A seller’s covenant not to compete, given in connection with the sale of a business, is analyzed differently from an employee’s.

Why the difference. The buyer has paid for goodwill, and the covenant protects what was bought. Courts recognize the bargaining is between sophisticated parties for consideration, and enforce longer durations and broader geographies than they would in employment.

Typical terms. Three to five years, sometimes longer, covering the geography in which the business operated and the products or services it provided, with non-solicitation of customers and employees.

Statutory treatment. Several states that sharply restrict employment non-competes expressly except sale-of-business covenants, subject to conditions about the seller’s ownership percentage and the covenant’s connection to the sale.

Allocation of consideration. Assigning a portion of the purchase price to the covenant supports enforceability and has tax consequences for both parties that should be modelled.

Who gives it. The selling entity, its owners, and key employees individually. A covenant from the entity alone is of limited value where the owners are the business.

Drafting. Define the restricted business by reference to what the company actually did, define territory concretely, and include a tolling provision extending the period by any time spent in breach.