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Non-Compete Obligation

A non-compete obligation is a contractual promise by one party to refrain from conducting business of a similar nature to that of the other party. Non-compete obligations are encountered principally in contracts for the sale of a business and contracts of employment. In general (although with localized exceptions, e.g., regarding employment in the State of California), such agreements are enforceable provided they are reasonable and limited in scope, territory, and duration. In addition, employment non-compete obligations typically must be supported by adequate consideration. Non-compete obligations may be anticompetitive if they amount to a naked division of territory or customers among the parties or are collusively deployed among competing firms (i.e., “no poach agreements”).

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