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  1. #1
    Join Date
    Oct 2001
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    non-compete agreements

    A friend of mine is selling his hosting business to another company. The company wants to do a 4-year non-compete clause; that he will not start a hosting company for four years. I think he told me he'd be comfortable with two years, but four years is a long time in the hosting industry. Is that reasonable or typical?
    Adam
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  2. #2
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    Jun 2001
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    I think four years is pretty long. If your friend is more comfortable with two years, why doesn't he tell the prospective purchaser that? Maybe that's what they wanted.
    Last edited by SoftWareRevue; 03-25-2004 at 02:11 PM.
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  3. #3
    Join Date
    Jan 2001
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    When we purchase hosting companies, we also have a clause like that, however it varies on the size of the corp. We recently purchased a company with only 7 servers and we had them sign a 3 year agreement. We also purchased recently one with only 1 server and 75or so shared accounts and had him for only 2 years... Regardless of the time, i believe their should also be a clause put in that the non compete is for a lifetime in regards to the purchased clients. Because we had one company try to be slick about it and some how, 40% of the big clients cancelled and went to a secondary company and finally within 6 months ALL went back to a company that was owned by one of the partners of the old corp.... needless to say, he had to fly down to Miami, FL to settle in court.
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  4. #4
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    Oct 2001
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    Ah, great responses so far. Yes, I don't think he plans to take any customers away or he wouldn't sell in the first place. But after a couple years in the real world he might decide to go full-time into website development and hosting after all.

    Still, in the foreseeable future, he doesn't want to worry about server uptime and support tickets anytime soon. He gets enough of both at his full-time job, which pays enough to not "need" both jobs. He will take it up with the new company, I'm sure they'll work with him. He just didn't want to be asking for an unreasonably short period either.
    Adam
    GetWebSpace.com
    Personal Life Timed Out Due To Inactivity

  5. #5
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    our non-compete clause is dependant on the size of the client-base we're acquiring and the amount being paid.
    essentially as a buyer we have to protect the investment - not simply hand over cash so they can start again, and always aim to integrate the take-over and pay back the captial loos to the compnay within 12 months

    so we request 12months for >100 accounts, 24 months for the rest and , 36 months for > 50k expenditure
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  6. #6
    In California, non-competitive clauses are very difficult to enforce. The courts have ruled here that basically if you leave or sell a company, they cannot restrict you in any way, even with a signed non-competitive agreement.

    You may get someone to sign it, but don't count on enforcing it.
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  7. #7
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    Originally posted by vantasticman7
    In California, non-competitive clauses are very difficult to enforce. The courts have ruled here that basically if you leave or sell a company, they cannot restrict you in any way, even with a signed non-competitive agreement.

    You may get someone to sign it, but don't count on enforcing it.
    That is interesting, and tough for business

    Any other experiences like this one?
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  8. #8
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    I was wondering if someone was going to bring that up vantasticman7. We have used them in the past as well but knew they were not all that enforceable. Helps a little.

  9. #9
    Join Date
    Aug 2003
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    Chesapeake, VA
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    Yep, the enforceability issue is very valid and very real.

    Not just in California but also in other states. The entire clause can be thrown out in court if it is viewed as unfair or overly restrictive. This has happened many times and will continue to happen.

    As a general rule of thumb, a 2-year non-compete in most instances is about the most you can expect to get -and- enforce... anything more than that and you are taking an increasing risk of unenforceability.
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  10. #10
    Join Date
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    Originally posted by vantasticman7
    In California, non-competitive clauses are very difficult to enforce. The courts have ruled here that basically if you leave or sell a company, they cannot restrict you in any way, even with a signed non-competitive agreement.

    You may get someone to sign it, but don't count on enforcing it.
    Everything is difficult in CA, the courts are a mess.

    As for the non-compete, anything more than 6 - 12 months is an incredibly long time. The purpose of such a clause is to prevent someone from leaving a company and taking business with them, not to keep them out of the industry for any extended period of time.

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