An agreement not to compete prevents an individual from competing in a particular business or otherwise competing. Many people feel instinctively that such an agreement must be illegal. Under the right circumstances, however, noncompetition covenants as they are called are legal and enforceable, subject to a variety of rules in various states.
To be enforceable, a noncompetition covenant must be limited to a reasonable geographic area, a defined line of business, and it must terminate at the end of a reasonable time. In practice, however, most motorsports dealers would be fully protected by a noncompetition covenant with a key employee, a minority shareholder or the previous owner of the business by a covenant (enforceable in most states) that provides the individual will not engage in the business of selling motorcycles for a period of five years within a 100-mile radius of the protected business location. When buying a business, entering into a partnership or similar arrangement with a co-owner, or hiring a key employee, consider the possible benefits of such a covenant in protecting your business.
Disclaimer: This blog is a highly simplified general discussion. It is not legal advice. Such advice should come solely from qualified legal counsel who understands your situation and who is familiar with all relevant facts, variations in state and local laws that may apply to you, and other matters beyond the scope of this blog.