Is a non-compete agreement binding if the company is no longer in business?

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Is a non-compete agreement binding if the company is no longer in business?

I am hiring a person who has the following history. She signed a non-compete agreement for a company who (in debt to IRS) went out of business. The owner started a new business and retained some employees including my candidate. She did not sign a non-compete for the new company. Sometime later, she was laid off and warned about the non-compete (even though she didn’t sign one for new company) Is she, or I bound, by this agreement?

Asked on October 7, 2010 under Employment Labor Law, Washington

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

The best thing that you can do here is to get some legal advice from an employment attorney in your state.  It is my understanding that these agreements are not favored but are enforced in Washington State. They appear to use a "reasonableness" standard and a three prong test including "legitimate business interest" of the employer.  If they limit merely for time and distance (2 years and 500 miles, say) then these restraints are looked at even more closely.  Remember that it is ultimately a contract as between two parties.  Did her boss sign the agreement as owner of the old company and in the old company's name?  Then  think that he may be had pressed to enforce it.  But as I said, seek legal consultation.  Good luck.


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