If the Millers violated their non-compete agreements By finding that the geographic restriction was appropriate, the court argued that (1) a broader geographic restriction may be necessary for a manufacturer or distributor of products such as E.T Products, where the company can be expected to “reach customers via a larger card,” as opposed to a service company, which is usually located; (2) The Millers might very well assume that E.T. Products would spread throughout North America (and in fact, within two years, it expanded across the continent to the 50 states and 7 Canadian provinces); (3) The scope of the E.T. The products amounted to significant goodwill, as Miller spent decades building his reputation and customer relationships, expanding the company to 13 states; and (4) the Indiana Supreme Court has already confirmed that a 5-year period is reasonable. Therefore, the Court found that the geographical restrictions were appropriate. In deciding whether a non-compete obligation is found to be enforceable, a court will consider whether the restrictions imposed on the seller after the transaction are “reasonable”. Courts to reconcile the interest of the buyer of a company in the protection of his company with the right of the seller to earn a living. In Arizona, when deciding whether a restriction is appropriate, the court will give the utmost attention to two restrictions imposed on the seller: geographic area and period. It is essential to ensure that your non-compete obligation is enforceable. Don`t leave this to chance. The best course of action is for a lawyer to draft the agreement after explaining what you want to achieve.
At least ask a lawyer to review your non-competition code to make sure you have the best chance of finding it enforceable if it is challenged in court. While non-compete obligations entered into in an employment context generally have to be limited to a period of six months to three years, North Carolina courts have been willing to apply longer non-compete obligations, such as five years, in connection with the sale of a business. However, a longer period must correspond to a smaller geographical area in which the non-compete obligation applies, so it is important to take these elements into account when negotiating the two conditions together. North Carolina courts jointly consider the geographic scope and duration of restrictions when determining whether a non-compete obligation is appropriate. Therefore, for example, a three-year restriction of competition may be appropriate in one geographical area, but inappropriate in a wider geographical area. Conclusion: In the case of a sale of business, there is a real risk to the buyer and seller that if a non-compete obligation is not properly written and is too broad or narrow, one of the parties must have a dispute with this provision within a few years of the sale. Therefore, both parties should spend a lot of time thinking and discussing the agreed non-compete obligations that are found in the sales documents and ensure that they understand the agreed non-compete obligations and that these restrictions are clearly written. A non-compete obligation that involves the sale of a business usually provides that in exchange for a certain payment (which may be part of the sale price), the seller promises not to enter into a similar type of business in a certain geographic area for a certain period of time. In addition, the agreement may provide that the seller may not use confidential information about business processes – e.B. customer lists – or trade secrets of the company to be sold or share such information and secrets with others. For a non-compete obligation to be enforceable, it must have a proportionate scope. What does that mean? You can`t just tell a former employee or salesman of a company that they can`t work in their field forever.
For a non-compete obligation to be enforceable, Florida law requires that it contain reasonable provisions for a period of time during which the non-compete obligation is enforceable (usually a few years), a geographic area (such as a municipality, part of a city or city), and a business area (you cannot simply tell someone that they can never work or do business again in a contract, and expect the contract to be enforceable). In principle, the scope of the agreement should be limited and make the applicable restrictions very clear. In general, an agreement that clearly describes a limited period of time for the applicability of the contract, clearly describes a geographic area where the contract is enforceable, and clearly delineates prohibited business activities may have a better chance of being enforceable than an overly broad non-compete obligation. In Texas, a 5- to 10-year non-compete clause in the context of a business sale is the norm. Entrepreneurs often ignore the terms of the non-compete clause when selling, as the idea of starting another business similar to the one they just sold for millions of dollars seems very far-fetched at the time of closing the sale. But this is a mistake. Often, the non-competition clause prohibits a seller from competing within a certain radius of the business being sold. For example, a non-compete obligation may require the seller not to sell the same product or service within a 100-mile radius of Phoenix or in one or more entire states. It is for the court to decide whether these restrictions are appropriate if the agreement is challenged.
What a judge considers “reasonable” depends on many factors. If a company that does almost no business outside of Maricopa County would have a hard time convincing a judge that its competitor can`t do business in Albuquerque. On the other hand, it is possible that the company plans to expand to Albuquerque the following year, in which case the restriction may be seen as appropriate. It is a good idea to describe which areas might be prohibited and list the reasons why the buyer has a reason to prohibit the seller from operating there. This can help the court determine what is reasonable and what is not. A year later, in January 2012, Miller sold Petroleum Solutions to John Kuhns. Miller provided Kuhns with low-interest financing, a lease on the property on which the company operated, lubricant blending training, and consulting assistance. In addition, a few months after the sale, Tracy offered training on the company`s computer programs. In January 2011, Miller sold E.T. Products to a group of investors.
As part of the agreement, Doug and his son Tracy signed non-compete agreements that prohibited them for five years from “assisting persons who have a direct or indirect interest in a company that operates directly or indirectly in the same industry as E.T. Products in North America.” Nor were the Millers authorized to “own, operate, invest, advise, provide services, or otherwise support such competitors, directly or indirectly.” Under Indiana law, the Seventh Circuit found that the restrictions of competition in the Millers` non-compete obligations that prevented them from aiding a competitor “directly or indirectly” were enforceable under Indiana jurisprudence. In summary, in the fight against non-compete obligations, a single size is not for everyone, and buyers should carefully consider the specific facts and circumstances to ensure that they have enforceable non-compete obligations. A typical non-compete obligation contained in a sales contract between a seller and a buyer of a business may look like this: The most important provisions of a non-compete obligation (for the sale of a business) are: The justification of a buyer is simple and seems very reasonable. “Why should I, the buyer, allow the seller who is probably qualified, who has the right contacts and connections based on his history, to know everything about my product (which was his product), to enter a company that will compete with me.” It is difficult to find an affirmative answer to this question. The next serious consideration that the judge must take into consideration is the length of time the seller is prohibited from participating in the contest. Most non-compete obligations prohibit the seller from participating in commercial competition in a certain geographical area (see above) for a certain period of time, such as two years, five years, etc. However, the courts will consider whether the non-compete obligation was designed to specifically meet the enforceability requirements in the particular circumstances of both the seller and the buyer. The analysis of the current day should take into account a review of the respective target market, the territory in which the seller was operating, and the extent of the seller`s knowledge by the private company. The geographical limits of the non-compete obligation are often considered enforceable as long as they coincide with the seller`s commercial service area in which the seller has carried on its activities and to which it may therefore confer an unfair advantage […].