Restaurant Law Blog

Monday, December 17, 2012

Non-Compete Agreements – How Important Are They?

Take the famous Grimaldi’s Pizza, which was founded by Patsy Grimaldi in 1990. In 1998 Patsy retired and sold his business to Frank Ciolli for $500,000, who developed the business into 38 independent locations, the most famous of which remains in DUMBO. This past year the landlord refused to renew Ciolli’s lease agreement forcing him to move next door. Back into the picture and out of retirement steps Patsy, who leases his original space and now plans to open Julaiana’s, a nearly identical coal oven pizzeria. Legal battles ensue.

As I understand it, their sale agreement contained a 10 year non-compete clause which according to Patsy, ended in 2009. Despite common, although not as famous, examples of competition such as this, most owners do not include non-compete provisions into their purchase or employee agreements. My experience tells me that this is because of a prevailing notion that non-competes are unenforceable, but that is not accurate. Carefully constructed non-compete provisions are enforceable, especially when there is something unique to the skill, trade or business of the parties, or when a business is being purchased. Provided that the agreement is carefully tailored to confine the agreements terms (i.e. reasonable geographic limitations, duration, and independent value received for entering into the agreement), they are enforceable and may be the only thing standing in the way of your executive chef or business partner challenging you on your own turf.


 


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