Non-Compete; Non-Solicitation

Discussion in 'Growing and Managing a Business' started by Workaholic24x7, Jul 19, 2012.

  1. Workaholic24x7

    Workaholic24x7
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    Hello, I have a business idea that I would like to pitch to my executive management team to help grow our business. I'm not sure however if there are legal or ethical concerns that need to be taken into consideration to make this idea work. I was hoping for some unbias advise. The broad question is...if one company (company A) has a Non-Compete agreement with their clients, but then the owner creates a second, smaller company (Company B) as a seperate entity, can company B compete against the clients of company A for business, or is that considered a violation of non-compete agreements? Your advisement would be much appreciated here. I would hate to pitch this idea to executives only to be told I'm unethical and putting the company at risk for legal action. :confused:
     
  2. ArcSine

    ArcSine
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    Most likely the definitive answer can only come from an attorney who has the full text of the existing NCA in front of him, and who has familiarity with the laws of the state in question.

    But just as an off-the-cuff reaction from this non-attorney, being able to end-run around a NCA just by forming another entity (couple hundred bucks and a one-page form) seems too easy. I'd speculate that a well-drafted non-compete would have not just the entity as the bound party, but also any principle owners, and possibly any key "idea" people. Check out the language in yours for possibly a provision restricting not just the entity itself, but also the owner(s), either directly or indirectly through any entity in which they hold a meaningful financial interest. (Most NCAs I've seen nip the end-run strategy in the bud using some form of that "directly or indirectly....financial interest" attack.)

    Not trying to play the wet blanket; a good biz idea should be given the opportunity to see the light of day, somehow. It just might take some creative thinking from all parties (including your attorney) to figure out how to derive value from the idea, while simultaneously remaining in compliance with existing agreements.
     
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  3. Workaholic24x7

    Workaholic24x7
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    Great advice! Thanks! I took a look at one of the contract clauses on one of our MSAs and it wasn't well written at all. (Only mentions not providing pricing direct to our client's already existing customer of an already existing contract agreement) Of course this is only one of several contracts which would need to be reviewed and if this proposed idea were to take shape, our legal counsel would also need to be brought in for advisement. Not a bad place to start though. ;)
     
  4. Business Attorney

    Business Attorney
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    As ArcSine said, you really need advice from your attorney based on the specific language of the applicable agreements, state law and the detailed facts of what the idea is and how directly related to the protected information it is.

    Generally, courts read clauses that restrict competition very narrowly, but that doesn't necessarily mean that a judge won't try to enforce what he perceives to be the intent of the parties if you are trying to squeeze through some gap in the drafting. Typically, restrictive covenants are considered to be matters of "equity" rather than matters of "law." Judicial precedent tends to give much broader discretion to judges in equity than in law.
     

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