Q. I signed an Agreement with my business partner that neither of us would open nor operate a competing business within a 10 mile radius. I thought everything would be fine between us when we went into business together. Now we find ourselves arguing about business matters and it appears that we no longer share a common vision. I am contemplating my exit strategy and would like to purchase a similar business which is already up and running and less than 10 miles from our current business. How do I circumvent the Agreement with my business partner?
A. A business partnership is like a marriage. You enter the arrangement in a state of bliss expecting that you and your partner will get along and be able to resolve differences of opinion with little difficulty. Sometimes, it works that way. Other times, you find yourself headed for a “corporate divorce,” in which the partners part ways. Like other divorces, this could be amicable or messy.
I recommend that you meet with an attorney who specializes in business law and that you bring your Agreement with you. The attorney will need to review the Agreement to see if you can legally terminate the partnership without incurring additional financial liability or exposing yourself to breach of contract and fiduciary responsibility claims. There may be a loophole for you. If not, perhaps you can negotiate a termination of the Agreement which is not hostile. Again, the four corners of the Agreement will determine the feasibility and availability of all actions. If the attorney cannot find a ‘legal’ way out, you will need to consider the ramifications of breaching (breaking) the contract.
This is an instance where legal advice is essential to help you analyze the options and determine the best way to proceed in this minefield. To go it alone – without legal representation – would be detrimental to your best interest.
I would like to address the issue of the ‘non-compete’ agreement, in general. More companies and businesses are requiring partners and employees to sign these agreements, which prevent the disclosure of business trade secrets and the mass exodus of clients to the partner’s/employee’s new place of business. These are real threats to every business and could undermine and destroy a business’ viability when a key player leaves for ‘greener pastures.’
Courts generally uphold these agreements when they are deemed reasonable, which is a subjective determination. Preventing a business partner or employee from ever again working in the field is unreasonable; preventing the employee from operating or working at a competing business within a certain radius may be considered reasonable depending upon the distance, the type of business, and other factors unique to that field. If you can avoid signing a non-disclosure/non-compete agreement, do so. If your employer or partner demands that you sign the agreement prior to being hired, be sure to show the agreement to a qualified attorney before signing so that the terms may be negotiated.
Good luck to you.
No column is a substitute for competent legal advice. Please consult with the attorney of your choice concerning specific legal questions you may have.
W. Zehava Schechter, Esq. specializes in real estate law, estate planning and administration, and business law on Long Island, New York. Please send your comments to SchechterLaw@gmail.com.