Sample Noncompete Provision

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The California Business & Professions Code § 16600 states: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” However, a noncompete provision that is narrowly written to protect trade secrets and is actually necessary to do so may be enforceable. Note that a contractual covenant not to compete is not necessary to protect the employer’s trade secrets. Such legal protection is already afforded to the employer under unfair competition laws, including those under the UTSA and the California Business and Professions Code.

The below example is from a Franchise Agreement:

NONDISCLOSURE AND NONCOMPETITION AGREEMENT

Confidant is about to undergo training by _ _[Franchisor’s legal name]_ _ (Franchisor) or one of its franchisees. During this process, Confidant will learn a great deal about the _ _[PRINCIPAL IDENTIFYING MARK]_ _ System, including information about its members’ business affairs, finances, management, marketing programs, philosophy, customers and methods of doing business. Confidant will have access to confidential information developed and maintained at substantial cost by Franchisor. This information is proprietary to Franchisor. Its use by third parties could cause substantial and irreparable damage to the company.

Therefore, in return for either (a) his or her training by _ _[Franchisor’s legal name]_ _ Franchisor to operate a _ _[Unit]_ _, or (b) his or her employment by Franchisor or by one of its franchisees, the undersigned (Confidant) agrees as follows:

1. Nondisclosure of Trade Secrets and Confidential Information

Confidant agrees, during the term of the Franchise Agreement and following termination, expiration, or assignment of the Agreement, not to disclose, duplicate, sell, reveal, divulge, publish, furnish, or communicate, either directly or indirectly, any Trade Secret or other Confidential Information of Franchisor to any other person or company unless authorized in writing by Franchisor. Confidant agrees not to use any Trade Secret or Confidential Information for his or her personal gain or for purposes of others, whether or not the Trade Secret or Confidential Information has been conceived, originated, discovered, or developed, in whole or in part, by Confidant or represents Confidant’s work product. If Confidant has assisted in the preparation of any information that we consider to be a Trade Secret or Confidential Information or has himself or herself prepared or created the information, Confidant assigns any rights that he or she may have in the information as its creator to Franchisor, including all ideas made or conceived by Confidant.

2. Definition of Trade Secrets and Confidential Information

For purposes of this agreement, the terms “Trade Secret” and “Confidential Information” mean any knowledge, technique, processes, or information made known or available to Confidant that we treat as confidential, whether existing now or created in the future, including but not limited to information about the cost of materials and supplies, supplier lists or sources of supplies, sales and marketing information, pricing information, proprietary software, internal business forms, orders, customer accounts, manuals and instructional materials describing our methods of operation, including our Operations Manual, audiotapes and video tapes, products, drawings, designs, plans, proposals, and marketing plans, all concepts or ideas in, or reasonably related to our business that have not previously been publicly released by Franchisor, and any other information or property of any kind of Franchisor that may be protected by law as a Trade Secret, confidential, or proprietary. The Trade Secrets and Confidential Information described in this agreement are the sole property of Franchisor.

3. Return of Proprietary Materials

Upon termination or expiration of franchise ownership or employment by Franchisor or a _ _[PRINCIPAL IDENTIFYING MARK]_ _ franchisee, Confidant must surrender to Franchisor all materials considered proprietary by Franchisor, technical or nontechnical, whether or not copyrighted, that relate to a Trade Secret, Confidential Information, or conduct of the operations of Franchisor. Confidant expressly acknowledges that any such materials of any kind given to him or her are and will remain the sole property of Franchisor.

4. Solicitation of Customers

During the term of Confidant’s relationship with Franchisor or one of its franchisees, and for _ _[number of years of noncompete period]_ _ years after the relationship terminates, Confidant agrees that he or she will not, directly or indirectly or by action in concert with others, solicit, induce or influence or seek to solicit, induce or influence any customer or prospective customer with whom Confidant did business during his or her relationship with Franchisor or one of its franchisees for the purpose of promoting or selling any products or services that are competitive with those offered by Franchisor and its franchisees.

5. Solicitation of Employees

Confidant further agrees that, during the term of his or her relationship with Franchisor or one of its franchisees and for _ _[number of years of noncompete period]_ _ years after its expiration, he or she will not, directly or indirectly or in concert with others, furnish to or for the benefit of any competitor of Franchisor, or the competitor’s employees, agents, licensees, or franchisees, or the competitor’s subsidiaries, the name of any person who is employed or engaged as an independent contractor by Franchisor or by any other franchisee of Franchisor. In addition, Confidant agrees that, during the term of his or her relationship with Franchisor or one of its franchisees, and for _ _[number of years of noncompete period]_ _ years after the relationship terminates, he or she will not, directly or indirectly or by action in concert with others, solicit, induce or influence, or seek to solicit, induce or influence any person who is employed by or engaged as an independent contractor by Franchisor to terminate his or her employment or engagement.

6. Noncompetition

Confidant agrees and covenants that because of the confidential and sensitive nature of the Confidential Information and because the use of the Confidential Information in certain circumstances may cause irrevocable damage to Franchisor, Confidant will not, until the expiration of the _ _[number of years of noncompete period]_ _ year after the termination of the employment relationship between Confidant and Franchisor or the franchisee that employs him or her, or termination of the ownership interest of Confidant in a _ _[PRINCIPAL IDENTIFYING MARK]_ _ franchise, engage in, own an interest in, or serve as an officer, director, employee, agent, independent contractor, partner, shareholder, member or principal, directly or indirectly, or through any organization or Related Party, in any _ _[describe type of business]_ _ that is located within _ _[specify noncompete territory]_ _.

7. Saving Provision

Confidant agrees and stipulates that the agreements and covenants not to compete contained in the preceding paragraph are fair and reasonable in light of all the facts and circumstances of the relationship between Confidant and Franchisor. However, Confidant and Franchisor are aware that in certain circumstances courts have refused to enforce certain agreements not to compete. Therefore, in furtherance of the provisions of the preceding paragraph, Confidant and Franchisor agree that if a court or arbitrator should decline to enforce the provisions of the preceding paragraph, that paragraph must be considered modified to restrict Confidant’s competition with Franchisor to the maximum extent, in both time and geography, which the court or arbitrator finds enforceable.

8. Irreparable Harm to Franchisor

Confidant understands and agrees that Franchisor will suffer irreparable injury that cannot be precisely measured in monetary damages if Confidential Information or proprietary information is obtained by any person, firm, or corporation and is used in competition with Franchisor. Accordingly, Confidant agrees that it is reasonable and for the protection of the business and goodwill of Franchisor for Confidant to enter into this agreement. If there is a breach of this agreement by Confidant, Confidant consents to entry of a temporary restraining order or other injunctive relief and to any other relief that may be granted by a court having proper jurisdiction.

9. Binding Effect

This agreement will bind Confidant’s heirs, executors, successors, and assignees as though originally signed by them.

10. Applicable Law

The validity of this agreement will be governed by the laws of the State where Confidant lives. If any provision of this agreement is void or unenforceable in that State, the remainder of the Agreement will be fully enforceable according to its terms.

Date: _ _ _ _ _ _ __[Signature of Confidant]__ _ _[Typed name]_ _