Maurice wishes to purchase a small restaurant named \"Tasty Burger\" in his comm
ID: 375705 • Letter: M
Question
Maurice wishes to purchase a small restaurant named "Tasty Burger" in his community from Todd who tells Maurice that, while he loves the teenagers who have frequented his establishment, he is tired of flipping burgers and wants to spend more time fishing on the lake. Maurice has Todd sign a covenant not to compete prohibiting Todd from opening a restaurant within 25 miles of Tasty Burger for five years. Assuming that the covenant was drafted properly, is it likely to be enforced?
a. Describe what a non-complete clause is
b. Applying aguments for and agaisnt covenants not to complete in the sale of a business; and
c. if enforceable, what options are available to Maurice if he wanted to open a business within that five years.
Explanation / Answer
A.
A non-compete clause is the clause where the one party generally employee or the seller of the business agrees to the another party (generally employer or the buyer of the business) to not to enter into the trade of a similar nature within a particular geographical area for a defined period of time.
It is observed that the employee or the seller of the business knows about the trade secrets, the details of the clients and other specific aspects of the business that can be used against the employer or the buyer of the business. Hence, the non-compete clause is added to restrict the ability of the employee or seller of the business to cause any harm to the profitability of employer or buyer of the business.
B.
One argument in favor of the non-compete covenant is that the seller of the business holds sufficient information that can be used to decrease the profitability of the new buyer. A joining the new firm or establishing the new firm can be used as a tool to harm the business that is just sold. One argument in against of the non-compete covenant is that the business just sold, does not cater the whole audience of the market. So, establishing of the new business, will not exactly harm the business just sold. Further, the business information can be shared or sold to the competitors without entering into the business. So, it is the ability of the business to hold the customer base. Mere information sharing does not cause the big harm to the business just sold.
C.
The following options are available:
1. Start the business in the area, that is not catered by the business sold by Maurice.
2. If the target audience is different from the past business, then the business can be started.
3. Maurice can also start the business by joining the above or lower segment in the value chain in comparison to the past business.