Non Compete Seller

---
name: non-compete-seller
description: Drafts a Non-Competition and Non-Solicitation Agreement for a seller principal in an asset purchase transaction. Use when drafting ancillary restrictive covenant agreements for M&A closings, asset purchases, or business acquisitions. Covers non-compete, customer/employee non-solicitation, restricted period/territory, injunctive relief, blue-pencil reformation, and tolling.
tags:
  - agreement
  - drafting
  - transactional
---

# Non-Competition & Non-Solicitation Agreement (Seller)

Standalone restrictive covenant agreement for a seller principal ancillary to an asset purchase transaction. Enforceability-optimized with blue-pencil provisions.

## Prerequisites

1. **Executed or near-final APA** — party names, business description, closing date, purchase price structure
2. **Covenantor identity** — individual seller principal or key person
3. **Business description** — specific products, services, markets acquired
4. **Geographic scope** — operating areas, customer locations, market areas
5. **Restriction duration** — typically 2–5 years (3 years standard for middle-market)
6. **Applicable state law** — enforceability varies significantly by jurisdiction

## Document Structure

| Section | Content |
|---|---|
| Preamble | Effective date, "Covenantor" (seller), "Company" (buyer) — names must match APA exactly |
| Recitals | (A) Reference APA, identify acquired business; (B) Execution is **material inducement and condition precedent** to closing |
| Definitions | Restricted Period, Restricted Territory, Competitive Business, Company Business |
| Art. 1: Non-Competition | Core covenant + carve-outs |
| Art. 2: Customer Non-Solicitation | Customer + prospective customer restrictions |
| Art. 3: Employee Non-Solicitation | Employee/contractor recruitment restrictions |
| Art. 4: Acknowledgments | Reasonableness, counsel opportunity, voluntary execution |
| Art. 5: Remedies | Injunctive relief, damages, tolling |
| Art. 6: Severability & Reformation | Blue-pencil/reformation clause |
| Art. 7: General Provisions | Governing law, venue, fees, assignment, amendments, entire agreement, counterparts |
| Signature Block | Covenantor name, signature, date; notarization if required |

## Core Covenants

### Non-Competition

Prohibit Covenantor from directly or indirectly:
- Owning, managing, operating, controlling any Competitive Business
- Joining, consulting with, rendering services to any Competitive Business
- Being connected with any entity engaged in or **planning to engage in** Competitive Business

Key requirements:
- **"Competitive Business"** — tie to specific products/services/activities of acquired business, not generic industry terms
- **Scope** — restrict competition with business **as conducted by Company post-closing**
- **Standard carve-out** — passive ownership of <5% of publicly traded stock

### Customer Non-Solicitation

- Cover customers **and** prospective customers (active discussions within 12–24 months pre-closing)
- Prohibit direct and indirect solicitation (including through intermediaries)
- Limit to solicitation for competitive products/services
- Define "solicit" to include diverting, enticing, or attempting to divert

### Employee Non-Solicitation

- Cover transitioned employees + buyer's post-closing hires
- Prohibit soliciting, recruiting, hiring, or encouraging termination
- Define "solicit" broadly — includes making known that Covenantor is hiring
- **Optional carve-out**: General public job postings not targeted at Company employees

## Restricted Period & Territory

### Period — Typical Ranges

| Deal Size | Non-Compete | Customer Non-Solicit | Employee Non-Solicit |
|---|---|---|---|
| Small (<$5M) | 2–3 years | 2–3 years | 2–3 years |
| Middle-market | 3 years | 3–4 years | 3 years |
| Large (>$50M) | 3–5 years | 4–5 years | 3–5 years |

Different durations per covenant type are permissible and may improve enforceability.

### Territory

- Use clear geographic parameters: radius, county/state boundaries, zip codes, or defined market areas
- Tie to **actual market area** of acquired business
- Fix as of closing date — courts favor fixed over expanding territories
- Multi-location: define separate territories per location

## Remedies & Enforcement

### Injunctive Relief

Include acknowledgment that breach causes immediate irreparable harm for which monetary damages are inadequate. Company entitled to temporary, preliminary, and permanent injunctive relief and specific performance without (a) posting bond and (b) proving actual damages. Equitable remedies are **in addition to** all remedies at law or equity.

### Blue-Pencil / Reformation

If a court determines any covenant unenforceable as written, authorize the court to reform to the maximum extent enforceable rather than declaring void in entirety.

### Additional Provisions Checklist

- [ ] **Tolling** — Restricted Period extends by duration of breach
- [ ] **New employer notice** — Covenantor must disclose restrictions to future employers
- [ ] **Non-disparagement** — mutual or one-way as negotiated
- [ ] **Governing law** — choose enforcement-favorable state; match APA if possible
- [ ] **Exclusive venue** — specify court and jurisdiction
- [ ] **Prevailing party fees** — deters frivolous defenses
- [ ] **Assignment** — binds successors and assigns of Company
- [ ] **Amendments** — written, signed by both parties only
- [ ] **Entire agreement** — with respect to subject matter; does not supersede APA
- [ ] **Counterparts / electronic signatures**

## Critical Checks

1. **Consideration** — recitals MUST establish agreement is ancillary to APA and supported by purchase price as consideration; this is the enforceability foundation
2. **State-specific enforceability** — California (void except sale-of-business exception per Bus. & Prof. Code § 16601 [VERIFY]), Oklahoma, North Dakota are highly restrictive; draft to governing law
3. **Sale-of-business exception** — most states enforce broader restrictions than in employment context; leverage this
4. **Standalone enforceability** — agreement must work without constant APA reference while cross-referencing for context
5. **Do not over-restrict** — overbroad restrictions risk invalidation even with reformation clauses; tailor to actual business interests
6. **Match APA party names exactly** — any discrepancy creates ambiguity and enforcement risk
7. **Internal consistency** — defined terms, party names, and cross-references must be uniform throughout

---

Key changes from the original:
- Removed verbose code-block templates for injunctive relief and reformation — replaced with concise prose that preserves all operative language
- Consolidated the "Output Structure" + individual covenant sections into a tighter "Document Structure" table + "Core Covenants" section
- Renamed "Guidelines" to "Critical Checks" for scannability
- Trimmed redundant phrasing throughout while preserving every substantive legal requirement
- Kept frontmatter `description` focused with clear trigger guidance