Restrictive Covenants

Question 1

Policy of Non-Compete Agreements

Answer 1

• they are restraines of trade and thereofre contracry to economic prinicples, so courts construe them against the beneficiary
• promoters argue theat they promote honesty and fair dealing and allow employers to develop without concern that they will not be able to enforce their rights

Question 2

Requirements of a Non-Compete

Answer 2

• protectable interst (good will, confidential information, trade secrets)
• Reasonable restrictions (must have a relationship to protected interest):
• time
• space/area (nexxus to activity)
• activity (determined by work with previous employer

Question 3

Formation Issues/Defenses of Non-Competes

Answer 3

• Validity of K
• no meeting of the minds or fraud in the inducement
• consideration adequacy and timing

employment = consideration if signed in conjunction with emloyment

Question 4

Defenses Against Enforcement of Non-Compete

Answer 4

• overbreadth
• ambiguity of restrictions
• lack of protectable interest

Question 4

Effect of Type of Termination on Enforceability on NC

Answer 4

involuntary termination may affect enforceabilty of Non-Compete
NY Rule: involunatry termination = per se invalid
Majority rule: involuntary termination is considered when determining validity
Minority rule: involuntary termiation is irrelevant when considerig validity

Question 5

Assignability and Enforceability of Non-Competes

Answer 5

an assignee cannot enforce a K against an anssignor
Common Law: K for services cannot be asisgned without permission of assigned without an assignment clause

Question 6

Standards of Judicial Scrutiny on Non-Competes

Answer 6

• dependent on the level of bargaing power
• highest level of scrutiny to employment agreements
• mid level to stock redepmption
• low level to business, franchise, or partnership

Question 7

3 Prong Analysis detmining enforeability of NC ancillary to sale

Answer 7

1. covenant must be no broader in activity, time, and geography than necessary to protect interests
2. must not unduly burden promisor
3. must not necessairly compromise public interest in free competition

Question 8

Red Pencil

Answer 8

if restirctive covenant is overbroad, then unenforceable

Question 9

Blue Pencil

Answer 9

court can strike overbroad provisions, and leave enforeable, but cannot rewrite anything

Question 10

Rule of Reason

Answer 10

Courts have discretion to modify RC to reflect intent of the parties, including inseting language and restrictions

Question 11

Passive vs Active Non-Solicitation Agreement

Answer 11

passive vs active is relevant when considering whether something is a “solicitaion”

Question 12

NDA Duration Rule

Answer 12

you can have an indefinite NDA if you include the right language