Why does Non-Compete and Non-Solicit Agreements matter?
Enforceability varies enormously by state, broad non-competes are void in California and increasingly restricted elsewhere, while one tied to the sale of a business is more likely to be enforced even where employment non-competes are not. A founder selling a company can end up genuinely barred from starting a similar company for years, which is worth understanding before signing rather than discovering when the next idea shows up.
What does Non-Compete and Non-Solicit Agreements look like in practice?
Suppose a founder sells a scheduling company and signs a three-year non-compete covering "software for healthcare practice management," drafted broadly during a rushed closing. Two years later they want to start a company doing patient intake software (arguably adjacent, arguably covered by the broad definition) and now needs legal review of language they signed years earlier without pushing back on its scope, at a moment when negotiating leverage was much higher than it is now.
What are the common mistakes with Non-Compete and Non-Solicit Agreements?
- Signing the acquirer's standard non-compete language without narrowing the defined scope of "competing business" to something specific.
- Not checking whether the restriction's governing state law actually allows enforcement of the term as written.
- Overlooking that the non-solicit half often survives independently and separately restricts hiring former colleagues, even where a non-compete would not be enforceable.
- Assuming the restriction applies only personally, when some agreements extend to any company the person later joins or advises.
Where the term comes from
California's ban on non-competes is not a recent tech-industry victory. It was enacted in 1872 as section 1673 of the state's original Civil Code, part of a sweeping codification of the common law, and renumbered in 1941 to Business and Professions Code section 16600. The legislature chose a near-absolute ban over the "reasonable restriction" rule the common law allowed, specifically so employers could not suppress wages by limiting where people could go.
Purdue Global Law School on California noncompete law ↗Related concepts
- Asset Sale vs. Stock SaleThe two basic ways to structure an acquisition, the buyer purchases specific assets and liabilities out of the company (asset sale), or the buyer purchases the company's equity itself, liabilities included (stock sale), and the choice changes who owns what, who owes what, and how much tax each side pays.
- Employee vs. Independent ContractorThe legal test that determines whether a worker must be treated as a payroll employee, with tax withholding and benefits obligations, or can be engaged as a self-directed independent contractor, and misclassifying someone exposes the company to back taxes and penalties.