When a Business Seller Ignored the Non-Compete They Signed

The situation

Miriam and Wilson had spent two years building a track record as multi-unit franchise operators before they found the deal they wanted: a group of six quick-service food outlets across the Brampton area, all owned by a single seller, Kenneth, who had built the operation from one location to six over a decade. The purchase price sat around $6.4 million, structured through a numbered company Miriam and Wilson incorporated specifically to hold the acquisition.

Treadstone Law was retained to act for the buyers on the purchase. Beyond the ordinary work of a business acquisition — due diligence on leases, franchise agreements, employee contracts and financial statements — our team drafted the restrictive covenant provisions in the purchase agreement. These are the clauses that stop a seller from walking away with the money and then opening a nearly identical business down the street, taking customers, staff and goodwill with them. Kenneth agreed to a non-compete, barring him from operating a competing food-service business within a defined radius of any of the six locations, and a non-solicit, barring him from hiring away the employees or actively pursuing the customer relationships he had just sold. Both ran for a fixed number of years from closing.

The deal closed without incident. Miriam and Wilson took over operations, retained most of the existing staff, and spent the following several months settling into the business. Kenneth stayed on briefly to help with the handover, introducing them to suppliers and longtime customers, and by all appearances left on good terms. For a while, it looked like a clean transition.

The breach

About five months after closing, one of the retained managers mentioned, almost in passing, that Kenneth had opened a new food outlet under a different name, roughly a fifteen-minute drive from two of the six locations. It was not operating under the same franchise banner — Kenneth could not use that brand again — but the menu, the format and the service style were close enough that regular customers noticed the resemblance immediately.

Within weeks, two of Kenneth's former assistant managers left to join him at the new location, along with a handful of kitchen staff. Sales at the two nearest outlets dropped noticeably over the following quarter, more than seasonal variation could explain. Miriam and Wilson began keeping a written log of specific incidents: customers who mentioned Kenneth by name, staff who described being contacted directly about openings at the new outlet, and the monthly revenue figures showing the decline at the two closest locations against stable performance at the other four.

That last detail mattered. A general downturn across the whole operation would have been hard to link to Kenneth's new business. A decline concentrated at the two outlets nearest his new location, while the other four held steady, told a much clearer story. Miriam and Wilson brought the log and the figures to Treadstone before doing anything else, rather than confronting Kenneth directly or posting about it publicly — a decision that turned out to matter, since it kept the dispute contained and the evidence clean.

What we did

1. Confirmed the covenant was enforceable before threatening to enforce it. Ontario courts treat restrictive covenants signed as part of selling a business very differently from the non-competes buried in employment contracts, which are viewed with heavy suspicion and frequently struck down. A covenant tied to the sale of a business — where the seller was paid, in part, for the goodwill they promised not to compete against — is judged mainly on whether its geographic scope, time period and the activity it restricts are reasonable. We reviewed the clause against that standard before advising Miriam and Wilson it was worth enforcing: the radius was tied to the actual customer catchment of the six locations, the term was a fixed and moderate number of years, and the restricted activity was narrowly defined as food-service operations rather than any business whatsoever.
2. Sent a detailed demand letter before filing anything. The letter set out the specific breaches — the new outlet's location and format, the identities of the staff who had left, and the revenue data — and demanded Kenneth close or relocate the competing business and stop contacting former staff and customers, within a short deadline. A demand letter costs little and sometimes ends a dispute outright. Kenneth's response, through his own lawyer, disputed that the new outlet was truly competing and declined to close it.
3. Brought a motion for an interlocutory injunction. An interlocutory injunction is a court order made before a full trial, requiring a party to stop doing something immediately because waiting for trial would cause harm that money alone could not fix later. Restrictive covenant breaches are a classic fit for this remedy: every month the competing outlet stayed open, Miriam and Wilson lost customers and staff that would be difficult to fully quantify or win back even with a later damages award. We assembled affidavit evidence from Miriam, Wilson, and the manager who had first raised the concern, along with the revenue records showing the concentrated decline.
4. Kept the evidence tightly documented and dated. Courts weighing an injunction want to see a clear, credible record, not general impressions. The dated revenue logs, the specific staff departures with dates, and the direct customer comments gave the motion the kind of concrete detail that carries weight, rather than a broad assertion that business was down since Kenneth left.
5. Negotiated a settlement once the motion was scheduled. Facing a hearing with a well-documented record against him, Kenneth's position weakened considerably. Before the motion was argued, his lawyer proposed a settlement: Kenneth would close the competing outlet within a set period, formally reaffirm the remaining term of the non-compete and non-solicit, and pay compensation for the lost profits Miriam and Wilson had documented during the months the outlet had been operating.

The outcome

The settlement resolved the matter without a full injunction hearing or a trial. Kenneth closed the competing outlet within the agreed window, confirmed in writing that the original restrictive covenants remained fully in force for their unexpired term, and paid Miriam and Wilson roughly $210,000 in compensation, calculated against the documented revenue shortfall at the two affected locations over the months the outlet had been open. The two staff who had left were free to make their own choices about where to work — the non-solicit bound Kenneth, not the employees — but with the competing outlet gone, both eventually returned to their previous roles.

The two affected locations recovered their prior revenue levels within roughly two quarters of the outlet's closing. Total costs to Miriam and Wilson for the demand letter, the injunction motion preparation and the settlement negotiation stayed a small fraction of the $6.4 million purchase price — a modest expense against a business of that size, and far less than what a further year of lost customers and staff would have cost them. The larger lesson was less about the money than about the value of what they had insisted on at the negotiating table when the deal was first drafted: a specific, well-scoped covenant, backed by a paper trail built the moment something seemed wrong, made the difference between a costly, drawn-out fight and a resolution reached before a judge ever had to rule.

What you can learn from this