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Contracts • Defenses to Enforcement and Formation
K#068
Legal Definition
A covenant not to compete without a reasonable need or reasonable time and place limits may be invalid as against public policy.
Plain English Explanation
Capitalism loves competition. Generally speaking, when you hire someone or do business with a company, you are not allowed to broadly prevent them from ever competing with you again in the future. These types of clauses and agreements are sometimes known as "non-compete agreements," and for them to be upheld in court, they will need to be as reasonable and narrow as possible.
Note: Many states, like California, have made nearly all types of non-compete agreements void for public policy reasons. On the bar exam, though, you will usually need to know the general rule and your bar exam's state-specific rules.
Note: Many states, like California, have made nearly all types of non-compete agreements void for public policy reasons. On the bar exam, though, you will usually need to know the general rule and your bar exam's state-specific rules.
Hypothetical
Hypo 1: Sam owns a taco cart. Sam wants to expand his business, so he hires Bob. In the employment contract, Sam includes a clause that says, "Because I will be showing you how to successfully operate a taco cart, you agree that upon resignation or termination of your employment, you will not work at another taco cart or start your own taco cart for 6 months within a 5 mile radius of Sam's taco cart business." Result: Generally, this type of covenant not to compete would likely hold up. After all, it wouldn't be very fair to allow Sam's competition to first get hired by Sam, then trained, only to later leave and use his secrets and knowledge against him. Note that the time (6 months) is fairly short, and there is a regional restriction on where it applies (5 mile radius). On an exam, though, you'd want to argue both sides of this -- why it is and isn't reasonable.
Visual Aids
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