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).
– – –
This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.
Rajah Lehal: Rajah is the Founder and CEO of clausehound.com. Rajah received his M.B.A. and J.D. degrees, from the University of Western Ontario Richard Ivey School of Business and the Faculty of Law respectively, during which time he was Co-President of Entrepreneurs@Ivey, a student-run entrepreneurship group and, as well, assisted Professor Richard McLaren with the launch of the Western Business Law Clinic. Rajah also received an Honours Philosophy degree from the University of Waterloo, where he also took a significant course load in Mathematics and Computer Science. Rajah worked for more than a decade in the information technology industry, including three years in software development and seven years as an Information Systems and Technology manager at both a major telecommunications company and at a financial services company. Rajah also received his legal training in the corporate law group at Stikeman Elliott LLP in Toronto, as well as internationally for the Technology Media and Telecom group in the Dubai office of Clyde & Co. Rajah is a Technology and Small Business Lawyer and is counsel for the Venture Law Practice Group at Cobalt Business Counsel, a corporate and securities law practice based in Toronto. Recently, Rajah has been interviewed for a Financial Post podcast and by the Globe and Mail for his work at Multiplicity, and has joined the Loan Review Committee Member for the CYBF Spin Master Innovation Fund and was asked to judge the Ivey IBK Business Plan Competition. Rajah is also on the board of directors of Sky’s the Limit charity that provides laptops to youths in need and is Canadian Responsible Leaders Chapter Head for the BMW Foundation. Rajah continues to be an active member in the start-up technology industry nationally and internationally.