You’ve just spent months negotiating the deal of a lifetime. The due diligence is done, the purchase agreement is signed, and the keys to your new business are in hand. Congratulations! Now imagine the seller opens up shop across the street six months later, calls up every client on the Rolodex, and gets right back to work. In the business, they just sold you.
That pit in your stomach? That’s the feeling of not having a solid non-competition agreement.
Non-compete agreements are one of the most important and yet most misunderstood provisions in a business acquisition. Whether you’re buying or selling, the non-compete deserves as much attention as the purchase price. And here’s the thing that catches a lot of people off guard: the rules for non-competes in the sale of a business are not the same as those for employees.
Employment Non-Competes Are a Different Animal
If you’ve dealt with non-competes before, there’s a good chance it was in the employment context. And if that’s your frame of reference, you need to reset your expectations before stepping into an acquisition.
Employment non-competes are increasingly regulated and restricted. In Virginia, for example, state law prohibits employers from entering into or enforcing non-compete agreements with “low-wage employees,” a category that has been expanding since the law first took effect in 2020. As of 2025, Virginia broadened that protection even further to include employees classified as non-exempt under the Fair Labor Standards Act. For more information on Virginia non-competes with employees, check out Kristen’s guidance here. Other states have gone even further, for example, California bans employment non-competes outright.
But here’s the key distinction: these restrictions generally do not apply to non-competes entered into as part of the sale of a business. Even in California, non-competes tied to business acquisitions are enforceable. The reasoning makes sense when you think about it. When a buyer purchases a business, they’re purchasing goodwill, customer relationships, and the value the seller has built. A non-compete protects the buyer from the seller swooping back in and recapturing exactly what the buyer just paid for.
Courts recognize that a seller agreeing not to compete as part of a business sale is a fundamentally different situation than an employee being told they can’t work in their field. The stakes, the bargaining power, and the considerations are all different. As a result, non-competes in acquisitions can be written more broadly than those in employment agreements, and they routinely are.
The Three Pillars of a Non-Compete
Every non-competition agreement in a business sale rests on three pillars. Think of them as the “what, where, and when” of competitive restrictions. Each one matters, and getting any one of them wrong can leave the buyer exposed or the seller unfairly boxed in.
Duration
How long will the seller be restricted from competing? In the employment world, courts in many states view one to two years as the outer edge of reasonableness. In a business acquisition, the landscape is very different. Durations of three to five years are standard, and periods of seven or even ten years are not unheard of.
Why the difference? Because the purpose is different. In an employment non-compete, the concern is protecting trade secrets and client relationships for a reasonable transition period. In an acquisition, the concern is protecting the entire investment the buyer just made. The buyer didn’t just hire the seller; they bought the seller’s business, including its goodwill and the loyalty of its customers.
The key question for duration is this: how long would it take the seller, if they re-entered the market, to recapture the goodwill and relationships the buyer just purchased? If the answer is “a couple of years,” then a shorter duration might work. But for many businesses, especially service businesses, professional practices, and companies where the owner isthe brand, a short duration barely scratches the surface. A seller who re-enters the market while clients still remember them and their relationships are still warm poses a very real threat to the buyer’s investment.
Sellers, on the other hand, need to be thoughtful here too. Agreeing to an excessively long duration could keep you on the sidelines long past the point where the restriction serves any legitimate purpose for the buyer. The right duration sits in a balance where the buyer has enough time to establish themselves and the seller isn’t locked out of their livelihood indefinitely.
Geography
Where is the seller restricted from competing? Geographic scope should correlate with where the business actually operates and serves its customers. If the business serves clients within a 20-mile radius, a 20-mile non-compete makes sense. If the business operates statewide or nationally, the geographic restriction should reflect that.
This one sounds straightforward, but it gets interesting fast. What if the business has a physical location in one city but serves clients across several states? What if the business is primarily digital and geography is less meaningful? These are the kinds of questions that require careful thought and clear drafting.
For buyers, the geographic scope needs to be broad enough to protect the market the business actually serves. For sellers, it needs to be narrow enough that you aren’t barred from working in areas where the business has no meaningful presence. Courts have struck down geographic restrictions covering entire states when the business only had customers in a handful of counties. Precision matters.
Restricted Activity
What activities is the seller actually prohibited from doing? This is the pillar where things can go sideways for both sides if you’re not careful.
The scope of restricted activity defines what counts as “competing.” And this is where buyers and sellers often have very different ideas about what’s fair.
Buyers naturally want this scope to be broad. They want to make sure the seller can’t engage in anything that resembles the business they just sold. Sellers, meanwhile, want the scope to be narrow, limited to the specific activities that would actually compete with the acquired business.
Here’s where it gets tricky. A seller who has spent twenty years building a business has likely developed expertise in many areas. Some of that expertise is directly tied to the business being sold. But some of it is just general knowledge and skills that the seller has accumulated over a career. If the scope of restricted activity is too broad, the seller could be prohibited from engaging in any activity related to their field, even activities that aren’t actually competitive with the acquired business. That’s not just unfair; it can also make the non-compete more vulnerable to a legal challenge.
On the other hand, if the restricted activity scope is too narrow, the seller might be able to set up a business that technically falls outside the non-compete but, in reality, is directly competitive. A seller who agrees not to run an “accounting firm” but opens a “financial consulting practice” doing the same work for the same clients hasn’t exactly honored the spirit of the deal.
Getting the Balance Right
If you’re sensing a theme here, you’re right. Non-competes in business acquisitions are all about balance.
Buyers need protection that is real and meaningful. You’re making a significant investment, and a non-compete that’s too short, too geographically limited, or too narrowly defined leaves your investment vulnerable. If the seller can jump back in while the goodwill you purchased is still fresh, you may find yourself having paid a premium for a customer base that walks out the door.
Sellers need restrictions that are fair and proportional. You’ve built something valuable, and you deserve to be compensated for it. But you also deserve the ability to move forward with your career and expertise once a reasonable protective period has passed. An overly aggressive non-compete can devalue the deal for you if you’re being asked to give up more than what’s reasonable to protect.
Both sides should pay close attention to all three pillars and understand how they interact with each other. A shorter duration might be acceptable if the geographic scope and restricted activities are broad. A wider geographic scope might be reasonable if the duration is moderate and the restricted activities are precisely defined. These provisions work together, and the best agreements reflect a thoughtful negotiation across all three.
Don’t Use an Employment Playbook for an Acquisition
This bears repeating: a non-compete that would be appropriate for an employee is not the same as one that’s appropriate for the seller of a business. The purpose, the legal standards, the typical terms, and the enforcement landscape are all different.
A one-year non-compete might be perfectly reasonable for a departing employee. For the seller of a business with deep client relationships and significant goodwill? That’s likely far too short. A time period that feels generous in the employment context could leave the buyer dangerously exposed in an acquisition.
Similarly, a functional restriction that limits an employee from working for direct competitors might make sense. But in an acquisition, the restricted activities need to account for the specific ways a seller could undermine the buyer’s investment. This may include activities such as starting a new venture, consulting in the space, or leveraging the very relationships the buyer just acquired.
What Have We Learned?
Non-competition agreements are not boilerplate. They are a critical deal point in any business acquisition that deserves careful attention, creative thinking, and skilled negotiation. Whether you are buying a business and need to protect your investment, or selling one and need to preserve your future options, the non-compete is where those interests meet.
Take the time to think through what protection actually looks like for this particular deal. Work with advisors who understand the nuances of restrictive covenants in the M&A context, not just the employment context. And remember that the best non-compete is one that both sides can live with, because it reflects a deal that made sense for everyone.
When you’re ready to buy, sell, or just start thinking about your next move, Team Way Law is here to help you find the path forward. Let’s make sure your non-compete works as hard as the rest of your deal.