Mind Your Business: The Employee Non-Compete

By Steve Michaels

Q: “If an employee signs a non-compete agreement and the company is purchased, is this agreement passed on to the new owner?”

A: The answer would really depend upon how the business was sold. If the business was sold as an asset purchase/sale (which is typical), the agreement would not automatically be assignable to the purchaser, even if the goodwill was sold as a part of the asset purchase/sale; the parties to the original agreement would change. (Please note that the seller could add language to the current agreement saying it was “assignable to a purchaser of substantially all the assets of employer’s business.”  That would generally allow such assignment to the new asset purchaser as part of the business sale.)

If the business sale was a stock/ownership interest sale (i.e., a stock purchase agreement or similar agreement where the ownership interest was being sold rather than the assets), the agreement would automatically follow through and be operative to the same lawful extent. In this case, the contracting parties do not change, and the agreement remains enforceable between the two parties (employer/company and employee).

A copy of an employee non-compete agreement is available free of charge from TAS Marketing.  This agreement was drafted by our attorney; however, you should consult with your legal counsel regarding any state law adjustments.  Just give us a call for your free copy.

Steve Michaels is a business broker with TAS Marketing and can be contacted at 800-369-6126 or tas@tasmarketing.com for questions.

[From Connection Magazine May 2011]

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