Another Non-Compete Provision Struck Down

We know California law is tough on "non-compete" agreements. However, the law (Bus. and Prof. Code section 16601) does allow non-competes in the context of the sale of a business. So, if a doctor sells her practice to another doctor, the patient list and the ongoing "goodwill" will be a significant value. A transaction like that can include a non-compete, so the seller does not open a new practice across the street. But even those lawful non-competes have to be drafted correctly. The Court of Appeal held in Strategix, Inc. v. Infocrossing West, Inc., that a non-compete precluding the seller from soliciting the buyer's employees and customers (even those who were not the seller's former customers and employees) was too broad. The Court also refused to "blue pencil" or modify the agreement to apply only to seller's former customers. Ouch.

Non-competes, non-solicits, and trade secrets agreements are tricky (obviously). So, if they are important to you, ensure they are drafted to survive at least four judges' scrutiny (one trial judge and three at the court of appeal).

DGV