Non-Compete Clause
Contractual commitment by which the seller agrees not to operate a competing business or solicit customers and employees of the sold business, for a defined duration and within a defined territory.
Definition
The non-compete clause is a commitment the seller makes to the buyer as part of the purchase and sale agreement. It protects the buyer’s investment by preventing the seller from starting or joining a competing business for a defined period.
In French-language Quebec documentation, you’ll see clause de non-concurrence used for the same concept.
Why the non-compete clause is standard
From the buyer’s perspective, this clause is essential: they’re paying for the goodwill, customer base, and reputation of the business. Without a non-compete clause, the seller could theoretically start over the next day and rebuild an identical business by recovering their former customers.
Typical elements
- Duration: 2 to 5 years after closing (3 years is common)
- Territory: the region where the business operates (Quebec, Canada, depending on the market)
- Scope: the specific activities prohibited (same sector, same target market)
- Non-solicitation: prohibition on soliciting the sold business’s customers AND employees
Legal limits
In Quebec, a non-compete clause must be reasonable in duration, territory, and activities to be enforceable. A clause that’s too broad (e.g., “no commercial activity for 10 years anywhere in the world”) would likely be struck down by a court.
What every seller should know
- The non-compete clause is a point of negotiation — its duration and scope are open to discussion.
- If you plan professional activities after the sale, clarify exactly what the clause prohibits before signing.
- A more restrictive non-compete can justify a higher price — it’s a bargaining chip in the negotiation.