Restrictive Covenants in Contracts, Security Attorney Illinois

QUESTION

How do courts view restrictive covenants included in a contract for the sale of a business?

ANSWER

One reason why courts are reluctant to enforce a restrictive covenant in an employment setting involves the usual disparity in bargaining power or sophistication between the employee and employer. The buyer and seller of a business, on the other hand, usually stand on equal footing. Courts usually will find that a restrictive covenant in an agreement for the purchase and sale of a business to be central to the underlying purpose of the agreement. In essence, the courts recognize that no buyer would want to purchase a business from a seller, and then learn that thevalue of the business is much less than he expected because the seller has re-commenced business shortly after the sale with his former customers. For this reason, the courts are more inclined to find restrictive covenants to be enforceable when they appear in agreements for the purchase and sale of a business than when they appear in employment agreements. Nonetheless, when courts evaluate restrictive covenants, they consider many of the same factors they consider when they evaluate restrictive covenants in employment contracts, and they will not enforce a restrictive covenant that is unreasonably overbroad.

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