In this post, I want to explore something very significant that a lot of people gloss over when reviewing contracts: non-compete clauses. Non-compete clauses are exactly what they sound like: they prohibit one party from competing with another. A common example of a non-compete is in an executive employment agreement, where an executive of a cannabis company will be bound from competing with the company for a certain period of time after leaving. These clauses are found in everything from corporate governance documents to M&A contracts.
The big question is whether non-compete clauses are actually enforceable. In many states, the answer is “yes” provided that the non-compete is reasonable in duration and scope. In those states, a non-compete would be more likely to be enforced if it were limited to a city or county and for a reasonable duration of time. A non-compete that prohibited a former employee, for example, from ever working in the same industry, anywhere on Earth, would almost certainly be unenforceable.
That said, California is a notable exception in that it prohibits the use of almost all non-compete clauses. California law states that “[e]xcept as provided in this chapter, every contract by which anyone is