It generally is a defense to a breach of contract claim if the defendant proves that the plaintiff was the first one to materially breach the parties’ agreement. As a recent case from the Business Litigation Session of the Massachusetts Superior Court confirms, however, a plaintiff seeking to enforce a post-employment restrictive covenant can avoid falling victim to such a defense – if, that is, the company has a carefully crafted agreement is in place.… Keep reading
In Enforcing Non-Compete Agreements Against California Employees — Part I, I discussed how a Massachusetts company might be able to enforce a non-compete against a California employee by including a Massachusetts choice of law provision in an employment agreement. In this post, I will discuss three scenarios under which an employer may be able to obtain an actual (or the functional equivalent) of a non-compete with respect to California residents/employees even if California law applies.
1. Enforcing a Non-Compete Against the Seller of Goodwill or Equity
Section 16601 of the California Business and Professional Code states:
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Any person who sells the goodwill of a business, or any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity, or any owner of a business entity that sells (a) all or substantially all of its operating assets together with the goodwill of the business entity, (b) all or substantially all of the operating assets of a division or a subsidiary of the business entity together with the goodwill of that division or subsidiary, or (c) all of the ownership interest of any subsidiary, may agree with the buyer to
In a post this summer, I raised three issues employers may want to consider before even requesting that an employee execute a covenant not to compete. One issue that I did not mention is whether the company’s employee lives and works in California. Although where an employee lives may be relevant, contrary to what many attorneys think, it may be possible for a Massachusetts company to enforce a non-compete against a California resident.… Keep reading
While many employers take comfort in knowing that some or all of their employees have agreed to non-compete covenants, obtaining and enforcing such agreements does not come without costs. As such, it is important for in-house counsel to explore with their business clients whether it really makes legal and economic sense to seek such agreements. Among the issues you may want to raise are the following:
Issue # 1: How Likely is it that the Contemplated Non-Compete Would Be Enforceable?
Most in-house counsel who have had any dealings with non-compete covenants know that if such a covenant merely limits competition, it is not enforceable. Because many business clients do not have a clear understanding of this counterintuitive principle, in-house counsel can save a lot of future angst if they make sure that the business people know right from the start that a non-compete covenant only is enforceable if it is necessary to protect confidential information, goodwill or trade secrets. Indeed, because there are many situations in which none of these three interests will be protected by a non-compete, if your client knows this up front, s/he may decide that it is not worth the time and expense to even … Keep reading