A Two-Line Covenant Clause That Nearly Cost Three Partners Their Deal

The situation

The letter arrived attached to a draft share purchase agreement, forty-some pages of definitions and schedules, and Samir read exactly one clause twice before forwarding it to Karim and Imran with a single line: 'we need to talk about this before we sign anything.' The clause in question was the restrictive covenant, standard boilerplate in almost every business sale, prohibiting the selling shareholders from competing with the buyer or soliciting the company's employees for a period after closing. Buried in the definition of 'employee' was language broad enough to capture anyone who had worked for the company at any point in the two years before the sale, whether they still worked there or not.

Samir, Karim, and Imran had built the fabrication shop together over close to sixteen years, supplying steel components to mining and forestry operators across the region, and had agreed to sell to a larger equipment supplier for a price landing around $11 million. The three of them were not leaving on the same terms. Imran wanted out entirely at closing, ready to retire. Karim planned to stay on for eighteen months to help the buyer transition client relationships. Samir was somewhere in between, uncertain whether he wanted a clean break or some ongoing involvement, and that uncertainty was part of why the covenant language bothered him more than it bothered the other two.

The two years before the sale had seen several people leave the company for reasons that had nothing to do with the deal. One had left to retrain and now worked as a factory technician for an unrelated manufacturer two towns over. Another had left the office staff to open a small hair salon, now working as a hairdresser. Both had left on good terms, long before a buyer was even in the picture, and Samir had stayed close to both of them personally. Under the draft language, if either of those two people ever wanted a job at whatever Samir did next, or if Samir ever so much as recommended them for a role, he could be in breach of a covenant tied to a sale he was completing years after either of them had already walked out the door.

Karim thought the whole objection was overblown, a distraction from getting the deal closed, and said so plainly. Imran, indifferent since he was retiring anyway, mostly wanted the disagreement to end so the deal could proceed. What should have been a routine legal question became a source of real friction between three people who had run a business together for a decade and a half and were now, for the first time, not aligned on what mattered.

The risk we had to size

Before any redrafting happened, the actual legal and business risk needed to be separated from the emotional one, because they were not the same problem. The legal question was narrow: how likely was it that the buyer would ever actually try to enforce a non-solicit covenant against Samir over two people who had left the company well before the sale and had no ongoing connection to it? Courts scrutinize restrictive covenants closely, and a clause broad enough to cover former employees with no remaining link to the business, years after they departed, would be a difficult one for a buyer to enforce even if they tried. On paper, the practical risk of the clause as drafted was probably low.

But 'probably low' is not the same as 'no risk,' and it is not what a business owner wants hanging over a decision about who to hire five years from now. A covenant that is technically breachable, even if unlikely to be enforced, still creates a chilling effect: it makes a cautious person hesitate before recommending a friend for a job, and it hands the buyer a lever, however unlikely to be pulled, that has no business being there. Sizing the risk meant weighing that real but modest legal exposure against something harder to quantify, which was the cost of letting the disagreement fester between three people who still had to work together, in Karim's case for another eighteen months, and who had never had a serious falling-out before.

There was a second layer to the risk assessment that mattered just as much: what would it actually cost the buyer to grant the carve-out? Almost nothing. The two former employees had no active relationship to the business and no realistic prospect of being solicited back into a role that threatened the buyer's interests. That imbalance, a request cheap for the buyer to grant but genuinely important to Samir, was the clearest signal the dispute was more about framing than about any real conflict of interest.

The emotional dimension needed attention first, because a legal fix proposed while Karim and Samir were talking past each other was not going to land. We met with the three of them together, separated the two former employees' situation from the broader question of how restrictive the covenant should be for the sellers generally, and got agreement on a narrower question: was there a version of this clause that protected the buyer's legitimate interest in not losing recently active employees to a departing owner, without also reaching two people who had left the business before anyone was discussing a sale at all. Framed that way, rather than as Samir's objection against Karim's impatience, the three found common ground faster than the earlier exchanges had suggested was possible, and Karim in particular softened once he understood the request was not about principle for its own sake but about two specific people Samir had a genuine, longstanding connection to.

What we did

1. Mapped exactly who the broad definition captured. We reviewed personnel records against the draft covenant's two-year lookback and confirmed only two people fell into the gap between 'someone the buyer had a legitimate interest in protecting' and 'someone who had left the business long before a sale was ever discussed.' Narrowing the dispute to two identifiable people, rather than an abstract principle, made the negotiation concrete instead of philosophical and gave the buyer's counsel a specific, easy question to answer rather than an open-ended one.
2. Held a joint meeting with all three sellers before drafting anything. Because Karim and Samir were talking past each other, we brought all three together to agree on what they actually wanted before any language went to the buyer. This cost a day the deal timeline could have used elsewhere, but a covenant term negotiated while the sellers disagreed with each other would have been unstable no matter what the buyer agreed to, and would likely have resurfaced later as a source of friction between the three of them.
3. Drafted a named carve-out rather than a broader exception. Instead of arguing for a general reduction in the lookback period, which the buyer was unlikely to concede quickly, we proposed excluding the two specific individuals by role and departure date, a narrow, easy-to-verify exception that gave the buyer's counsel little to push back on since it did not touch the covenant's protection over current staff or weaken the clause in any way that mattered to the buyer's actual concern.
4. Anticipated the buyer's counter before it arrived. We expected the buyer to ask for something in exchange rather than grant the carve-out for free, and prepared Samir, Karim, and Imran for that possibility so the eventual ask did not reopen the disagreement among the three of them. Walking the group through likely trade-offs in advance meant the actual counteroffer, when it came, felt manageable rather than like a fresh crisis.
5. Negotiated the trade directly. The buyer agreed to the named carve-out but wanted the general non-solicit period for current employees extended from eighteen months to thirty months across all three sellers. We took that back to the group, explained the trade plainly, laid out who it actually affected most, and got agreement that a longer general term was an acceptable cost for closing off the broader risk entirely.
6. Modelled what the extended term actually meant for each seller. Because Imran was retiring and Samir's plans were unsettled, the thirty-month extension mattered most to Karim, who intended to stay active in the trade. We walked through concretely what industries and roles the extended non-solicit would and would not restrict for him, so he was agreeing to a term he understood fully rather than one he accepted on principle alone.
7. Documented the departure dates as part of the closing record. To make the carve-out airtight rather than arguable later, we had the two former employees' actual departure dates confirmed and referenced in the agreement itself, removing any ambiguity about whether they fell inside or outside the covenant's reach, and giving Samir a document he could point to with confidence years later if the question ever came up again.

The outcome

The final agreement carved the two former employees out of the non-solicit covenant by name and departure date, which was the specific protection Samir had pushed for from the start. He kept the freedom to recommend or hire either of them in whatever he did next, without any residual exposure tied to a business he no longer owned. That was a real, meaningful concession from the buyer, and it closed off the exact risk that had triggered the dispute.

It did not come free. The general non-solicit period covering the company's current employees was extended from eighteen months to thirty months for all three sellers, a longer restriction than any of them had originally wanted, and one that mattered more to Karim, who intended to stay active in the industry after his transition period ended, than it did to Imran, who was retiring regardless. Karim accepted the trade once the carve-out was framed as the specific thing Samir needed rather than a symbolic win, and the extended term as a genuine cost the group was choosing to pay for it, not a concession forced on him by someone else's stubbornness.

The deal closed on the agreed price and timeline, at a transaction value in the $8 million to $15 million range the three had targeted from the outset. The disagreement between Karim and Samir, which had been sharp enough in the first week to threaten how the three would work together during Karim's transition period, settled once the legal question was separated from the interpersonal one and each side could see exactly what it was giving up and gaining.

Neither side got everything it wanted, which is generally the sign of a compromise that will actually hold rather than one side quietly resenting the outcome. Karim's eighteen months working alongside the buyer's new management proceeded without the residual tension that had marked the negotiation itself, and by the time his transition period ended, both he and Samir described the covenant dispute as a difficult but ultimately fair resolution rather than a grievance either of them still carried.

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