Non-Competes After the Sale of a Business: What’s Enforceable in 2026

The non-compete you signed when you sold your business is one of the most important documents in the transaction, and one of the least carefully negotiated. Buyers insist on them because the value they paid you for is partly the goodwill you carry as the founder, and they do not want to write a check and then watch you open a competing shop down the street. Sellers sign them because they are usually negotiated in the last week before closing, when no one wants to relitigate the deal. The legal landscape around non-competes has shifted dramatically since 2024. In 2026, what is enforceable depends on where you sit and on how the agreement was drafted. This is where things actually stand.

Where the FTC Rule Ended Up

The Federal Trade Commission’s 2024 rule that would have banned most non-competes nationwide was struck down by the Northern District of Texas in Ryan v. FTC in August 2024, and the agency’s subsequent appeals have not restored the rule. As of 2026, there is no federal ban on non-compete agreements. The regulatory landscape is back to where it was before the FTC rule was proposed: a patchwork of state laws, with significant differences in enforceability depending on jurisdiction.

The FTC’s rule is not entirely without practical consequence, however. Several states accelerated their own legislative restrictions on non-competes in 2024 and 2025 in anticipation of the federal rule. Many of those state-level restrictions are still on the books. The federal landscape is unchanged; the state landscape is meaningfully more restrictive than it was three years ago.

The Sale-of-Business Exception

Even in jurisdictions that broadly disfavor non-competes in employment contexts, there is almost always an exception for non-competes given in connection with the sale of a business. The legal theory is that the seller is being paid for the goodwill of the business, and the buyer needs the right to protect what it paid for. Courts in nearly every state apply a more permissive standard to sale-of-business non-competes than they do to ordinary employment non-competes.

The practical implication is that the same restriction that would be unenforceable as an employment covenant may be enforceable when it is given as part of the sale documentation. This is why drafting matters so much: the same words can have different legal force depending on which document they appear in and what is recited as the consideration.

The State-by-State Landscape

Texas

Texas continues to enforce sale-of-business non-competes provided they meet the statutory requirements: reasonable in time, geography, and scope of activity, and ancillary to an otherwise enforceable agreement. The Texas Business and Commerce Code expressly recognizes non-competes given in connection with the sale of goodwill. Five-year covenants are commonly upheld. Geographic scope tied to the area in which the business operated is enforced.

California

California is the most restrictive jurisdiction for ordinary non-competes, but the sale-of-business exception in Business and Professions Code Section 16601 is robust. A non-compete given by a selling shareholder is enforceable so long as it is geographically limited to the area where the business carried on its activity. The drafting must clearly tie the restriction to the sale of corporate stock or business assets, not to ongoing employment.

Delaware

Delaware continues to enforce sale-of-business non-competes under traditional reasonableness analysis. Recent Chancery decisions have, however, been increasingly willing to "blue pencil" overly broad restrictions rather than enforce them as written. Drafting that anticipates judicial reformation, with stepped-down geographic and durational provisions, holds up better than absolute-maximum drafting.

Florida

Florida’s 2025 amendments to its restrictive covenant statute (the CHOICE Act) expressly recognize and broadly enforce non-competes given in connection with the sale of a business. Florida is now one of the most seller-restrictive (and buyer-favorable) jurisdictions in the country for these agreements. Drafting under Florida law should affirmatively elect Florida governing law and venue where the deal touches Florida.

Drafting Tips for Scope, Geography, and Duration That Hold Up

Reasonable duration is typically three to five years. Anything longer requires special justification, such as a meaningful earnout period, ongoing consulting role, or substantial up-front consideration. Reasonable geography is the area where the business actually operated, not the entire country, unless the business is national in scope. The activity restriction should be tied to the same line of business sold, not to broader categories.

Recite the consideration carefully. The agreement should make clear that the non-compete is given as part of the consideration for the purchase price, not as an employment covenant. If the seller is also being employed post-closing, separate the sale-of-business non-compete (in the purchase agreement or as an ancillary agreement) from any employment-based covenant (in the employment agreement). This protects the sale-of-business covenant if the employment-based covenant is later struck down.

A Final Reminder

The non-compete you sign at closing follows you for years. It will be enforced by injunction, not just damages, which means a court can stop you from operating a competing business while litigation plays out. Negotiate scope, geography, and duration with the same care you bring to the purchase price. And before you build the next business idea, have transaction counsel review the document you signed to confirm what you can and cannot do.

Selling your business and negotiating a non-compete, or unsure about restrictions you signed in a prior sale? Contact GNS Law for a confidential review.