In addition to certain employment contracts, noncompete agreements are often used in situations where a seller transfers all or a substantial amount of the seller’s business to a buyer. In many states, noncompete agreements that arise from a sale of business are easier to enforce than those that are contained in an employment agreement.

A noncompete agreement involving the sale of a business typically provides that, in exchange for a specified payment (which may be part of the sales price), the seller will promise not to go into a similar type of business within a certain geographic area for a specified period of time. Additionally, the agreement may provide that the seller cannot use confidential business process information - customer lists, for example - or trade secrets of the business being sold or share such information and secrets with others.

For example, consider a situation in which Seller, the owner of a pet store sells the store to Buyer. If Seller then opens a new pet store two blocks away from the one it just sold, Seller is likely to take a large number of potential customers away from Buyer. As a result, Buyer's pet store will no longer be worth the money that Buyer paid for it. In order to avoid the loss, Buyer should, as a condition of the sale, require that Seller agree not to open another pet store within the same area for a certain number of years.

As in an employment agreement, a noncompete provision in a contract for the sale of a business must be reasonable in scope. The noncompete agreement typically prohibits the seller from working in or being otherwise affiliated with businesses in the same or similar industries as the business being sold. If the agreement prohibits the seller from working in other, unrelated industries, it is likely to be considered unenforceable. Furthermore, the agreement must be limited geographically to the area in which the seller previously did business and in time to a reasonable number of years. The precise area and time span allowable depends on the nature of the transaction and the business being sold.

Noncompete agreements stemming from the sale of a business often raise complex issues for both buyer and seller. At DiTommaso Lubin, our Chicago business attorneys represent businesses in sale transactions and noncompete agreement litigation. We can help stop litigation before it starts by reviewing contracts to look for covenants and clauses that could create problems later and we can represent businesses - both plaintiffs and defendants - in the event that a noncompete issue later arises. We are pleased to assist clients throughout the Chicagoland area, including Naperville, Wheaton, Vernon Hills and many other cities throughout Illinois as well as clients in Indiana and Wisconsin.

To speak with a business and commercial litigation attorney at our firm, contact our law office in Oakbrook Terrace or Chicago, Illinois. To contact a lawyer at our firm, call (877) 990-4990 or (630) 333-0000. You may also contact us by e-mail.