What is a Non-compete Agreement?

Question: What is a Non-compete Agreement?

I have been asked to sign a non-compete agreement as part of a business sale. What is a non-compete? What is the difference between a non-compete and a non-solicitation agreement?

Answer:

Many business contracts include non-compete agreements. some of the most common situations when you might see a non-compete agreement as part of a business deal are in sales of businesses, employment agreements, and partnerships. Here are some things you need to know about non-competes:

• Reasons for a Non-compete
  In an employment agreement, a non-compete is included to prevent the employee from leaving the company and stealing customers for his or her new business. A non-compete in a business sale is designed to prevent the former owner from opening up a competing business down the street and taking the business customers. A non-compete would also be included in a partnership for the same reason - to keep a former partner from opening a competing business.
  
  
• Restrictions in a Non-compete
  A non-compete agreement imposes restrictions of three types:
  
  • Time
    A non-compete restricts someone from opening a competing within a certain time period.
    
    
  • Distance
    A non-compete also restricts someone from opening a competing business within a certain distance from the original business.
    
    
  • Type of Business
    Non-competes also restrict businesses from similar types from competing with former businesses.
  
  

  Non-compete agreements are difficult to enforce, because they may unduly restrict someone from legitimately going into business. Reasonableness is decided by a court of law (or mediation/arbitration) and according to the laws of a specific state. It is difficult to predict the result of a dispute relating to a non-compete agreement.
  
  

• Non-competes vs. Non-solicitation Agreements
  In contrast to a non-compete, a non-solicitation agreement is an attempt to prevent a former employee, partner, or owner from soliciting customers and employees of the former company. Some contracts contain both non-compete agreements and non-solicitation agreements.
  
  
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