The common law historically has looked askew on restraints of trade. Although federal and state statues predominately govern restraints of trade in the antitrust realm, the common law of restrictive covenants both complements and sometimes gives meaning to federal and state anticompetition or antitrust statutes.

Covenants not to compete are the largest type of restraint of trade subject to common law scrutiny. Covenants not to compete are also known as noncompete agreements, noncompetition agreements, or anticompetitive agreements (hereinafter “CNCs”). Typically, CNC enforcement actions arise in the context of disputes based upon the following types of agreements, including: (1) employment agreements; (2) sale of a business agreements; (3) partnership agreements; and (4) franchise agreements. The most general articulation of the principles regarding legal enforcement of CNCs is found in the Restatement (Second) of the Law of Contracts, specifically Sections 186, 187 and 188, each of which is set forth below.

Regarding franchise agreements specifically, almost every franchise or dealership relationship nowadays has a CNC that applies both during and after the term of the franchise or dealership agreement. CNCs prohibit franchisees (as well as many people and entities associated with the primary franchisees) from competing with their franchisors. Courts today regularly enforce most CNCs, especially in a franchise context. In so doing, courts apply a reasonableness test that focuses almost myopically on the term and geographic scope of the CNC.

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