Non-Compete and Non-Solicit in a Business Sale in 2026: The Enforcement Guide

Non-compete and non-solicit agreements appear in 95%+ of M&A deals in 2026. The four dimensions buyers negotiate: duration (3-5 years typical), geography (city to national), industry (specific sub-vertical vs broad), and activity (competing operations vs employee solicitation vs customer solicitation). What’s enforceable post-FTC-vacatur in 2026 depends on state: California, Minnesota, Oklahoma, and North Dakota heavily restrict; most other states enforce reasonable scope. How to avoid being locked out of your industry: narrow the activity definition to specific business models, negotiate carve-outs for consulting and passive investments.

This guide walks through how courts actually treat non-compete and non-solicit clauses inside a stock or asset purchase agreement, state by state, with a worked example from a $4M EBITDA HVAC sale. If you are selling a business and a buyer has handed you a draft purchase agreement with restrictive covenants, this is the playbook you need before you sign.

What a non-compete non-solicit business sale clause actually does

Inside a definitive purchase agreement, restrictive covenants typically appear in a single section titled “Restrictive Covenants” or “Non-Competition and Non-Solicitation.” The section binds the seller (and usually any equity holder with material ownership) to four promises:

• Non-compete: Do not start, own, manage, or work for a competing business inside a defined geography for a defined number of years.
• Non-solicit (customers): Do not contact, pitch, or accept business from the company’s existing customers.
• Non-solicit (employees): Do not hire, recruit, or encourage current employees to leave.
• Confidentiality: Do not disclose trade secrets, customer lists, pricing, or vendor terms.

These four covenants travel together. A typical lower middle market deal will run 3 to 5 years on the non-compete, 3 to 5 years on customer non-solicit, 2 to 3 years on employee non-solicit, and perpetual on confidentiality and trade secrets. For background on where this clause fits inside the broader contract, see our walkthrough of the definitive purchase agreement (SPA / APA).

Why the vacated FTC rule does not change non-compete business sale enforcement

In April 2024, the Federal Trade Commission issued a final rule banning most worker non-compete agreements. The rule was set to take effect September 4, 2024. It never did. On August 20, 2024, Judge Ada Brown in the Northern District of Texas issued a nationwide order in Ryan, LLC v. FTC vacating the rule under the Administrative Procedure Act, holding that the FTC lacked statutory authority under Section 6(g) of the FTC Act to issue substantive competition rules. The FTC appealed to the Fifth Circuit. By early 2026, with a new administration and a reconstituted Commission, the agency moved to drop the appeal, and the rule was effectively dead.

Two things matter for sellers. First, the FTC rule, even if it had survived, carved out a specific exception for “a person who is selling a business entity or otherwise disposing of all of the person’s ownership interest in the business entity.” The sale-of-business carveout was always going to protect M&A non-competes. Second, the vacatur leaves the field to state law, which has governed non-competes for over 100 years. Nothing has changed for sellers signing a non-compete as part of a business sale.

What did change is the optics. Buyers who, in 2024, started drafting 7-year non-competes with global geography (anticipating that they might need to litigate enforceability harder) have largely returned to traditional 3 to 5 year, regionally scoped restrictions. The market has settled.

Sale-of-business non-compete vs. employment non-compete: why courts treat them differently

The most important concept for any seller to understand is that courts apply a far more lenient standard to sale-of-business non-competes than to employment non-competes. Three reasons:

The best capitalised buyers are usually the most specific about what they refuse to look at, and those refusals are structural rather than about price. Common written exclusions include union shops, non-control positions, companies already owned by another sponsor, walk-in retail dependence, declining top lines, and a single supplier line that does not transfer. These are published in advance and they are not negotiating positions. If your business carries one of them, no amount of price flexibility fixes it. You need a different category of buyer, and the sooner you accept that, the less time you waste.

1. Consideration is meaningful and explicit. An employee may sign a non-compete for $0 of additional pay in exchange for keeping a job. A seller is signing in exchange for the purchase price of the business, often millions of dollars. Courts treat that exchange as bargained-for and arm’s length.
2. Goodwill protection is legitimate. The buyer is paying for goodwill (customer relationships, brand, reputation) that the seller built. Without a non-compete, the seller could walk across the street and re-acquire that goodwill for free, destroying what the buyer paid for. Courts have recognized this rationale since the 19th century.
3. Bargaining power is balanced. Sellers in M&A typically have counsel, a banker or broker, and a real option to walk away. The court does not see the same adhesion concern that drives skepticism of employment non-competes.

The practical result is that durations and geographies that would be struck down in an employment context are routinely enforced in a sale context. A 5-year, 50-mile radius non-compete on a former HVAC business owner is enforceable in most states. The same restriction on a former HVAC service technician would be vulnerable almost everywhere.

State-by-state enforcement of sale-of-business non-competes in 2026

Every state in the US except California, North Dakota, Oklahoma, and Minnesota generally enforces reasonable sale-of-business non-competes. Here is the practical map sellers need:

California: the strictest non-enforcer (with one M&A exception)

California Business and Professions Code Section 16600 voids most non-competes. But Section 16601 creates a specific exception for sale-of-business non-competes: a seller of all of the goodwill or substantially all of the assets of a business may agree not to compete with the buyer in the geographic area where the business was carried on, for as long as the buyer continues to operate there. AB 1076 and SB 699, both effective January 1, 2024, narrowed but did not eliminate the 16601 sale-of-business carveout. The carveout still works. A buyer acquiring 100% of a California seller can get an enforceable non-compete tied to the geographic markets where the business operated.

North Dakota and Oklahoma: statutory bans with narrow M&A carveouts

North Dakota Century Code Section 9-08-06 and Oklahoma Statute Title 15 Section 219A both prohibit most non-competes. Both states allow sale-of-business non-competes, but with narrower geographic and duration limits than most other states. Sellers in ND and OK should expect 2 to 3 year terms and tight county-by-county geographic scope, not 5-year multi-state restrictions.

Minnesota: 2023 employment ban does not reach sale-of-business

Minnesota Statute Section 181.988, effective July 1, 2023, voids most new employment non-competes. The statute explicitly carves out non-competes “agreed upon during the sale of a business” under Section 181.988 subd. 1(b). Sale-of-business non-competes remain enforceable in Minnesota on a reasonableness standard.

Georgia: narrow but enforceable

Georgia’s Restrictive Covenants Act (OCGA Section 13-8-50 et seq.) enforces sale-of-business non-competes but requires tight tailoring of geography and activity scope. Georgia courts will blue-pencil (modify) overly broad clauses rather than void them entirely, which is friendlier to buyers than the all-or-nothing approach in other states.

Massachusetts: noncompetition agreement act has M&A carveout

The Massachusetts Noncompetition Agreement Act (MGL c. 149 Section 24L), effective October 1, 2018, imposes tight rules on employment non-competes (1-year max, garden leave required) but explicitly exempts noncompetition agreements “made in connection with the sale of a business entity.” A seller of a Massachusetts business can sign a 5-year non-compete with no garden leave requirement.

Florida, Texas, New York, New Jersey, and the rest: reasonable enforcement

The default rule in 45+ states is that a sale-of-business non-compete is enforceable if it is reasonable in:

• Duration: 3 to 5 years is the typical safe harbor. Some states will enforce 7 to 10 years for highly specialized businesses or transactions over $50M.
• Geography: The actual markets where the business operated, plus a reasonable buffer. For a single-location HVAC company, this is typically a 25 to 50 mile radius from the location. For multi-location service businesses, it is usually a radius from each location.
• Activity scope: The specific lines of business the seller actually operated. A residential HVAC seller cannot be barred from commercial refrigeration if the seller never did commercial refrigeration.

Florida (Fla. Stat. Section 542.335), Texas (Bus. & Com. Code Section 15.50), New York (common law), and New Jersey (common law) all enforce reasonable sale-of-business non-competes on these standards. None of them have meaningful 2024-2026 statutory changes that affect M&A.

Non-solicit clauses: customers, employees, and suppliers

Non-solicit clauses are enforceable in essentially every state, including California. California Section 16600 has been read to permit customer non-solicits when they are tied to a sale of goodwill, and to permit employee non-solicits when they protect a legitimate business interest. Outside California, non-solicits face almost no enforceability headwinds.

Three distinct non-solicit promises typically appear in a purchase agreement:

Customer non-solicit. The seller agrees not to contact, pitch, or accept business from the company’s existing customers for a defined period, typically 3 to 5 years. The definition of “customer” usually covers anyone who did business with the company in the 24 to 36 months before closing. This is the most enforceable restriction in the agreement.

Employee non-solicit (no-hire). The seller agrees not to hire, recruit, or encourage employees to leave. Duration is typically 2 to 3 years. Sellers should negotiate carve-outs for: (a) employees who respond to general public job postings, (b) employees the buyer has already terminated, and (c) employees who approach the seller without solicitation.

Supplier and referral source non-solicit. Less common, but appears in service businesses with referral-based customer acquisition (medical, legal, professional services). The seller agrees not to redirect referral relationships away from the company.

Worked example: a $4M EBITDA HVAC sale

Take a realistic non-compete non-solicit business sale scenario. ABC Heating & Air is a Florida-based residential and light commercial HVAC contractor with $4M of adjusted EBITDA, three locations (Tampa, St. Petersburg, Lakeland), and 65 employees. A private equity-backed strategic buyer is acquiring 100% of the equity at a 6.5x multiple, or $26M total enterprise value. The seller, the founder, will roll 20% of the equity and stay on as an employee for a 12-month transition. Here is what the restrictive covenants section will typically look like:

Section 6.07 Non-Competition. For a period of 5 years following the Closing Date (the “Restricted Period”), Seller shall not, directly or indirectly, engage in, own any interest in, manage, operate, control, or be employed by any business that provides residential or light commercial HVAC installation, service, maintenance, or repair services within a 50-mile radius of any location operated by the Company as of the Closing Date.

Section 6.08 Non-Solicitation of Customers. For the Restricted Period, Seller shall not solicit, divert, or accept business from any Person who was a customer of the Company at any time during the 24 months prior to the Closing Date.

Section 6.09 Non-Solicitation of Employees. For 3 years following the Closing Date, Seller shall not directly or indirectly solicit for employment, hire, or encourage to leave the employment of the Company, any person who is an employee of the Company as of the Closing Date or who was an employee at any time during the 12 months prior. The foregoing does not prohibit (a) general public solicitations not directed at Company employees, or (b) hiring an employee whose employment has been terminated by the Company.

Every one of these provisions is enforceable in Florida under Fla. Stat. Section 542.335. The 5-year, 50-mile radius non-compete is well within the range courts have upheld in HVAC, plumbing, landscaping, and other service-business sales. For a deeper walkthrough of the legal language sellers see during a sale, our non-compete agreement primer covers the standard phrasing in plain English.

Non-compete business sale duration norms: why 3 to 5 years is the sweet spot

The single most negotiated number in any non-compete is the term. Here is the breakdown of what is typical and what is defensible:

• 2 years: Used in smaller asset sales (under $2M), partial equity sales, or transactions where the seller is staying on as an employee or board member long-term.
• 3 years: The most common term in lower middle market deals ($5M to $25M enterprise value). Three years is the duration buyers will usually agree to without much fight.
• 4 to 5 years: Standard in middle market deals ($25M to $250M) and any deal with significant earnout or seller financing. Five years is the upper edge of what most state courts will enforce without modification.
• 7 to 10 years: Reserved for large transactions ($250M+), highly specialized businesses (specialty chemicals, niche medical devices), or where the seller is receiving a meaningful continued payment stream. Courts have upheld 10-year non-competes in sale-of-business contexts but it is the exception.

Sellers should never agree to a perpetual non-compete. Even in jurisdictions that allow long restrictions, a forever non-compete is the easiest clause for a court to strike or blue-pencil down.

Geographic scope: drawing the fence around the business

Geography is the second most negotiated dimension. The legal standard is “the markets where the business actually operated.” The practical norms:

• Single-location service business: 25 to 50 miles from the location. Larger for rural businesses (where customers travel farther), smaller for dense urban businesses.
• Multi-location service business: Radius from each location, often overlapping. A 5-location HVAC chain in central Florida might have a contiguous restricted zone covering Tampa Bay through Orlando.
• Regional business: The states, counties, or DMAs (Designated Market Areas) the business serves. Common for distributors, manufacturers’ representatives, and B2B services.
• National or global business: The entire United States, or specific countries. Defensible only for businesses that actually had national or global reach.

Sellers should push back hard on any geography broader than where the business actually operated. A buyer who tries to insert “the entire State of Florida” for a Tampa-only HVAC company is overreaching, and the language will not survive a challenge if the seller is ever sued for breach.

What happens if a seller violates the non-compete

Buyers have three remedies, often used in combination:

Injunctive relief. The buyer files in state or federal court and asks for a temporary restraining order (TRO) and preliminary injunction. If granted, the seller has to stop the competing activity immediately, before any trial on the merits. TROs are routinely granted in clear-violation cases. This is the fastest, most painful remedy.

Damages. The buyer sues for the profits the buyer lost (or the seller earned) as a result of the breach. Damages are often capped in the purchase agreement at the purchase price, but not always. Some agreements include liquidated damages clauses that specify a per-breach penalty.

Claw-back of purchase price or earnout. The agreement may allow the buyer to set off losses against any remaining earnout, holdback, or seller note. This is especially powerful when the buyer holds 20% to 40% of the purchase price as deferred consideration. A seller who breaches in year 2 may forfeit a year-4 earnout payment.

For sellers thinking about the broader risk landscape after closing, see our analysis of why PE buyers walk away from deals and how restrictive covenant disputes can echo through the holdback period.

The five most expensive non-compete business sale mistakes sellers make

1. Agreeing to geography broader than the business operated. Once signed, the seller is bound to the literal language. A Tampa HVAC owner who agrees to “the State of Florida” cannot work in Jacksonville.
2. Not carving out passive investment. Most sellers want to be able to own less than 5% of a publicly traded competitor as a passive investor. This carveout has to be explicit. The default rule is no equity ownership of any kind.
3. Not carving out future employment in adjacent industries. A seller who wants to consult, teach, write, or work in an adjacent vertical (commercial HVAC for a residential HVAC seller) needs the carveout in writing.
4. Letting the buyer define “customer” broadly. If the customer non-solicit covers anyone who ever bought anything from the company, the seller may be barred from contacting people the seller knew personally for 20 years.
5. Not negotiating the employee non-solicit carve-outs. The default no-hire clause is absolute. Sellers should always carve out public job postings and terminated employees, at minimum.

Every one of these mistakes is preventable if the seller has experienced M&A counsel reviewing the draft before signing the letter of intent (LOI), not just the definitive agreement. Most non-compete terms are locked in at the LOI stage, not the SPA stage.

How non-compete non-solicit business sale clauses interact with rollover equity

When a seller rolls over equity (keeping 10% to 40% of the post-close company), the non-compete usually has two triggers:

• Sale-side trigger: The non-compete starts at the closing date and runs for the full term regardless of the seller’s ongoing role.
• Employment-side trigger: A separate, shorter non-compete in the employment agreement runs for 1 to 2 years after termination of employment.

The result is a tail. If the seller closes in 2026 with a 5-year sale-side non-compete, then leaves the company in 2028, the seller is locked out of competing until 2031 (year 5 from closing) under the sale-side clause, even if the employment-side clause expired in 2030. Sellers should model this overlap before agreeing to rollover.

Want a specific read on your business and your buyer’s likely non-compete terms?

Restrictive covenants are not abstract. They shape what you can do for the next 5 years of your life. The right time to think about non-compete and non-solicit terms is before you sign the LOI, not after the buyer hands you a 90-page SPA.

If you are thinking about selling and want a read on what a typical buyer in your industry will ask for, take 5 minutes with our seller readiness survey, or book a 15-minute call. We work with our M&A attorney partners on every deal and we will tell you exactly what to expect.

Frequently Asked Questions

Is a seller non-compete enforceable after the FTC rule was vacated?

Yes. The FTC’s non-compete rule was vacated by the Northern District of Texas in Ryan, LLC v. FTC on August 20, 2024, and the agency effectively dropped enforcement in early 2026. Even if the rule had survived, it explicitly exempted sale-of-business non-competes. State law continues to govern, and 46+ states enforce reasonable sale-of-business non-competes.

What is a reasonable duration for a non-compete in a business sale?

Three to five years is the market standard in lower and middle market deals. Five years is the upper edge of what most state courts enforce without modification. Anything longer than five years is reserved for large transactions, highly specialized businesses, or deals with significant continued payment streams to the seller.

Can a buyer enforce a non-compete in California?

Yes, if it is tied to a sale of substantially all of the goodwill or assets of the business. California Business and Professions Code Section 16601 carves out sale-of-business non-competes from the general Section 16600 prohibition. AB 1076 and SB 699 (effective January 1, 2024) narrowed the carveout but did not eliminate it. Geography must be tied to where the business actually operated.

How is a customer non-solicit different from a non-compete?

A non-compete prevents the seller from operating any competing business. A customer non-solicit only prevents the seller from contacting, pitching, or accepting business from specific existing customers of the company. Non-solicits are enforceable in almost every state, including states like California where non-competes are restricted.

Can I be barred from hiring my former employees after I sell?

Yes, but for a shorter period than the non-compete, typically 2 to 3 years. Sellers should always negotiate carve-outs for (a) employees who respond to general public job postings not targeted at the company, and (b) employees who the buyer has already terminated. Without these carve-outs, the default is an absolute no-hire restriction.

What happens if I violate my non-compete after a sale?

The buyer can seek a temporary restraining order and preliminary injunction to stop the competing activity immediately, sue for damages (lost profits or seller earnings from the breach), and claw back any remaining earnout, holdback, or seller note. In a deal with 30% to 40% deferred consideration, the financial exposure for a seller in breach can equal millions of dollars.

Should I sign a non-compete in the LOI or wait for the definitive agreement?

The non-compete terms are usually established in the LOI, even though the binding contract is the definitive agreement. Sellers should negotiate the duration, geography, and activity scope at the LOI stage, before any exclusivity period begins. Once exclusivity is signed, the seller has lost most of the bargaining room to push back on overreaching terms.

What is the difference between a sale-of-business non-compete and an employment non-compete?

Courts apply a much more lenient enforceability standard to sale-of-business non-competes because the seller received meaningful consideration (the purchase price), the buyer is protecting purchased goodwill, and bargaining power is balanced. A 5-year, 50-mile radius restriction that would be struck down in an employment context is routinely enforced in a sale context. This is the most important distinction for any seller to understand.