Buy-Sell Agreements and Non-Compete Covenants

By Ira Rosenblatt

Guest Columnist

Question: We customarily require executives in our company to buy a small amount of stock in our company. They are also asked to sign a buy-sell agreement which contains a covenant not to compete, among other provisions. When they leave, the buy-sell provision is triggered, and we buy back their stock in exchange for them agreeing not to compete. I have heard conflicting feedback regarding this approach. Does this practice produce an enforceable covenant not to compete?

Answer:

The short answer to your question is “no.” As its name suggests, non-compete agreements are designed to restrain individuals from engaging in their chosen lawful business, trade, or profession. As such, subject to very limited exceptions, such covenants are void under California law. The recognized statutory exception your policy presumably seeks to trigger is found in California Business