Non-compete (restrictive covenant)
A non-compete, or restrictive covenant, is the seller’s promise not to compete with the business they have just sold, for a defined time and within a defined area. Without one, a buyer has paid for goodwill the seller could immediately rebuild across the street.
Canadian courts do not treat all restrictive covenants alike. A covenant given by a seller as part of a business sale is generally assessed more permissively than one imposed on an employee, because the parties are commercial, the seller was paid for the goodwill, and the bargaining is closer to equal. That distinction is significant, and it is one US-focused content frequently gets wrong for a Canadian reader.
What makes one enforceable
- Duration no longer than needed to protect the goodwill actually purchased
- A geographic area matching where the business genuinely operates
- Scope limited to the activities the business actually carries on
- Clear, unambiguous drafting — a court will not rewrite a covenant to save it
- Real consideration, which in a sale is the purchase price itself
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Canada Revenue AgencyGovernmentSelling a business
- 02Treadstone LawLegal commentaryAre Non-Compete Clauses Enforceable Against Regulated Professionals Selling a Practice in Ontario?
- 03Treadstone LawLegal commentaryHow Long Can a Seller's Non-Compete Last in an Ontario Business Sale?
- 04Treadstone LawLegal commentaryBuying & Selling a Business
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