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ENFORCEABILITY OF COVENANTS NOT TO COMPETE

Covenants not to compete are agreements between two parties, where one party agrees not to engage in certain type of behavior that may compete with the other party. In California, the law strongly disfavors covenants not to compete. Unless one of the statutory exceptions to the rule prohibiting covenants not to compete applies, a covenant not to compete will be considered to be void by the Court and hence, completely disregarded.

One of the exceptions, where a covenant not to compete is permissible in California, is in the context of the sale of the goodwill of a business, so long as the covenant is limited to a similar business within a specific geographic area.

Because there is such a strong prohibition against covenants not to compete, any covenant not to compete needs to be carefully drafted to conform with the requirements of the applicable exception statute, and be specific enough so it is very, very clear as to what the parties are agreeing to.

Disputes regarding covenants not to compete come up all the time. They come up in the context of whether or not a covenant not to compete is permissible for the type of transaction that is involved; they come up as to whether or not the covenant not to compete is permissible in the manner that it is used; they come up as to what the scope of the covenant might be; and they come up as to whether or not a covenant has been breached.

Disputes relating to covenants not to compete can be rather significant, as the potential damages can be extremely severe if the covenant not to compete is enforceable and the complaining party can prove damages. Therefore, when evaluating whether or not a covenant not to compete is enforceable, and/or whether or not a covenant not to compete has been breached, it is important to consult with an experienced business/contract attorney.

I often represent clients in the East Bay, in Oakland, California, and in Walnut Creek, California, in business and contract disputes. If you have any questions, or need representation by a California business or contract attorney involving a dispute regarding sale agreements or covenants not to compete, please free to contact me to discuss your case or to arrange for a consultation. I can be reached at (510) 465-0025 or (925) 708-3306.

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