Non-Compete Agreements and the Anti-Planning Provision

Non-compete agreements, as the name suggests, prohibit a party from competing in the same line of business as the other party in the agreement for a certain period specified in the agreement. When an employee is the bound party the agreement also involves taking employment in a competitor, but traditionally the focus is on barring a party from owning or operating a competing business venture. State laws usually permit the bound party to prepare to compete upon the expiration of the agreement. Such preparation can include drafting business and marketing plans, launching websites, incorporation, and even (under certain circumstances) contacting prospective clients and customers — essentially, the bound party has to stop short of actually engaging in commerce in competition with the other party. However, some non-compete agreements also include an anti-planning provision, which in addition to prohibiting competition also bars a party from taking the above planning actions. A Texas court recently upheld the findings of an arbitration panel that an anti-planning provision of a non-compete agreement was valid under the Delaware law that the agreement had chosen. The court found that the parties were free to contract for the anti-planning provision (or any provision) as long as it did not violate state law. Consequently, the result would likely be the same in most, if not all states — I cannot think of a state that prohibits anti-planning provisions (though if there is a state I would welcome an email letting me know about it!). If you are under or asked to sign a non-compete agreement and you may want to start a competing venture, make sure that your agreement does not have an anti-planning provision; if it does, be sure not to violate the provision. In the above case, the arbitration panel equitably extended the agreement for an additional year; at the very least, you could be subject to damages for breach. Read more: http://www.smoothtransitionslawblog.com/2013/07/articles/noncompete-agreements/antiplanning-provisions-a-new-noncompete-weapon/

Leave a Reply

Your email address will not be published. Required fields are marked *