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Richard - Bizlaw
Richard - Bizlaw, Attorney
Category: Business Law
Satisfied Customers: 9709
Experience:  30 years of corporate, litigation and international law
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Business Law - California Company - Is she excluded from our

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Business Law - California Company - Is she excluded from our Non-Compete?

We have a shareholder who says our Non-Compete agreement does not apply to her. The Non-Compete is part of the overall shareholder agreement (SA) she signed when she invested $127,000 in the company. The "Section 3: Non-Compete" is part of the longer SA and says, "Effective beginning the date employment with the company ends, and continuing for one (1) year, the shareholder shall not … (compete with the company…)”.
She was not an employee when she invested the money and signed the SA, and she has not been since. However, she was an employee earlier, but quit three months before she made her investment. We do not have a non-compete for employees to sign (yet!), so she only signed the SA that included the non-compete. Now, six months after she resigned, and three months after she signed the SA, she joined a competitor that falls within our definition in the non-compete.
Is she excluded from our Non-Compete?
Do you think we would likely prevail in a lawsuit against her?
Can an agreement be “retroactive” since she had once been an employee?
Thank you!!

No I do not see this provision being applied against her. The non compete is applicable to shareholder employees and not investors. There is no basis for implying that the non compete should retroactively apply to a prior employment that was terminated prior to the agreement being signed. However, to the extent she had access to trade secrets as a shareholder she would have an obligation to maintain the confidentiality of that information.


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