What Is a Non-Compete Agreement?
What Is a Non-Compete Agreement?
A non-compete agreement – also called a covenant not to compete – is a contractual provision that prevents a party from starting, acquiring, or working for a competing business within a defined geographic area for a specified period. In the business sale context, non-compete agreements are designed to protect the goodwill the buyer paid for. In the employment context, they are used to prevent departing employees from immediately competing against their former employer.
Russo Law LLC drafts and negotiates non-compete agreements for buyers and sellers in business transactions throughout New York and New Jersey. See also: What Are Restrictive Covenants?
Non-Compete Agreements in Business Sales
When a buyer acquires a business, a significant part of what the buyer is paying for is the goodwill – the customer relationships, reputation, and ongoing business value of the company. A non-compete agreement prevents the seller from turning around and starting a competing business and soliciting those same customers. Non-compete provisions are standard in asset purchase agreements, membership interest purchase agreements, and stock purchase agreements.
Common elements of a non-compete in a business sale include:
- Scope of prohibited activity – a definition of what constitutes a competing business
- Geographic scope – the territory within which the restriction applies, typically defined by reference to where the acquired business operated
- Duration – the length of the restriction
- Consideration – the purchase price in a business sale typically provides the required consideration for the non-compete
- Remedies – injunctive relief is often sought for breach, since damages may be difficult to quantify
Enforceability in New York and New Jersey
Courts in both New York and New Jersey have generally been more willing to enforce non-compete provisions in the business sale context than in the employment context, particularly where the seller received substantial consideration in the form of the purchase price. What is reasonable in scope, duration, and geography is a fact-specific question that varies by transaction. Enforceability of any particular non-compete requires review by an attorney familiar with the applicable law. See also: Cornell LII: Covenant Not to Compete.
Frequently Asked Questions
How long can a non-compete last in a New York or New Jersey business sale?
There is no fixed rule. What is enforceable depends on the specific facts, the nature of the business, the industry, and how the restriction is drafted. Whether a particular duration is enforceable should be evaluated by an attorney familiar with the applicable law.
What happens if the seller violates a non-compete?
A seller who violates a non-compete may face legal consequences including injunctive relief – a court order requiring them to stop the competing activity – as well as potential damages. Courts in New York and New Jersey may grant emergency injunctive relief where a violation is causing ongoing harm. Russo Law LLC represents buyers and sellers in restrictive covenant disputes throughout New York and New Jersey.
Schedule a Free Consultation
If you need a non-compete agreement drafted, reviewed, or enforced in New York or New Jersey, call 929-262-1101 or schedule a free consultation with Russo Law LLC.
The information on this page is general in nature and does not constitute legal advice. The enforceability and appropriate scope of any non-compete depends on the specific facts, the jurisdiction, and how the provision is drafted. No strategy or recommendation can be made without a full review of your circumstances.