Drawing a Non-Compete Isn't Always Easy

Drawing a Non-Compete Isn't Always Easy

For those of us who've spent any time in a business practice, drawing a non-compete isn't always easy. In addition to the obvious concerns about drawing an agreement that will not be considered overly broad, how can we create a restriction that not only will be upheld, but will achieve its desired purpose and prevent our clients from ever having to litigate the issue in the first place?

When drawing non-competes arising from the purchase of a business, I have learned from other practitioners some extra added incentives that can put more teeth into an agreement. In addition to the standard language regarding injunctions, damages or liquidated damages, consider some of the following:


1. Is there any owner-financing involved? If there is, consider putting in a provision stating that in the event of a non-compete breach, your purchaser will be entitled to a rebate on the payments.

2. Is there a lease from the seller involved? Consider rebating the lease payments in the event of a breach, or allowing a termination of the lease agreement.

3. Is there a right of first refusal or option to purchase real estate involved? Consider including a clause allowing your purchaser, in the event of a breach of the non-compete, to purchase the seller's real estate at a discounted rate.

Drawing a non-compete is just the beginning of successfully protecting a business client. A good lawyer can draw up an agreement that will successfully be upheld if litigated. A really good lawyer should draw up an agreement that keeps its parties out of court altogether.