Non-Compete Agreement

A non-compete agreement (also called a restrictive covenant or covenant not to compete) is a contractual provision in a business sale that prohibits the seller from starting, joining, or assisting a competing business within a defined geographic area for a defined period of time after closing. In Canada, non-compete clauses are enforceable in the context of a business sale if they are reasonable in scope, duration, and geographic reach — courts are significantly more willing to enforce non-competes in business acquisition contexts than in employment agreements. For BC small business acquisitions, a reasonable non-compete is typically 3 to 5 years and covers the area where the business actively operates. Courts will not enforce overly broad clauses, so buyers must ensure the clause is carefully tailored. A non-compete protects the buyer's goodwill — without it, the seller could call up all former customers the next day and rebuild the same business. Non-competes are often coupled with non-solicitation agreements that prevent the seller from poaching key employees or customers for a separate period. Buyers should insist on personal covenants from each individual shareholder of the selling company, not just from the corporation itself.