Noncompete agreements are commonly included in business purchase transactions to prevent the seller from competing against the buyer for the term of the noncompete agreement. These arrangements are also sometimes called covenants-not-to-compete or noncompete covenants.
Important: Laws regarding noncompete agreements vary from state to state. For example, courts in California generally reject noncompete agreements because state law makes them unenforceable except in limited circumstances. Because noncompete covenants are generally not allowed in the state, California employers often use confidentiality agreements and other types of contracts to protect trade secrets and other information. Still, in many jurisdictions, noncompete covenants can be enforceable if certain conditions are met.
Noncompete agreements have important tax implications. Here are the details.