Noncompete Agreements in Partnerships

Posted June 15, 2020

  • Noncompete Agreements in Partnerships

You have decided to leave a business partnership to start your own business. You and your business partner are parties to a noncompete agreement. That agreement prohibits the ability of one partner to compete against the business upon that partner’s exit from the partnership. Therefore, you want to know what you can and cannot do in your new business.

Historically, courts disfavored noncompete agreements as an unreasonable restraint on trade. That has changed. Courts are now enforcing noncompete agreements more frequently than ever before. There are a number of factors courts consider when deciding these cases. First, the restrictions imposed by terms of the agreement must protect legitimate business interests. Legitimate business interests may include protection of trade secrets or customer relationships. Second, there must be a reasonable limitations on the duration of restrictions. This factor reconciles to protect the business interest against any undue hardship that may result to the former partner. Third, there must be reasonable limitations on geographical restrictions. For example, if the partnership’s business is limited to New Jersey and Pennsylvania, it is unlikely that a court will preclude the former partner from conducting the same business in the State of Washington.

It is important to understand the implications noncompete provisions will have on you whether you are entering or existing a partnership. Additionally. the facts and circumstances underlying noncompete disputes vary greatly from case to case. It is the facts and circumstances of each particular case that will determine the enforceability of noncompete provisions.

Feel free to contact me if you have any questions about this article or concerns about noncompete agreements.

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