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Jan's sandwich shop: legality and enforcement of a non-compete agreement

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Jan opens a sandwich shop across the street from a sandwich shop run by Amy. Amy is disturbed by this competition, and she agrees to pay Jan $5000, in exchange for Jan's promise to quit her business and not to engage in a similar business within a ten-mile radius of Amy's business. Is this contract legal and enforceable? Why or why not? If the agreement is not enforceable, how might Jan and Amy restructure it to increase its changes of being legal?

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Solution Summary

This response discusses whether a non-compete agreement is enforceable and legal.

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According to contract law, "a covenant not to compete that is not ancillary to a legitimate business transaction is void as against public policy because the non-compete clause is not protecting a legitimate business interest" (XXXX). For example, a contract where one lawyer paid another lawyer not to open an office nearby would be void as against public policy because it is not ancillary to a legitimate business transaction.

In this case, no legitimate business transaction (such as the sale of Jan's business to Amy) occurred prior to Amy's ...

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