Source: http://businesslawbasics.com/enforcement-noncompete-agreements-business-divorce-multistate-comparison
Timestamp: 2019-04-22 06:15:10+00:00

Document:
(Note: the following is adapted from materials prepared for Litigating the Business Divorce (BNA, 2016), co-edited and co-authored by Brian Gottesman).
It is fairly common for members or partners (particularly those in managerial positions who contribute intangible benefits, such as know-how or intellectual property) to be bound by restrictive covenants against competition. These contractual provisions may be found in the operating agreement or other governing document itself, or in a separate document such as a contract for employment or shareholders’ agreement. A non-compete provision may be invoked in the context of a business divorce, either as the basis for injunctive relief and monetary damages or as leverage in settlement negotiations. For example, members may offer to declare a non-compete agreement null and void in exchange for monetary or other concessions. However, non-compete provisions are enforceable only within certain equitable and policy-based limitations, which can vary widely from jurisdiction to jurisdiction.
Most states permit covenants not to compete, but “[c]ovenants not to compete when contained in employment agreements are not mechanically enforced.” The majority of states apply a standard that considers whether: (1) the non-compete is valid under ordinary contract principles (i.e., given in exchange for consideration); (2) the economic interest purportedly protected by the covenant is legitimate and genuine, and the non-compete is not broader than necessary to protect that interest; (3) the non-compete is limited to a reasonable geographic and temporal scope; and (4) the non-compete provision implicates or injures the public interest.
Whether a non-compete can be enforced under this standard is a highly fact-specific analysis. A reasonable temporal scope for a particular employee, with a particular set of skills and knowledge, may be entirely unreasonable for an employee with less access to proprietary information or whose company’s information quickly becomes obsolete. Most courts recognize that two years, as a default rule, is a reasonable temporal scope, but this is no guarantee that a shorter period may be mandated in specific cases. Reasonable geographic scope is also highly dependent on factors specific to the industry and the nature of the services provided by the person encumbered by the covenant. In fields where services may be provided remotely from anywhere in the world, a worldwide restriction is generally regarded as enforceable and reasonable.
1. Trade secrets, as defined in § 688.002(4).
Many states identify specific industries or fields in which non-compete agreements cannot be enforced because their enforcement would per se be unduly injurious to the public interest. For example, most jurisdictions will not enforce non-compete agreements between attorneys. Moreover, many jurisdictions have enacted statutes that prohibit the enforcement of restrictions on the right of physicians to compete.
The purchaser of a business is entitled to negotiate and enforce an agreement by the seller(s) of the business imposing a reasonable restriction on competition by the seller(s) on the theory that such competition would diminish the value of the business which had been purchased. “In order to protect the buyer from that type of ‘unfair’ competition, a covenant not to compete will be enforced to the extent that it is reasonable and necessary in terms of time, activity and territory to protect the buyer's interest.
It is trite and naive to suggest that low to mid-level employees freely agree to restrictive covenants. Disparities in resources, bargaining power, and access to information undercut that overly simplistic notion—except for senior managers and top-dog executives where the shoe is on the other foot and different agency concerns arise. The employer is a repeat player with strong incentives to invest in legal services, to devise an advantageous non-compete, and to insist that employees sign. For the employer, the marginal costs of imposing a non-compete are low.
Disputes between partners or co-members on more or less even footing are not the same as disputes between the “low to mid-level employees” for whom the Court of Chancery expressed concern. Where there is no evidence of a disparity in bargaining power, non-compete agreements will likely be enforced. Even if the provisions are arguably unreasonable in scope, parties seeking to enforce the non-compete have a reasonable expectation that most courts will be inclined to “blue-pencil” the offending provisions and render them enforceable. However, such parties may expect (and should be prepared to respond to) arguments that the court should not rescue a party from carelessly (or intentionally) overly broad language.
 Delaware Exp. Shuttle, Inc. v. Older, 2002 WL 31458243, at *11 (citing McCann Surveyors, Inc. v. Evans, 611 A.2d 1, 3 (Del. Ch. 1987)).
 Id., see also, e.g., Analogic Corp. v. Data Translation, Inc., 358 N.E.2d 804, 807 (Mass. 1976); Insulation Corp. of America v. Brobston, 667 A.2d 729,733 (Pa. Super. 1995); Supinsky v. Omni Healthcare, P.A., 856 So.2d 526, 528 (Fla. 5th DCA 2003); Tex. Bus. & C. Code § 15.50; Light v. Central Cellular Co. of Texas, 883 S.W.2d 622,647 (Tex. 1994). Some states substitute an “undue hardship” factor that essentially duplicates the inquiry into reasonableness of temporal and geographic scope. Maw v. Advanced Clinical Comm’n, Inc., 846 A.2d 604, 609 (N.J. 2004); Reliable Fire Equip. Co. v. Arrendondo, 965 N.E.2d 393, 396-97 (Ill. 2011).
 See, e.g., Community Hosp. Group, Inc. v. More, 838 A.2d 4721, 484 (N.J. App. 2003), rev’d, 183 N.J. 36 (2005).
 Mansol Indus., Inc. v. Singh, 1996 U.S. Dist. LEXIS 22823, at *33 (D.N.J. Sept. 25, 1996).
 E.g., Pettingell v. Morrison, Mahoney & Miller, 687 N.E.2d 253, 256-57 (Mass. 1997).
 E.g., 6 Del. C. § 2707 (declaring non-compete provisions against physicians and other health care workers void as against public policy, but allowing the enforcement of limited monetary penalties for competition); Mass. Stat. 112 § 12(x); but see Tex. Bus. & C. Code § 15.50(b) (allowing enforcement of non-compete against physicians, subject to requirements of access to patient records and requiring provision allowing buyout at a reasonable price by the physician). Massachusetts and Illinois have additionally declared void restrictive covenant against certain media and broadcasting personnel. Mass. Stat. 149 § 186; 820 Ill. Comp. Stat. § 17/21.
 Cal. Bus. & Prof. Code § 16601. See also Id. § 16602-16602.5 (permitting non-compete agreements associated with the sale of partnership or limited liability company interests).
 See, e.g., Edwards v. Arthur Andersen LLP, 189 P.3d 285 (Cal. 2008).
 Vacco Indus., Inc. v. Van Den Berg, 6 Cal. Rptr. 2d 602, 609 (Cal. App. 4th 1992).
 E.g., John Roane, Inc. v. Tweed, 89 A.2d 548, 556 (Del. 1958) (quoting Am. Weekly, Inc. v. Patterson, 16 A.2d 912, 915 (Md. 1940) (“Where the covenant as originally drawn has been found too broad, courts have had no difficulty in restricting it to its proper sphere and enforcing it only to that extent”).
 Tex. Bus. & C. Code § 15.51.
 Griffin Toronjo Pivateau, “Putting the Blue Pencil Down: An Argument for Specificity in Noncompete Agreements,” 86 Neb. L. Rev. 672, 689-90 (2008) (internal citations omitted).
 Delaware Elevator, Inc. v. Williams, 2011 WL 1005181, at *11 (Del. Ch. Mar. 16, 2011) (further holding that “when a restrictive covenant is unreasonable, the court [applying Delaware law] should strike the provision in its entirety”). It is noteworthy that the Court of Chancery found that it had to apply Maryland law to the non-compete at issue in Delaware Elevator, and accordingly that it was compelled to apply the “blue pencil” as mandated by Maryland law.

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