Lee Clark — Co-Founder & Business AttorneyLicensed in Idaho and California. Arbitrator, Judge Pro Tem and mediator since 2008. About Lee →

The same clause, in two different documents, is judged by two different standards.

We draft and negotiate restrictive covenants on both sides of Idaho and California transactions. This is general information, not legal advice on a specific agreement.

Goodwill you cannot protect is goodwill you should not have paid for.

The statute, and what it actually covers

Idaho Code § 44-2701 permits a key employee or key independent contractor to enter a written covenant protecting the employer’s legitimate business interests, enforceable where it is reasonable as to duration, geographic area and type of employment or line of business, and no more restrictive than necessary.

Chapter 27 goes on to define key employees at § 44-2702, address construction and enforcement at § 44-2703, and set out rebuttable presumptions at § 44-2704, including an eighteen-month ceiling on post-employment restraints on direct competition. That chapter was enacted in 2008; a 2016 amendment adding a presumption of irreparable harm was repealed in 2018.

The employment statute and the sale doctrine are not the same body of law.

Why a sale covenant is treated differently

Idaho’s courts have held that they are less strict in construing the reasonableness of covenants ancillary to the sale of a business. The Idaho State Bar’s own commentary on restrictive covenants cites Bybee v. Isaac, 145 Idaho 251, 178 P.3d 616 (2008) for the point.

The reasoning is straightforward. A seller who accepts payment for goodwill and then competes against it is taking back part of what was sold. An employee leaving a job is not.

Drafting it so it holds

Scope to the business actually bought, not to everything the seller could conceivably do. Tie the geography to the territory the business serves. Allocate consideration to the covenant in the purchase agreement so the exchange is visible on the face of the document.

Where the seller stays on as an employee after closing, there are two relationships and potentially two standards running at once. Those covenants are worth drafting separately rather than merging into one clause.

Idaho and California diverge here more sharply than almost anywhere else.

What this means in practice

The covenant is worth more attention than its length suggests. It is usually a page, and it is frequently the only thing standing between a buyer and the seller’s next venture.

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