blue Mountain) pursuant to a contribution agreement. He entered into an employment agreement with the LLC and a third party acquired a 50% interest in the LLC. Later, he was terminated and allegedly began to compete with the LLC in violation of his employment agreement. At trial, the defendant argued that the the non-solicitation covenant in his unemployment agreement was unenforceable because he did not sell all or substantially all of his assets, but instead sold only a 50% interest.
The trial court disagreed and the Court of Appeal affirmed. According to the courts, the defendant disposed of all of his ownership interests pursuant to the contribution agreement while concurrently agreeing to the non-solicitation covenant in his employment agreement. As a result, the non-solicitation covenant fell under the exception in Section 16601 of the Business & Professions Code (excepting "any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity").
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