A non-compete clause prevents the seller from starting or joining a competing business for a defined period after closing; a non-solicitation clause prevents the seller from approaching the business’s customers or employees during that same period.
Both provisions are standard in private business transactions and serve a clear purpose: the buyer has paid for the business’s revenue, relationships, and market position, and is entitled to protection against the seller immediately recreating a competing operation that undermines what was purchased.
Canadian courts enforce non-compete and non-solicitation clauses in the context of business sales. The standard is more permissive than in employment contexts because the seller received consideration for the restriction. However, they must be reasonable in scope, geographic reach, and duration to be enforceable. A clause that prevents a seller from working in any related field anywhere in Canada for ten years is unlikely to survive judicial scrutiny. One that prevents them from soliciting specific named customers or operating in a defined territory for two to three years is generally enforceable.
See also: Management Continuity · Representations and Warranties · Purchase and Sale Agreement (PSA)Non-compete and non-solicitation provisions restrict post-closing options. Understanding their scope before signing matters. See how Wefinx approaches exit planning.