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Covenant not to compete

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Tiga Statler

Guest
What is the name of your state? California

I developed a "Widget" type tangible, consumable product for a company I am still currently employed.

In 1999, the Widget product was formulated into its own Corporation separate from the parent company to which I work for. I was made a 25% partner in the Widget corporation.

After 1 year, my other partners bought me out for my 25% of the shares of Widget, Corp. for 60k payable over 2 years.

They insisted I sign a "Covenant not to compete" that states I can not create my own Widget product nor work for another company who would manufacture a competitive Widget product for a period of 5 years following my termination of employment with the Parent company.

Is this a legal and enforced act? What are the limits to my ability to work in the free-enterprise system of California based on this statement. Consider the Covenant to be conservative and very protective to the Widget Corp.
 


divgradcurl

Senior Member
"They insisted I sign a "Covenant not to compete" that states I can not create my own Widget product nor work for another company who would manufacture a competitive Widget product for a period of 5 years following my termination of employment with the Parent company.

Is this a legal and enforced act? What are the limits to my ability to work in the free-enterprise system of California based on this statement. Consider the Covenant to be conservative and very protective to the Widget Corp"

Is this a homework assignment?

In general, California Business and Proifessions Code 16600 makes "non compete" agreements void; however, there are exceptions for when the parties are owners or partners and selling parts of the business. You'll need to take your non-compete agreement to a local attorney who can review the entire agreement to get a definitive answer on its validity.
 
T

Tiga Statler

Guest
Dear divgradcurl

LOL, no, this is far from a homework assignment, but I wasn't about to reveal a national product name online! This is a real deal, but I can see the laugh you must have got! :)

Yes, I have read the 16600 and if not for the fact I owned a few shares of it, I'd not post the question. But the issue becomes one of "what constitutes an ownership" because the product was owned by the Owner of the parent company prior to the product becoming a stand-along Corp. At that moment, they gave me a 25% share in it, then one year later bought me out and the Owner is still, such owner.

If I was the sole owner of the Widget, I have a problem. But as a non-owner who never was an owner but a shareholder, can such a covenant hold water. That is the question.
 

divgradcurl

Senior Member
I'm not an expert in this field; maybe someone who is will jump in. However, my guess is that whether 16600 will depend on whether you were an employee of the company, or some sort of owner of the company. 16600 would certainly negate any such noncompete if you were actually an employee. Probably your best bet, as I noted above, is to take the entire agreement down to a local attorney who can review all of the facts of your case and the agreement in its entirety -- that's the only way you are going to get a certain answer.
 
T

Tiga Statler

Guest
Thanks again Divgradcurl, your input is appreciated and advice is well taken.

This organization I am with has some serious problems despite this imposition on me. They imposed employment contracts on their people long after they have been aboard that include stringent covenents not to compete that are clearly out of bounds with the 16600 on all 3 major points and have terminated some employees who refused to sign this "contract" and have threatened others with the same, or at least to withhold paychecks until it is signed.

It is hoped that a good attorney will be able to get the court to be uninterested in enforcing any such contracts written by this company on the basis of these drastic errors in judgement.

Thanks again for the reply.
 

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