One provision makes buying a business in the District materially safer than hiring for it: a seller’s covenant not to compete is excluded from D.C.’s non-compete ban altogether. D.C. Code § 32–581.01(15)(A) carves out a restriction “contained within or executed contemporaneously with an agreement between the seller of a business and one or more buyers of that business.” So while an employee non-compete may be void, the covenant a buyer bargained for in the purchase agreement stands outside the Act.
Why the seller’s covenant survives the non-compete ban
A seller’s covenant not to compete sits outside D.C.’s non-compete ban, because the statutory definition expressly excludes a provision contained in or executed alongside an agreement between the seller of a business and its buyer.
“Non-compete provision” means a provision in a written agreement or a workplace policy that prohibits an employee from performing work for another for pay or from operating the employee’s own business. The term “non-compete provision” does not include an otherwise lawful provision: (A) Contained within or executed contemporaneously with an agreement between the seller of a business and one or more buyers of that business wherein the seller agrees not to compete with the buyer’s business; (B) That prohibits or restricts an employee from: (i) Disclosing, using, selling, or accessing the employer’s confidential employer information or proprietary employer information; (ii) Accepting money or a thing of value for performing work for a person other than the employer, during the employee’s employment with the employer, because the employer reasonably believes the employee’s acceptance of money or a thing of value under such circumstances will: (I) Result in the employee’s disclosure or use of confidential employer information or proprietary employer information; (II) Conflict with the employer’s, industry’s, or profession’s established rules regarding conflicts of interest; (III) Constitute a conflict of commitment if the employee is employed by a higher education institution; or (IV) Impair the employer’s ability to comply with District or federal laws or regulations; a contract; or a grant agreement; or (C) That provides a long-term incentive. (16) “Proprietary employer informati…
D.C. Code § 32–581.01(15) — definition of non-compete provision
Subparagraph (A) is the sale-of-business carve-out. It is a different legal position entirely from the employee covenants discussed at non-compete disputes — and one reason deal covenants should be drafted as deal covenants, not lifted from an employment template.
What usually goes wrong after completion?
| Issue | Where the law sits | Related page |
|---|---|---|
| Seller competes despite the covenant | § 32–581.01(15)(A); the agreement itself | Unfair competition |
| Information or customers taken with the seller | §§ 36–401 to 36–406 | Trade secrets |
| Representations turn out to be untrue | Contract; § 12–301(7) 3 years | Contract disputes |
| Assets moved before or around closing | §§ 28–3104 to 28–3107 | Diverted funds |
| Owners fall out over the sale itself | §§ 29–312.20 to 29–312.24 | Ownership disputes |
How long is there to bring a claim?
Contract claims arising from the purchase agreement generally run 3 years under § 12–301(7), unless the instrument is under seal (12 years, § 12–301(6)) or the dispute is a contract for the sale of goods (4 years, § 28:2–725). Which applies is a question about the document, and it is worth settling early.
Frequently asked questions
Can we still restrict a seller from competing?
Yes. D.C. Code § 32–581.01(15)(A) excludes a seller’s covenant contained in, or executed contemporaneously with, the sale agreement from the definition of a non-compete provision.
Does that carve-out cover the seller’s employees too?
No — it is directed at the seller of the business. Restrictions on employees are assessed under §§ 32–581.02 and 32–581.03.
What if the seller takes the customer list?
That is a trade secret and confidentiality question under §§ 36–401 to 36–406, and often the stronger claim.
How long do we have to sue on the purchase agreement?
Generally three years under § 12–301(7), but twelve years for an instrument under seal and four years for a contract for the sale of goods under § 28:2–725.
Who bears the risk of what the seller did before completion?
Principally whoever the agreement’s representations and indemnities put it on. The statutory backstop is D.C. Code § 28–3104(a), which makes a transfer fraudulent as to a creditor whether that creditor’s claim arose before or after it, where the debtor acted with actual intent to hinder, delay or defraud.
Where does a dispute go when the agreement names a different forum?
To that forum. A forum-selection or arbitration clause is applied ahead of the default position, and where arbitration is agreed D.C. Code § 16–4407(a) requires the court to order it unless there is no enforceable agreement — and under § 16–4407(d) it may not refuse because the claim looks weak.
How does the deadline change with the way the agreement was signed?
Sharply. D.C. Code § 12–301(7) gives three years on a simple contract, while § 12–301(6) gives twelve years on an instrument under seal — so how the purchase agreement was executed can be the difference between a live claim and a dead one.
Who pays the legal fees if the deal dispute is arbitrated?
Whoever the agreement or the award says. D.C. Code § 16–4421(b) allows an arbitrator to award reasonable attorney’s fees and other reasonable expenses of the arbitration where that is authorized by law in a civil action on the same claim, or by the agreement of the parties — which makes the fee clause worth negotiating at the deal stage.
Sources and legal authorities
- D.C. Code § 32–581.01 — Definitions
- D.C. Code § 12–301 — Limitation of actions
- D.C. Code § 28:2–725 — Limitations in contracts for sale
- D.C. Code § 36–401 — Trade secret definitions
General information about D.C. law, not legal advice. Which rule applies depends on the entity, the agreement and the facts.
Related: Non-Compete Disputes · Unfair Competition · Contract Disputes · Ownership Disputes · Business Litigation. Call (301) 901-3109 or use the contact page.