How to Navigate Non-Compete and Non-Solicit Clauses

Buying a business is equal parts numbers and narrative. You can model cash flows all week, but the story that unfolds after closing depends on people, relationships, and the boundaries set in your deal documents. Few boundaries matter more than the non-compete and non-solicit. Handle them well, and you buy real protection for the goodwill you just paid for. Handle them loosely, and you invite the seller to rebuild your new competitor across the street using the same playbook and perhaps the same team.

In Business Acquisition Training workshops, I tell new buyers to treat restrictive covenants like insurance: you hope not to rely on them, but when you need them, you need them to hold. The trick is to calibrate these terms so they are enforceable in the states that matter, durable enough to deter gamesmanship, and fair enough that the seller can sign in good faith.

What follows is a practical tour from diligence to drafting to living with these clauses post-close. I include the corners where deals crack, the remedies that actually bite, and the compromises that land both sides in the right place.

The purpose behind the paperwork

Non-compete and non-solicit provisions exist to protect the asset you are really buying, which is often not the equipment or the lease but the expectation that customers will keep calling and key employees will keep showing up. Goodwill sits at the heart of most transactions under $100 million. When a seller leaves, inertia breaks. Competitors sniff opportunity. Staff wonders what is next. The seller’s personal relationships loom large in that uncertainty.

A non-compete tries to limit the seller’s participation in businesses that are the same as or closely similar to the target. A non-solicit narrows the focus to specific behaviors: enticing away customers, vendors, or employees that anchor your revenue. Both tools reduce the risk that the value you priced into the deal evaporates within months.

The law does not reward overreach. Judges look for reasonableness, not punishment. If a covenant reads like a lifelong ban on someone’s livelihood, it likely won’t survive a challenge. If business acquisition process it’s tailored and tied to the value paid, it has a fighting chance.

Terms that drive enforceability

I’ve sat across from sellers who say, “My lawyer will blow this up in court.” Maybe. But across many states, judges ask the same simple questions. You should write your clauses as if you’re answering them in plain English.

Is the restriction tied to a legitimate business interest? Protecting trade secrets, confidential know-how, customer relationships, and employees qualifies. Blocking ordinary competition without a link to purchased goodwill does not.
Is the scope reasonable in geography, duration, and line of business? Reasonable means no broader than necessary to protect the interest. Five years across the entire United States for a neighborhood HVAC company likely goes too far. Two or three years within the counties where 90 percent of revenue occurs usually has a better shot.
Is there adequate consideration? In an acquisition, the purchase price typically serves as consideration. If you add non-competes for executives after closing, you’ll need fresh consideration such as a retention bonus or equity.
Which law governs, and will a court blue-pencil? Some states will rewrite overbroad covenants to a reasonable scope. Others will toss the whole thing. Draft with the governing state in mind.

State-specific rules vary, and the differences matter. California bars most non-competes save for narrow sale-of-business exceptions. business acquisition certification Oklahoma bans them outright. Washington and Illinois place income thresholds and notice requirements on certain online business acquisition training covenants. Colorado has intricate categories tied to job roles and compensation bands. Massachusetts allows non-competes but with seasonal rules around consideration and “garden leave” in some employment contexts. In several states, a sale-of-business non-compete can be broader than an employment non-compete, but you must tie the covenant to the sale and the seller’s equity. If your deal crosses jurisdictions, assume the strictest regime will drive strategy.

Defining the “business” without strangling it

The battle I see most often: defining the scope of what the seller cannot do. Buyers want to cover what they’re buying and the adjacent opportunity they plan to pursue. Sellers want to protect the right to work in their field again someday. The solution is clarity with edges.

If you acquire a specialty bakery that sells gluten-free wholesale loaves to regional grocers, stating “any food business” is sloppy. A better definition ties to the products, channels, and core competencies that account for the revenue. Use concrete nouns and, when appropriate, revenue thresholds. I’ve had success anchoring the line of business to the historical product-service matrix of the target and to planned expansions captured in a 12 to 24 month integration plan, included by reference. What you want to prevent is a seller arguing, “We don’t do wholesale bread, we do gluten-free cakes,” then landing your top accounts through a technicality.

At the same time, give the seller daylight. Advisors with deep industry knowledge can carve out tangential activities an entrepreneur might plausibly pursue that would not gut your asset. A thoughtfully crafted carve-out lowers friction at the table and helps a judge see you as reasonable if there is ever a dispute.

Geographic boundaries that match revenue reality

Geography trips up many drafters. A SaaS company with nationwide customers does not need and may not justify a county-by-county description. A local pest control company selling door to door in three metro areas might look ridiculous demanding a nationwide ban.

The cleaner approach is to tie geography to where the business actually operates and earns. You can name markets by county or MSA if your customers are local. For companies that sell into multiple regions without a brick-and-mortar footprint, consider customer-location boundaries, paired with a ban on online ad targeting into those territories for the covered product lines.

A simple, defensible rule I use with route-based or service-area businesses: restrict to the counties in which the company generated at least 80 to 90 percent of total revenue during the 12 months before closing, plus any county contiguous to those where the company has a documented pipeline. Then add a tail that extends the footprint if you deploy growth capital to new counties within the first year post-close, but only for the duration that remains of the non-compete term.

Duration that fits the sales cycle

Two questions shape duration. How long does it take to replace or stabilize the customer relationships at risk? And how long can a judge tolerate the restraint?

In many industries under the sale-of-business exception, two to three years is the median. I occasionally see four or five where customer contracts are multi-year and switching costs are high, such as enterprise software or niche maintenance agreements. In consumer services with short buying cycles, 18 to 24 months often covers the vulnerable period. Remember that the non-solicit typically does much of the heavy lifting. If you anchor a strong non-solicit at three years and set the non-compete at two, you get protection against direct poaching while lowering the risk that a court chops the entire package.

The anatomy of a useful non-solicit

A non-solicit rides on verbs. What counts as solicitation? Too many agreements leave it vague. Spell it out in actionable terms. Direct outreach by any channel to covered customers, prospects quoted in the 12 months before closing, and vendors you rely on to deliver service quality should be off-limits. Include look-through provisions that stop the seller from using affiliates or straw persons to do the same thing.

On the employee side, set the scope to current employees and those employed within the six months prior to separation. Decide whether the ban is limited to active recruiting or also prohibits hiring any employee who applies on their own. Courts tend to allows bans on active solicitation even in strict states. Blanket no-hire provisions are more vulnerable, so if you want them, support with sale-of-business logic and narrow the class to key employees by role or compensation band.

Cover social posts carefully. A general post like “I’ve started a new venture” can be fair game. Direct messages to your client list are not. If you want to forbid broadly visible announcements that inherently target your customers, you can try, but many judges see that as too broad. Target the behavior that actually matters: tailored outreach to the relationships you bought.

Compensation as the backbone of restraint

Courts like to see that you paid for what you are restricting. Escrows, earnouts, and consulting agreements all serve as visible consideration supporting a non-compete and non-solicit. The more you tie covenants to these payments, the stronger your footing if challenged.

Buyers often ask how much to allocate to the covenant. There is no perfect number, but I see 5 to 15 percent of enterprise value earmarked in the purchase price allocation for the non-compete intangible in financial reporting. This does not control enforceability, but it illustrates that value was assigned. More practically, link a portion of deferred payments to compliance. A covenant that reads, “breach equals forfeiture” moves the economics into your favor and can be a stronger deterrent than litigation threats alone.

Carve-outs that reduce friction without gutting protection

Sellers are people with careers. If you treat them like villains, they will lawyer up and push back. Reasonable carve-outs include passive investments below a set ownership threshold, continued work in a clearly distinct niche, or accepting employment with a large conglomerate so long as they have no involvement with a competitive division. I sometimes include a referral carve-out that lets a seller pass a stray customer inquiry to your sales team for a referral fee. That keeps goodwill alive and reminds the seller that your interests align.

When deals involve founders who are minor celebrities in the space, allow teaching, speaking, or writing with a line against using those platforms to pitch a competitive offering. If you are buying a regulated practice area like healthcare, add a carve-out that lets the seller maintain a clinical license and engage in pro bono or limited practice that does not touch your patient base.

Edge cases that deserve special handling

A few situations call for extra thought.

Multi-entity sellers. If the seller owns several LLCs used across projects, the covenant should bind the person and all affiliates under common control, not just the entity in the signature block.
Rollovers and minority sellers. If the seller retains 10 to 40 percent equity, your restrictions must reflect their dual role as a partner. Use a non-compete tailored to their board-level or advisory capacity and be explicit about their ability to invest elsewhere, subject to standard conflict policies.
Family members. If the seller’s spouse or adult child runs a nominally separate but overlapping company, include them or carve them out with strict walls. Otherwise you invite an end-run.
Franchise and licensing models. When the target is a franchisee, align your covenants with the franchisor’s non-compete obligations and territory definitions. Redundant or conflicting covenants can backfire.
Heavily regulated labor markets. In sectors where state law frowns on no-poach clauses between firms, draft your employee non-solicit with counsel who tracks the latest enforcement posture.

Drafting moves that pay off

There is no substitute for local counsel, but a few drafting choices consistently improve outcomes.

Use definitions with measurable anchors. Instead of “clients,” say “any person or entity to whom the company sold goods or services in the 24 months preceding closing, or that the company quoted in writing during that period.”
Add a tolling provision for periods of breach. If the seller violates the covenant for three months, the clock pauses. Many courts accept this in sale-of-business contexts.
Detail the remedy landscape. Money damages, injunctive relief, and forfeiture of unpaid consideration should sit side by side. A narrowly tailored liquidated damages clause can help when damages are hard to quantify, but ensure the number is defensible and not a penalty.
Include a notice-and-cure path for gray areas. If the buyer believes the seller’s new venture is encroaching, a seven to fourteen day cure window to adjust marketing or disengage from a specific account can defuse escalation.
Keep non-competition and non-solicitation separate. If a court strikes one, you want the other to survive. A severability clause alone is not always enough without clean separations.

Negotiation dynamics that lead to durable deals

I have watched non-compete fights derail otherwise healthy transactions over principle and pride. Both sides benefit when you frame the conversation around risk management rather than punishment. Share your integration plan and revenue map. Show which accounts and employees present the steepest cliff risk. Sellers are more flexible when they see you are not trying to block a livelihood, only to protect what you just bought.

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Offer choice where you can. For example, present two structures: a broader non-compete with a higher purchase price and larger escrow, or a narrower non-compete paired with a tighter, longer non-solicit and a consulting agreement that channels the seller’s energy into helping you retain the book. When sellers can choose, they feel respected, and the paper often reads better.

Consider a cooperative release mechanism. If, after a year, retention metrics meet targets, you can soften certain restrictions. It keeps incentives aligned and demonstrates that the goal financing to buy a business is transition stability, not permanent exclusion.

Practical enforcement: how it plays in real life

On paper, injunctive relief sounds swift. In reality, emergency motions can take weeks, and judges will ask whether money can make you whole. Courts also study your behavior. If you slept on your rights for months while the seller chipped away at your accounts, sympathy fades.

The playbook that works in practice:

Maintain a compliance file. Keep copies of the signed covenants, a list of covered customers and employees with date stamps, and a digest of noise from the field. When someone forwards a solicitation email or a text screenshot, save it with metadata. If you go to court, your first filings should look organized.
Start with a firm, factual letter. Cite the clause, attach the evidence, and offer a short cure period with a concrete step the seller can take, such as disengaging from a customer or editing a landing page. Your tone matters. Judges read these letters when deciding who is reasonable.
Use your economic levers. If you have a holdback, earnout, or note, inform the seller that amounts subject to forfeiture or setoff are now at risk. You do not need to declare a default at the first hint of trouble, but capricious generosity backfires.
Escalate with a narrow TRO when needed. Target the specific behavior causing the near-term harm, not a blanket ban. You are more likely to get relief quickly if you demonstrate precision.
Keep selling. Retention is stronger than litigation. Assign your best account managers to any customer the seller might approach. Relationships beat pleadings.

In lower middle market deals, most disputes settle once both sides see the litigation path. Settlements often reaffirm the restrictions, add a certification of compliance, clarify a small set of disputed accounts, and re-cut payment terms. Your goal is to end the drip of distraction and move your team back to growth.

Where buyers overreach and pay for it

I still see buyers insist on five-year nationwide bans against individual sellers for businesses that operate in narrow regions. They want any conceivable pivot covered, and they want a blanket no-hire across a broad industry. These instincts invite a court to trim or nullify the package. Worse, they poison the post-close relationship. A seller who feels trapped gets creative or bitter. Neither helps your integration.

Another common mistake is putting the toughest restrictions only in employment agreements that start after closing, then failing to offer fresh consideration or comply with state-specific notice rules. If you want post-close restrictions for non-owner employees, build them into the deal plan early, budget real bonuses or equity grants, and follow the letter of the local law.

Finally, buyers sometimes ignore vendor non-solicit provisions. Vendors can be a hidden artery of value: a unique distributor, a lab that prioritizes your jobs, or a contract manufacturer with hard-to-get capacity. Protect these relationships from seller raiding. Frame it narrowly, tied to the SKUs and processes you acquired.

What sellers get wrong and how to fix it

Sellers often underestimate how personal their goodwill is to the revenue line. They argue, “The customers love our brand, not me.” Maybe, but if your personal phone number sits in half the client’s contacts, you are a risk vector. Sellers increase their leverage by professionalizing the relationship base months before going to market. Move account ownership into a CRM, push communications through shared channels, and introduce secondaries on key accounts. The more the book belongs to the company, the easier the non-compete negotiation.

Sellers also sometimes press for blanket carve-outs early, which spooks buyers. A better approach is to describe your next venture concept at a high level under NDA, then ask for a tailored carve-out with clear boundaries. If you can sketch a product line, target segment, and geography that sits outside the buyer’s plan, most rational buyers will accommodate it.

Integrating the seller to reduce the need for restraints

Non-competes are guardrails. On-ramps matter more. If the seller is willing to stay as a consultant or executive for six to twelve months, you can replace a chunk of restriction with alignment. Pay a meaningful consulting fee tied to handoffs, key introductions, and training deliverables. Set a public-facing narrative that the seller endorses the transition and is not “back in business” any time soon.

When you run formal Buying a Business programs for managers stepping into CEO roles, incorporate a covenant transition playbook. It assigns dates for joint client visits, scripts for renewal conversations, and schedules for employee one-on-ones. It also lays out exactly how the seller will step back from operational channels. A good plan makes enforcement a last resort.

International deals need a different compass

If your acquisition straddles borders, localize your approach. In the UK, courts weigh reasonableness tightly and favor well-defined customer non-solicits over broad non-competes. In parts of the EU, labor rules touch even sale-of-business covenants, and language precision in translations becomes critical. In Canada, provincial differences rival the U.S. patchwork. Bake this into your timeline. You will need counsel who writes in the target jurisdiction’s idiom, not just ports U.S. language across the Atlantic.

A short field guide for buyers

Use this checklist to anchor your process. Keep it short, keep it sharp.

Map the risk: list top 25 customers and top 10 employees by revenue impact, and define the sales cycle.
Tailor scope: write the business definition, geography, and duration to match that map, with documented reasoning.
Structure consideration: link a portion of the price, holdback, or earnout to covenant compliance.
Draft tight verbs: define “solicit,” “customer,” “employee,” and “affiliate” with measurable edges and include tolling and remedies.
Prepare enforcement: set up a compliance file, assign an internal monitor, and script a professional cure letter.

A measured path forward

Non-compete and non-solicit clauses are not one-size-fits-all instruments. They are negotiated tools that either reflect the logic of your deal or fight against it. The strongest ones read like they were written by someone who understands how the business wins customers, how long those relationships take to settle under new ownership, and where temptation lives for a charismatic seller.

You will hear absolutist statements from both sides. “Courts never enforce these,” or “We can ban anything for five years.” The truth sits in the middle, bounded by state statutes and a judge’s sense of fairness. Aim your paper at that middle, ground it in the value you paid, and build economic levers that keep both parties honest. Then do the work that makes covenants fade into the background: earn the trust of employees, over-communicate with customers, and give the seller a dignified exit path.

If you approach restrictive covenants as part of an integrated Buying a Business plan rather than as a separate legal chore, you will spend less time arguing over commas and more time protecting the story you set out to buy.