How long can a non-compete last when I sell my Ontario business?
When you sell a business in Ontario, it is standard practice for the buyer to require the seller to sign a non-competition agreement. Unlike employment non-competes, which Ontario courts scrutinize very strictly, non-competes in the context of a business sale are treated more generously because courts recognize that the buyer has paid for the goodwill of the business and needs protection from the seller immediately competing with what they just purchased.
Reasonable duration and geographic scope vary depending on the nature of the business. A two to five year non-compete covering the geographic area where the business operated is generally considered enforceable in Ontario. For a business with a national customer base, a national scope may be justified.
The key is proportionality — the restriction must be no broader than reasonably necessary to protect the legitimate interests the buyer paid for. A non-compete that is indefinite, worldwide, or covers activities wholly unrelated to the sold business will be vulnerable to challenge.
If you are the seller, negotiating the scope, duration, and carve-outs (for existing clients, passive investments, etc.) is an important part of the deal, not just the purchase price.
Key takeaways
- Post-sale non-competes are enforced more generously than employment non-competes in Ontario.
- Two to five years in the relevant geographic area is typically reasonable.
- The restriction must be proportionate to the goodwill the buyer actually purchased.
- Negotiate scope, duration, and carve-outs as carefully as the purchase price.