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What can non-compete contracts for partners include?

On Behalf of | Jun 8, 2021 | Noncompete Agreements

Noncompete agreements are not limited to employers and their workers. As a business partner, you may also sign a non-compete with one or multiple partners that make up your partnership. Because you work as a business partner, your non-compete agreement will likely contain some special provisions.

If you have a hand in working out your non-compete agreement, it could help you to understand what makes a fair non-compete agreement for business partners. Chron spells out some terms that non-competes used by partners may include.

Spelling out competition exceptions

You and your partner will owe each other different fiduciary duties which include the duty to not harm the partnership by competing against it through another business action. While your partnership documents may spell this out, your non-compete might add some exceptions to the non-competition rule. For instance, your non-compete may allow you to hold a certain number of shares in a business that competes with the partnership.

Reasonably restricting your competition

Non-competes run into trouble if they restrict an employee too much from working elsewhere, and a non-compete for a business partner is no exception. Your non-compete should not completely forbid you from working in the same economic sector as your partner in any geographic location for all time. A reasonable non-compete would only restrict you from competing with your partner for a period of perhaps only two years in the same city or metro area.

Addressing trade secrets

Even if you are able to set up a business that competes for the same customers as your current partnership, your non-compete may restrict how you use trade secrets from your partnership. Your non-compete could restrict you from using a customer list, a recipe, a design, method or another trade secret that is key to your partnership’s success.

Your non-compete might also address the matter of whether you can continue to serve the same clients after you leave the partnership. Since consumers retain the right to choose who they go to for service like a doctor or an attorney, a non-compete cannot restrain this choice. However, your non-compete agreement may require you to pay a fee if you elect to see your previous clients as part of a new business or practice.