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Often overlooked assets in bankruptcy sales are the noncompete agreements or noncompete covenants in employment contracts that debtors have with certain employees. Due to the low number of reported cases addressing the treatment of noncompete agreements in bankruptcy sales and abundance of conflicting precedents across different states, it is important for attorneys and their clients to anticipate and address these issues early in the bankruptcy sale process in order to avoid costly litigation and legal uncertainty.
Several different persons ' including the debtors, asset purchasers, stalking horse bidders, and, of course, employees ' may have an interest in how these agreements are handled in bankruptcy sales, making them increasingly relevant in bankruptcy sales considering that The New York Times recently reported they are on the rise (Steven Greenhouse, Noncompete Clauses Increasingly Pop Up in Array of Jobs, N.Y. Times, June 9, 2014, at B1).
Following are some helpful considerations for attorneys to keep in mind when counseling clients in these matters.
The Bankruptcy Sale Process
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