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Patrick, Esq.
Patrick, Esq., Lawyer
Category: California Employment Law
Satisfied Customers: 7343
Experience:  Significant experience in all areas of employment law.
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My father sold a company and signed a non compete agreement.

Customer Question

My father sold a company and signed a non compete agreement. I was an officer in the company but I did not sign anything. Am I accountable for the agreement?
Submitted: 1 year ago.
Category: California Employment Law
Expert:  Patrick, Esq. replied 1 year ago.
Hello and thank you for entrusting me to answer your question.

Can you please explain what you mean when you say "accountable for the agreement"? Is your father attempting to compete with the new owner of his former business? Did you have an ownership interest in it? What are you doing now?

I very much look forward to helping you on this matter.
Customer: replied 1 year ago.

My question should not be in this catagory. It should be business law or legal documents I think.


 

Expert:  Patrick, Esq. replied 1 year ago.
Dylan,

Thanks for your reply. Your question actually involves numerous principles of employment law. To the extent that it involves business or general legal principles, I am more than sufficiently familiar with those areas of the law to provide a competent and thorough answer.

That said, if you would like me to transfer your question to the business law section of this site, I would be more than happy to do so.

Please advise.
Customer: replied 1 year ago.


No if you say it is in the right catagory then that is fine. Ok you you fully understand my question? Here it is in a nutshell: My father sold our company and signed a non compete agreement which expires in one year from last month. I did not sign anything and therefore do not think I should be included in the agreement. I have an opportunity to buy another copany now and I want to find out if indeed I am to included in the agreement. If you have any questions please feel free to ask spicificly anything.

Expert:  Patrick, Esq. replied 1 year ago.
Dylan,

Thank you very much for clarifying and please excuse my delay in getting back to you but I stepped away to have dinner.

Do you have the specific language of the non-compete? The specific wordage of "who" it prohibits from competing and to what extent would be relevant to addressing your concerns.
Customer: replied 1 year ago.


I do not know I have never seen this document.

Expert:  Patrick, Esq. replied 1 year ago.

That's okay.

I actually can't imagine how a non-compete under these circumstances could be legally binding on a non-owner officer of the former company. In order for a contract to have legal force and effect against someone, it must be supported by "consideration."

"Consideration" is an essential element of any enforceable contract. Consideration can be anything of value, and without it, a party cannot be bound to an agreement because they never received something that obligates them to their previously expressed commitment.

Put another way, if we agree that I will sell you my car and you pay me $10,000 for it, we have an enforceable contract. I received a benefit through our agreement and must therefore perform my obligations pursuant to it. However, if I simply promise to GIVE you my car, that is a legally unenforceable promise because I have not received anything from you that obligates me to commit to the transaction. I have received no consideration, and so there can be no legally binding agreement.

Your situation is not entirely analogous to the car example, but, as a non-owner officer you presumably received no compensation for the sale of the company or the signing of the non-compete. Without monetary compensation or something else of value being given to you in exchange for the non-compete, it cannot be enforced against you because there is no consideration to give rise to an enforceable contract.

An additional argument here is that you did not personally sign the agreement for sale of the business or the non-compete. Contracts cannot unilaterally be enforced against non-parties.

By example, you cannot make an agreement with your father that I will sell you my car. Again, not a perfect example, but it illustrates that if you are not a party to an agreement, the agreement cannot be held against you.

 

Finally, Business & Professions Code 16600, which permits non-competes only in circumstances involving the sale of a business, clearly limits its effect to the "person who sells the goodwill of the business...":

 

"16601. Any person who sells the goodwill of a business, or any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity, or any owner of a business entity that sells (a) all or substantially all of its operating assets together with the goodwill of the business entity, (b) all or substantially all of the operating assets of a division or a subsidiary of the business entity together with the goodwill of that division or subsidiary, or (c) all of the ownership interest of any subsidiary, may agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein."

 

You are not the person who sold the business and, thus, B & P 16600 would not restrict you from competing.


Although it would have been helpful to review the specific language of the non-compete, I cannot imagine any language that would overcome these legal obstacles to enforcing the agreement against a non-owner officer of the former company. Thus, an individual in your circumstance would not typically have any sort of legal problem starting or purchasing a company that competes in the same industry.

I hope this makes sense.

Please do not hesitate to let me know if you have any questions or concerns regarding the above and I will be more than happy to assist you further.

If you do not require any further assistance, please be so kind as to provide a positive rating of my service so that I may receive credit for assisting you. Very best wishes to you and thank you so much for coming to Just Answer.

Customer: replied 1 year ago.

I am sorry but I guess I should have mentioned that I was a 10% owner and I received some monies from the transaction...not much but I did receive monies. I got about $20,000 out of over $400,000

Expert:  Patrick, Esq. replied 1 year ago.
My apologies for erroneously assuming you were a non-owner. As a part owner, I'm afraid that all the legal arguments I described above would no longer apply and my conclusion is quite different.

As an owner who received compensation from the sale of the business, you received consideration that supports an enforceable contract and B & P 16600 permits enforcement of the non-compete because you are a "person who sells the goodwill of a business."

Although you never actually signed the agreement, you enjoyed the benefit of the bargain and thus impliedly consented to the terms of the sale. Under the circumstances, a court would likely regard the contract as binding against you.

Please let me know if you have any further questions or would like to discuss this further.
Patrick, Esq., Lawyer
Satisfied Customers: 7343
Experience: Significant experience in all areas of employment law.
Patrick, Esq. and 2 other California Employment Law Specialists are ready to help you
Customer: replied 1 year ago.


Thank you very much...Not the answer I was hoping for but it is the answer I expected. I still plan on buying this company but now I will try to hide the fact that I own it for a year.

Expert:  Patrick, Esq. replied 1 year ago.
Dylan,

You are very welcome for the answer. I am just sorry that I had to flip flop on my conclusion based on the fact you were part owner. I apologize if I got your hopes up.

If you ever have any legal questions in the future, I hope that you will consider returning to Just Answer.

Very best of luck to you in your business endeavor.

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