Legal Definitions - contract not to compete

A contract not to compete is a promise made in a contract, usually in a sale-of-business, partnership, or employment contract, where one party agrees not to engage in the same type of business for a certain period in the same market as the other party. This type of contract is also known as a noncompetition covenant or restrictive covenant.

For example, if a person sells their business to another person, they may include a contract not to compete in the sale agreement. This would prevent the seller from starting a similar business in the same area for a certain period of time, so as not to compete with the buyer.

Noncompetition covenants are valid to protect business goodwill in the sale of a company. However, they are generally disfavored as restraints of trade. Courts generally enforce them for the duration of the business relationship, but provisions that extend beyond the termination of that relationship must be reasonable in scope, time, and territory.