Restrictive covenants must be drafted carefully to give adequate protection to the purchaser, and purchasers should be able to show the connection between the price paid for the goodwill of the business, and the temporal and geographic aspects of the non-compete provision. If the non-compete provisions are renewed or extended, care should be taken to clearly adjust the timeline accordingly.
The parties entered into an asset purchase agreement which contained a non-compete provision that stated they were not to compete or interfere with its business relationships for 5 years after the acquisition or 12 months after their employment ended, whichever was later. The court in holding that the non-competition provision was not enforceable, stated that the terms of the restrictive covenants were ambiguous and created doubt about when the non-compete period ended. The legal rights must be clear and the facts undisputed in order to enforce a restrictive covenant in many jurisdictions.
Takeaway:
- When enforcing a restrictive covenant in relation to non-competition, the courts will look at the clarity of the legal rights and whether the facts are undisputed.