|Why Do I Need a Non Competition Agreement When I Buy a Business?|
By: Jayson Schwarz and Konstantine Chatzidimos
-- A fresh preliminary report suggests that the component in could reduce the measurements large growths that will disfigure the bodies of children click here. Ertapenem can be used to take care of the following conditions: fever, pharyngitis, and headache using a severe blistering, peeling, and red roseola generic cialis no prescription.
Purchasers of established businesses or employers operating in fields where intellectual capital is a significant asset will generally insist on non-compete covenants from their vendor or prospective employee(s).
Owner/managers of small or family style companies such as restaurants or distribution concerns build relationships based on personality and friendship between the principals and the customers or suppliers. Purchasers of ongoing businesses will clearly want confirmation that the seller will not set up shop down the street or join a competitor at the closing of the transaction.
Sometimes it is the intellectual capital that can be the most important asset, and to protect it from competitors it will be essential to have employees and principals sign non-competition agreements or, alternately, by including non-competition clauses in employment contracts.
Non Competition agreements restrict employees and principals from joining competing firms or setting up their or her own competing businesses for some period of time within a particular territory (geographical or otherwise). These agreements have become commonplace in many sectors of the economy.
The courts are generally reluctant to enforce non-compete agreements which are deemed to be unreasonable. Whether you are a prospective business purchaser or an employer desiring to protect your proprietary interest, be cognizant that great care must be taken in drafting such agreements or clauses.
The law takes the approach that non-competition agreements or covenants are enforceable depending on whether the restriction is reasonable between the parties and is in the public interest. Implicit in this approach is the balance between the public policy interest in enforcing contractual obligations while at the same time promoting free and open competition and discouraging unreasonable restraints on trade.
After determining that there exists a proprietary interest in need of protection, courts will inquire as to whether the restrictive covenant goes beyond what is reasonably required to protect the proprietary interest or whether the clause is merely a gratuitous attempt to restrain competition.
The 'Reasonable' Test
Determining "reasonableness" is often the most challenging part for a court in its consideration of non-competition agreements or clauses. In the words of the Supreme Court of Canada in J.G. Collins Insurance Agencies v. Elsley, "reasonableness" in each case is determined by "...an overall assessment of the clause, the agreement within which it is found, and all of the surrounding circumstances." In more common parlance, context is considered a key factor when it comes to deciding upon the validity of non-competition clauses or agreements.
On a more practical level, the three (3) main factors which courts tend to scrutinize in determining the reasonableness of a non-competition agreement are (i) time; (ii) activity prohibited; and, (iii) territory (geographical or otherwise). A non-compete clause found to be in place for too long a period of time, trying to stop the person in to many areas of endeavor or covering too big an area, will be deemed unenforceable.
A crucial point which many employers or prospective business purchasers miss is the effectiveness of a non-solicitation agreement to replace or compliment a non-competition agreement. Non-solicitation agreements restrict a party from soliciting employees or customers of the company. In tandem with a well drafted confidentially agreement or provision, non-solicitation agreements can effectively achieve the same results as a non-competition agreement.
The importance of non-solicitation agreements cannot be emphasized enough -- in fact, some courts will not enforce a non-competition agreement or clause if a non-solicitation clause would adequately protect the employer's interests.
Oftentimes employers attempting to enforce a non-competition agreement will apply to a court asking for an interlocutory injunction, whereby it attempts to prohibit the former employee from working for a competitor or launching a competing business.
In determining whether to grant an interlocutory injunction the court will consider, among other things, whether the employer has demonstrated that: (i) "irreparable harm" will result to the employer if the injunction is not granted; (ii) whether the balance of convenience favors granting the injunction and (iii) whether the injured party can be compensated by money. The logic behind this approach is that "irreparable harm" cannot be adequately compensated by awarding damages even if the employer succeeds at a future trial.
Non-competition and non solicitation agreements should be a part of every purchase of a business in order to adequately protect the Purchaser as time goes on. These agreements are tricky and your lawyer must properly investigate the circumstances and draft carefully in order that such an agreement will be enforceable.