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Contracts • Remedies for Unexcused Non-Performance
K#151
Legal Definition
A covenant not to compete is enforceable only if (1) the services are unique; (2) the covenant is reasonable in geographic scope and duration; and (3) the covenant does not harm the public.
Plain English Explanation
Remember, unless specified, these cards cover general laws. Restrictions on the right to work are heavily regulated state by state, so it is important to know what your state's laws are.
With that said, generally speaking, the law doesn't look kindly on people contractually agreeing to limit their economic ability to make a living. However, it is generally allowed when the services provided are (1) super unique (e.g., not just flipping burgers or cutting grass); (2) narrow in both duration (less time = more likely enforceable) and geographic location (smaller area = more likely enforceable); and (3) doesn't cause harm to the public (for example, if a highly specialized child cancer doctor was subject to a non-compete agreement, it is possible they may be able to get out of it simply because it is better for the public that the doctor be able to continue working than it is to deny their talents to save kids' lives).
With that said, generally speaking, the law doesn't look kindly on people contractually agreeing to limit their economic ability to make a living. However, it is generally allowed when the services provided are (1) super unique (e.g., not just flipping burgers or cutting grass); (2) narrow in both duration (less time = more likely enforceable) and geographic location (smaller area = more likely enforceable); and (3) doesn't cause harm to the public (for example, if a highly specialized child cancer doctor was subject to a non-compete agreement, it is possible they may be able to get out of it simply because it is better for the public that the doctor be able to continue working than it is to deny their talents to save kids' lives).
Hypothetical
Hypo 1: Bob owns a house painting company. He needs help, so he hires Sam. In the contract, Bob includes a non-compete clause that states Sam may not paint houses within a 3-mile radius of Bob's business for 10 years after Sam's employment ends with Bob. Result: Painting houses isn't very unique or highly-skilled, however, a 3-mile radius around Bob's business seems pretty reasonable. You'd argue both ways on an exam. Ultimately, the 10-year time frame seems extreme and that's what would likely cause this to be unenforceable.
Hypo 2: Bob owns a luxury car detailing company that utilizes high-tech equipment to wash and clean supercars worth more than $250,000. Bob needs help, so he hires Sam. In the contract, Bob includes a non-compete clause that states Sam may not professional wash luxury cars within a 50-mile radius of Bob's business for 3 years after Sam's employment ends. Result: Washing cars may generally be a non-specialized type of job, but washing luxury cars with highly sophisticated technology is a bit different. Even though the law doesn't want to restrict Sam's ability to make a living, it also doesn't want Bob to spend his time and resources training Sam to potentially compete with him later on. Thus, his restrictions on Sam's ability to compete with him is a reasonable bargain for Sam to consider, agree to, and be bound to if he takes employment with Bob.
Hypo 2: Bob owns a luxury car detailing company that utilizes high-tech equipment to wash and clean supercars worth more than $250,000. Bob needs help, so he hires Sam. In the contract, Bob includes a non-compete clause that states Sam may not professional wash luxury cars within a 50-mile radius of Bob's business for 3 years after Sam's employment ends. Result: Washing cars may generally be a non-specialized type of job, but washing luxury cars with highly sophisticated technology is a bit different. Even though the law doesn't want to restrict Sam's ability to make a living, it also doesn't want Bob to spend his time and resources training Sam to potentially compete with him later on. Thus, his restrictions on Sam's ability to compete with him is a reasonable bargain for Sam to consider, agree to, and be bound to if he takes employment with Bob.
Visual Aids
Related Concepts
Are damages recoverable when uncertain?
How do you calculate damages in a breach of a construction contract?
How do you calculate damages in a breach of an employment contract?
How do you calculate damages in the breach of a sale of land contract?
Under the UCC, what formula is used to determine a buyer's damages if a seller breaches and has not tendered any goods?
Under the UCC, what formula is used to determine a buyer's damages if a seller breaches and the buyer keeps the goods?
Under the UCC, what formula is used to determine a seller's damages if a buyer breaches and the buyer keeps the goods?
Under the UCC, what formula is used to determine a seller's damages if a buyer breaches and the seller has not tendered any goods?
What are avoidable damages?
What are consequential damages and when are they recoverable?
What are expectation damages?
What are incidental damages and when are they recoverable?
What are reliance damages?
What are the monetary remedies for breach?
What are the non-monetary remedies for breach?
What is restitution?
What is specific performance?
When are covenants not to compete enforceable in California?
When are liquidated damages appropriate?
When is specific performance unavailable as a remedy?
When may a buyer recover goods from a seller?
When may a seller reclaim goods from a buyer?
