Week $11$: Covenants Not to Compete

Some contracts, such as the sale of an ongoing business or for employment, contain clauses called restrictive covenants, or covenants not to compete. These covenants restrict the area and time in which one party can directly compete with the other party, such as working for a direct competitor or "poaching" employees from a former employer.

In general, California law does not permit these types of agreements. Under the California Business and Professions Code Section $16600$every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.$$ There a few narrow exceptions.

Discussion Question: Do you agree with California public policy against non compete agreements? As a current of future business owner, under what scenarios would you find it to be advantageous to have an enforceable non compete agreement?

Consider:

Protecting trade secrets and confidential information

Customer relationships

Key employees

Investment in employee training

Market share and position

Franchise agreements

Sales of a business

Partnerships and shareholder agreements