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How Do You Know if Your Non-Compete Clause Is Taxable?

In general, non-competition provisions are deemed against public policy. However, they will be enforced if the duration and are of restriction are reasonable. In order to determine what is reasonable, a court will look at the individual facts of each case. Thus, there is no one definitive rule to determine whether or not a non-competition clause is reasonable and consequently valid.

With regard to what is deemed reasonable, there is case law supporting the proposition that a county wide restriction is facially reasonable. Some courts have held that up to 75 miles is reasonable. However, the court will look at the specific facts, including the type of work involved to determine if a non-competition clause is sound. If a court finds that a certain restriction is unreasonable, it would reduce that restriction to a narrower geographical limitation.

In addition, it is important to note that non-competition clauses may have serious tax consequences for you and/or your business. Allow a well qualified contract law and tax attorney to assist you in interpreting the legal and tax ramifications of non-competition provisions, as well as many other complex clauses that might be included in contracts you would like to sign or have signed by a client.

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