Legal Definitions - noncompetition agreement

A noncompetition agreement, also known as a noncompetition covenant, is a promise made in a contract, usually in a sale-of-business, partnership, or employment contract, not to engage in the same type of business for a stated time in the same market as the buyer, partner, or employer. This agreement is used to protect business goodwill in the sale of a company.

For example, if a business owner sells their business to another person, they may include a noncompetition agreement in the contract to prevent the buyer from starting a similar business in the same area and taking away customers.

Noncompetition agreements are generally enforceable 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.