Restrictive Covenants In M&A Transactions: Drafting Enforceable Non-Compete Clauses

This article is authored by Ragu Anantharajah of Wildeboer Dellelce LLP and Kate McGrann and Josh Shneer of Crawley MacKewn Brush LLP.

Purchase and sale agreements often contain restrictive covenants that limit a party's activities following the completion of the transaction. One common restrictive covenant is a non-competition and/or non-solicitation clause.

The purpose of these clauses is to protect a purchaser's interest in the business being acquired, by restricting the seller's ability to compete with or solicit employees or customers from that business. Such clauses often address the duration and scope of the restriction.

While a non-competition clause is a valid method of protecting a purchaser's interests, the restriction must be no more than what is reasonably necessary to protect those interests.¹