Archive for the ‘Business Contracts’ Category

Non-Compete Clauses: Yes, They Can Be Enforced

It seems to be a common misconception that non-compete agreements are not enforceable in New Mexico. When we talk about non-compete agreements, the first question to ask is: To whom is the non-compete being applied? If a vendor or other business with access to your trade secret information, such as your customer lists, you can certainly require a non-compete on such vendor or other business especially as it relates to using your trade secret or confidential information to compete against your business. If the non-compete is being applied to an employee, then it must be reasonable.

Reasonableness is the Key Factor

To be enforceable in New Mexico, a non-compete agreement must be reasonable in all respects. The geographic area in which a person is not allowed to compete must be reasonable. The time period during which a person is not allowed to compete must be reasonable. The activity in which a person is not allowed to engage must be reasonable. The consideration given in exchange for a person’s agreement not to compete must be reasonable.

Unfortunately, there is no hard and fast rule for what “reasonable” means. As a general rule, the less specialized a position is, the more lenient the terms of the non-compete agreement must be to be considered reasonable. For example, a global company that is one of only a few companies that supply a particular and very specialized product could conceivably prohibit its key personnel from working anywhere in the world for any of the few other companies that supply that product. On the other hand, it may be unreasonable to prohibit a part-time cashier in a retail store from working in any other retail store, even one located next door.

To make a reasonable non-compete agreement, a business should carefully tailor its non-compete agreements to prohibit competition that actually hurts the business. First, what particular work does the employee perform for the company that, if the employee performed the same work for a competitor would harm the company? A non-compete agreement should restrict the employee only from engaging in that particular work for a competitor, and the non-compete agreement should certainly specify that using confidential or trade secret information is prohibited.

How small can the restrictive area be? If your business relies on its convenient location to attract customers, the restrictive area in the non-compete agreement might be unreasonable if it exceeds the business’s neighborhood.

How long should the restrictive time duration be? If your customers are unlikely to follow a departing employee to another business after that employee has not been in the business for a few months, a restrictive time period of one year might be unreasonable.

Fair Consideration is Also Important

Like all agreements, non-compete agreements need to have consideration, which is a fancy legal term for some sort of compensation for the restriction of a non-compete. However, unlike other types of agreements, the courts will look into the sufficiency of the consideration for someone’s promise not to compete — that is, was the compensation paid for the restriction reasonable? If the seller of a business promises not to compete with the buyer, the courts will assume that the seller was sufficiently compensated for his promise with the payment for his business. No such assumption applies when the person promising not to compete is an employee. Offering an existing employee continued at-will employment in exchange for a promise not to compete is probably not adequate consideration. On the other hand, if an initial offer of employment is contingent on a non-compete agreement, the offer of employment might be adequate consideration.

Again, the key to having an enforceable non-compete agreement is to make it as least restrictive as absolutely needed to protect your business. There is usually no need to have an agreement that prevents a person from earning a living in his or her field, and the courts probably won’t enforce such an agreement anyway. Remember, the goal of a non-compete agreement is to protect your business from losing its customers – not to punish an employee who has the audacity to leave your company’s employ.

Business Law Southwest, LLC (BLSW). Business Law That Makes Business Sense. A Slingshot company.

Business Law Southwest, LLC. on Good Day New Mexico

Donald Kochersberger discusses business services offered by Business Law Southwest, LLC on Good Day New Mexico.  See the KOB-4 video here.

Misrepresentation in Legal Contracts

Misrepresentation in Contracts

Don’t enter a contract before it’s too late…

Misrepresentation in a legal contract occurs when one party involved in the agreement knowingly or willingly entered into the contract asserting a fact that is not true. Read More…

Acting In Good Faith

Good Faith

Entering business contracts…

What it Means for your Business

When conducting business dealings and entering into contracts, you expect that the people that you are dealing with will be honest and sincere in their intentions to uphold your agreements. Similar to a breach of contract, when a business or person does not honor their end of the deal, but also misleads the parties involved, they are acting “in bad faith.”

What Does “In Good Faith” Mean?

Simply put, acting “in good faith” means being honest and sincere in intention and action. When a business acts in good faith:

  • They enter into a contract with intent to honor all obligations that were agreed upon
  • They expect to deliver a safe product that does exactly what they say it does
  • They are up-front about any defects or safety concerns about their product
  • They act honestly and sincerely without intent to harm or mislead

Upholding these standards for your business will ensure the safety of your employees and your product or service. These standards can help you fight back if your are harmed or wronged.

How Can I Fight back Against a Person or Entity who did not Act “In Good Faith”?

Not every business acts in good faith in their dealings. When this happens, the product or service that they offer may be delivered in a damaged or harmful condition to your business. Our business lawyers at Business Law Southwest, LLC can help you fight back against these harmful practices. We can evaluate your case, advise you on your rights, help you collect evidence against the other party and represent your business’ best interests during every phase of your case. Contact us today at (505) 848-8581.

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