A topic has repeatedly come up over the years that I wanted to address – is an enforceable non-compete in California required to be reasonable in duration? Surprisingly, the answer is “NO”. Assuming you are in a situation where you can properly obtain an agreement not to compete (see Bus. Prof. Code 16600-16602.5), the only time limitation that the California requires is “for so long as … [the business] is carried on”. This means that the non-compete runs with the business. Nevertheless, the vast majority of non-competes prepared in California read something along the following lines: “the later of 5 years or 2 years after your employment ends” or words to that effect. The problem here is that 2 year tail, which is tied to employment is subject to scrutiny by a Court since non-competes “post-employment” do not fall into any of the narrow exceptions to California’s prohibition against non-competes. A better way to draft the non-compete would be to say that it runs for so long the purchased business is carried on, unless the person bound by the non-compete is terminated from employment, in which case it expires 2 years after the employment ends. There are many ways to deal with this issue, but the better approach is to give yourself the longest period unless some condition occurs that shortens the period.
Stay tuned – more to come (e.g., how to properly define the scope of the non-compete and how to avoid an otherwise enforceable non-compete if it is overbroad).