Most business owners have probably found themselves wishing they had less competition. But serious fears arise when the competitors are former employees or even former owners of their businesses.
In Western Insulation LP v. Moore, a Virginia federal court re-emphasized the expanded allowable scope of “non-compete” agreements when those agreements are found in the sales documents for a business. Applying Virginia law, the court upheld a seven-year non-compete agreement that prohibited the sellers from opening or managing a competing business anywhere in the entire state of California. Both the geographic scope and the length of those restrictions are much broader than those that are typically allowable in the context of an employment contract.
For a non-competition clause in an employment agreement to be enforceable, the restrictions should generally be more limited in time (one or two years at most) and a relatively localized geographic area of restriction. These general rules continue to apply in the employer-employee context. However, this recent ruling re-affirms the rule that those looking to purchase a business may limit their competition for a much longer time period and over a larger geographic area.
As a client of MG, we want you to get the most out of any business that you purchase. Non-compete agreements in your business purchase documents can enable you to make the most of your transaction.
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