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ARTICLE · 26 JANUARY 2023

Non-Compete Covenants In M&A: Current Use, US State Rules, And An FTC Proposal

Mayer Brown
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Many purchase and sale transactions contain non-compete and other related restrictive covenants. This Legal Update notes some of these covenants, compares US states' views on the enforceability...

United StatesCorporate/Commercial Law
Nina L. Flax
Nina L. Flax
Paul P. Chen
Paul P. Chen
Christopher B. Leach
Christopher B. Leach
Gail F. Levine
Gail F. Levine
Jodi Simala
Jodi Simala
Peter Wolf
Peter Wolf
K. Magnus Karlberg
K. Magnus Karlberg
Amir A. Rousta
Amir A. Rousta
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Many purchase and sale transactions contain non-compete and other related restrictive covenants. This Legal Update notes some of these covenants, compares US states' views on the enforceability of non-compete covenants, and discusses the Federal Trade Commission's ("FTC") recently proposed rule that would significantly restrict the instances where a non-compete covenant can be applied to a business's seller/owner who is continuing as an employee of the target, the buyer, or any of the buyer's affiliates.

Restrictive Covenants in M&A. These covenants range in type and scope and can include some or all of the following restrictions:

  • From and for a period of time after the closing of the transaction, the seller (or the shareholders/owners) and their affiliates (oftentimes referred to as "restricted parties") cannot "compete" with the target company's business.
    • The definition of the target's business is a critical component to the scope of the covenant.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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