On August 24, 2012, the Fourth District Court of Appeal in Fillpoint, LLC v. Maas, 2012 Cal. App. LEXIS 914 found that while an employer can include an enforceable covenant not to compete (“CNC”) in a purchase agreement pursuant to Business & Professions Code section 16601, a CNC in an employment agreement will be invalidated.
In Fillpoint, LLC, supra, when the employee sold his stock in a corporation, he signed a stock purchase agreement which contained a three-year covenant not to compete. However, he remained an employee of the corporation and also signed an employment agreement that contained a one-year post-employment covenant not to compete. At the end of the three year period, the employee quit and subsequently went to work for a competitor three months later. Fillpoint LLC sued both the employee and his new employer for breach of the employment agreement’s restriction on competition.
After reading the stock purchase agreement and the employment agreement together, the Court upheld the covenant not to compete with respect to the stock purchase agreement, and found that the employee satisfied the contractual terms of the purchase agreement for three years. However, the Court also invalidated the covenant not to compete in the employment agreement finding that it was too broad and “targeted an employee’s fundamental right to pursue his or her profession.”
The case demonstrates that California employers should not attempt to extend the protection of a valid and enforceable CNC in a purchase agreement by including another CNC in an employment agreement.
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