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Q: Non compete clause upon termination in sales contract ( Answered 5 out of 5 stars,   1 Comment )
Subject: Non compete clause upon termination in sales contract
Category: Business and Money > Small Businesses
Asked by: luvmycat-ga
List Price: $100.00
Posted: 18 Dec 2005 20:57 PST
Expires: 17 Jan 2006 20:57 PST
Question ID: 607307
We're mfrs. reps.  In one of our contracts we signed, it says that
upon termination we can not take on a competitor for 1 year.  Is this
something we can be held to, or is it an illegal statement in the
contract to begin with and unenforceable?

Request for Question Clarification by hagan-ga on 19 Dec 2005 07:13 PST
Hello, luvmycat.  In order to best target our research efforts, could
you tell us what state you are in?  Thanks.
Subject: Re: Non compete clause upon termination in sales contract
Answered By: webadept-ga on 19 Dec 2005 10:14 PST
Rated:5 out of 5 stars

First off, I need to point out the lines at the bottom of the page,
letting you know that we are not attorneys and the best legal advice
you can get is from an attorney. We are researchers. Now, with that
said, and out of the way...

While this is a "legal" statement, if that is all it says then I would
consult an attorney, because it would be very difficult to enforce or
maintain. Most "non-compete" statements have a mileage variable in
there as well, such as: within 12 miles of the business or some even
stretch out to the city limits but those are rare and hard to enforce
as well.

--"What is a noncompete agreement?

Noncompete agreements are either a separate agreement or a clause in
an employee handbook that prohibits an employee from working in a
related business in a designated area for a specific amount of time. "

While these are common in just about every employment or
sub-contractor relationship these days, as you have suspected there
are many which are unenforceable. In California for example, the laws
and precedents are being changed dramatically.

--"The doctrine of 'inevitable disclosure' in trade secret law allows
an employer to stop a former employee from joining a competitor or
starting a new business merely because the employee knows the former
employer?s secrets. This is true even if the employee has no intention
of revealing the secrets or swears that she will never reveal them.
The former employer need only allege that because the former employee
knows confidential information - something that is true for almost all
skilled employees - she will 'inevitably' disclose that information in
the future.

A majority of states grant injunctions based on inevitable disclosure
without any evidence of wrongdoing. However, a California Court of
Appeals just ruled that actual evidence of trade secret theft is
required in order to get an injunction in California: a theory of
inevitable disclosure isn?t enough."

--"Under the Georgia Constitution, a contract in general restraint of
trade or which defeats or lessens competition is void as against
public policy. Ga. Const. art. III,  VI, para. V(c). In the
employment context, a restrictive covenant is only considered in
partial restraint of trade. As a result, Georgia courts will enforce a
non-compete agreement only if its restrictions involve nothing more
than is reasonably necessary to protect an employer's legitimate
business interests, and if the agreement reasonably and specifically
defines limitations with respect to duration, activity, and territory.
See W.R. Grace & Co. v. Mouyal, 262 Ga. 464, 422 S.E.2d 529 (1992);
Farmer v. Airco, Inc., 231 Ga. 847, 204 S.E.2d 580, 581 (1974)."

--"Citing the pace of innovation in the information technology
industry, the Southern District of New York has refused to enforce a
restriction in an employment agreement that would have prevented a Web
site content manager from working for his new company for one year,
stating that, in the Internet industry, a one year non-compete "is
several generations, if not an eternity"."

--"The bottom line is that employers must carefully craft employment
contracts which contain non-compete, non-solicit and non-disclosure
provisions if the employer ever tends to legally enforce the
agreement. Employers which elect to include broad restrictive language
in employment contracts are likely to receive a hostile reception in
the courts."

Again, I'm not an attorney so please don't post your agreement
details, but in reading them, if they are broad, all encompassing
restrictions against your ability to earn a living after leaving the
company (or no longer working for them), then they are probably not
enforceable. If they are reasonable, and precise in their
restrictions, then you may find yourself tied fairly tight to them.

I also answered this question which may be of some interest to you as well

Other Pages of Interest

The Toronto Star

thank, and Happy Holidays

luvmycat-ga rated this answer:5 out of 5 stars and gave an additional tip of: $10.00
Good answer to a broad question.  Good discussion of the topic in
general and good advice.

Subject: Re: Non compete clause upon termination in sales contract
From: daniel2d-ga on 18 Dec 2005 21:04 PST
Non-compete clauses are enforceable.  But if contested a judge would
rule whether it is reasonable.  Does it prohibit non-compete
nationwide or just in your geographical area?  That's the type of
question that would be at issue.

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