Question

Maurice wishes to purchase a small restaurant named "Tasty Burger" in his community from

Todd who tells Maurice that, while he loves the teenagers who have frequented his establishment, he is tired of flipping burgers and wants to spend more time fishing on the lake. Maurice has Todd sign a covenant not to compete prohibiting Todd from opening a restaurant within 25 miles of Tasty Burger for five years. Assuming that the covenant was drafted properly, is it likely to be enforced? Discuss arguments for and against covenants not to compete in the sale of a business

Answer 1

One argument in favor of the non-compete covenant is that the seller of the business holds sufficient information that can be used to decrease the profitability of the new buyer. A joining the new firm or establishing the new firm can be used as a tool to harm the business that is just sold. One argument in against of the non-compete covenant is that the business just sold, does not cater the whole audience of the market. So, establishing of the new business, will not exactly harm the business just sold. Further, the business information can be shared or sold to the competitors without entering into the business. So, it is the ability of the business to hold the customer base. Mere information sharing does not cause the big harm to the business just sold.

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