Covenant not to compete

By: Martin M. Shenkman, CPA, MBA, JD

This is an agreement, usually contained in a broader legal document (e.g., an employment agreement, shareholders' agreement, etc.) although it can be an independent document. It is an agreement, a "covenant", that you will not compete against a person or business. The terms of what constitutes "competition" need to be clearly defined for the covenant to be enforceable or have meaning. In many instances a covenant may be limited by geographic area (e.g. five miles from our office), time (for the next year), and activities (you cannot work for another architectural firm in the specified area for a specified time). Covenants are complex and require the advice of counsel. If the covenant is too broad (you cannot work for any accounting firm, anywhere within 200 miles of our office for the next 10 years) a court is likely to hold that the covenant is not enforceable. In many cases the courts will not simply scale the terms back to what they will enforce, but may hold the entire covenant invalid.

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