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Rajah Lehal

Consideration to enforce a non-compete provision

October 26, 2016

Discussion: In the sale of a business, the agreement of the vendor not to compete may be part of the consideration by agreeing to acquire the business. Consider 1400467 Alberta Ltd. v. Adderley (2012 ABQB 155) in which the vendor of the business sold had an interest in a direct competitor. The court considered (among other things): the merits of a restrictive covenant in the context of an employment agreement where such a covenant was part of the consideration for the sale of the business; and [on “consideration”] the reasonableness of the restriction, and whether it was patently against the public interest; in this case, this covenant assisted the purchaser of the business to ensure that the purchase price paid for the business “was not money thrown to the wind.”

Also on “consideration”: The court did note that consideration for the restrictive covenant was in the amount of $10, which, because of the breadth of the covenant, immediately attracts concern about a potential imbalance in contracting positions, in the context of a strictly employment-related relationship (which it was not).

Non-competition

Written by Rajah. Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.