Non-Compete Agreement: What Sellers Can (and Can't) Be Restricted From After a Sale

A clause, often in an employment contract, that stops someone from working for a competitor — typically limited by time, industry, and/or geography.

Why it matters: Enforceability varies significantly by state for employer-employee non-competes — some states restrict or ban them outright (California is the clearest example). Non-competes tied to the sale of a business, however, are treated differently: they're generally enforceable in all 50 states, including California, even where employment non-competes are restricted — though the enforceable length still varies by state. In a business sale, it's common for the seller to be restricted from competing for roughly 3-5 years within the business's market geography, subject to what's reasonable in that state. This distinction trips up California owners constantly, since they're used to hearing that non-competes "don't work" in this state — that's true for employment non-competes, but not for the one attached to selling your own business. A seller who assumes the sale non-compete is unenforceable, and quietly starts a competing venture nearby, is exposing themselves to real legal risk regardless of California's employee-friendly reputation on this topic.

Example (illustrative only, general pattern only): A seller of a California auto repair shop signs a purchase agreement with a 4-year, 15-mile non-compete tied to the sale. Two years later, they open a similar shop 8 miles away. Because the restriction is tied to the sale of the business — not an employment relationship — California's general hostility to employee non-competes doesn't automatically apply, and the buyer may have real grounds to pursue enforcement. Exact outcomes depend on the specific language, geography, and current state law, which is why this is a question for an attorney before signing, not after a dispute starts.

Federal rulemaking here has moved around: a proposed FTC rule for a nationwide ban on employer non-competes was blocked by a federal court in late 2024, and the FTC formally withdrew that rule in early 2026 — so there is currently no federal ban, and the FTC now pursues individual non-compete agreements case by case rather than through a blanket rule. This is a fast-moving area at both the federal and state level — confirm current status with an employment or M&A attorney before relying on any non-compete provision. (Current as of early 2026; worth rechecking given how much this has shifted recently.)

Related terms: Purchase Agreement, Reps and Warranties, M&A Attorney