There are limited exceptions to California’s general prohibition of post-termination non-competition agreements. One such exception is the sale of business exception found in California Business & Professions Code § 16601. This exception allows a buyer to enforce non-compete agreements against a seller if the seller is an “owner of a business entity selling or otherwise disposing of all of his or her ownership interests in the business entity.”
In Blue Mountain Enterprises, LLC v. Owen, 74 Cal. App. 5th 537 (2022), the Court of Appeal found that section 16601 applied to a three year post-termination non-solicitation of customer provision in an employment agreement and upheld the trial court’s decision to enforce the provision against the executive/seller who entered into a joint venture. The court found that section 16601 applied as a matter of law because the defendant “dispos[ed] of all of his … ownership interest” in one transaction agreement while concurrently agreeing under an employment agreement and that both contracts, along with other contracts the parties executed, were drafted to accomplish the parties’ joint venture. Id. at 553. The court also found that the trial court correctly found that the defendant’s letter for his new business constituted a solicitation as a matter of law because the letter went well beyond an announcement by actively encouraging customers to leave and do business with his new company. Id. at 556.
Continue Reading California Court of Appeal Enforces Non-Solicitation of Customers Provision in Joint Venture Transaction Involving Key Employee