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Non-competition Clause and Public Policy

Non-competition Clause and Public Policy

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Non-competition Clause and Public Policy

The Non-competition clause is an agreement that two parties sign to declare that they will not partake in any activity that acts as competition for their main business. In this case, the buyer can protect himself by including this clause in the contract. It will prevent the seller from working for the competition or even starting a competing business. This will give the buyer enough time to customize the business in such a way that he protects his trade secrets. The buyer’s interests are also protected under this clause, as there will be broad rules to make sure all points of views of competition are accounted for. This ensures that the seller’s capability to confer with a competitor or retain any patents that he or she may have in their custody. By doing this, the buyer is protected from the seller who might have ulterior motives (Klarfeld & American Bar Association, 2003).

The buyer is legally allowed to sue the seller. The buyer is protected under the law that a seller cannot use prior knowledge from his business to start up a new business. It is an offence especially when this clause has been included in the contract. The buyer is protected by the law in such a way that he or she might even be compensated all that he or she had used when buying the business from the seller.

There are, however, some instances where the contract can be declared null and void. In such a case, the buyer can still start or be part of a competing business. These instances allow the buyer to come out of a non-competition agreement. For one, if the time limit statute on the agreement has passed one can start a similar competing business. For instance, after ten years the seller can start a competing similar business (Klarfeld & American Bar Association, 2003). In addition, if the seller moves to a new state that views the non-competition clause differently he or she can start a similar business there. The distance between the two businesses makes them not to become competitors.

Reference

Klarfeld, P. J., & American Bar Association. (2003). Covenants against competition in franchise agreements. Chicago, Ill: Forum on Franchising, American Bar Association.

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