Frier Levitt previously highlighted the Federal Trade Commission’s (the “FTC”) final rule banning non-compete clauses between employers and employees (the “Final Rule”).
While the Final Rule is slated to take effect 120 days after its publication in the Federal Register, the implementation of the Final Rule remains in doubt due to a series of legal challenges. However, to the extent the Final Rule does ultimately take effect, the sweeping federal ban would not apply to non-competes in the context of the sale of a business. Specifically, the “sale of business” exception adopted by the FTC in the Final Rule would allow non-compete clauses that are entered into by a person pursuant to a bona fide sale of (1) a business entity, (2) the person’s ownership interest in a business entity, or (3) all or substantially all of a business entity’s operating assets.
M&A activity in the healthcare space remains high, and this important exception recognizes that buyers continue to have a legitimate business interest in protecting the value of the acquired business, including goodwill. Suffice it to say that, absent such restrictions, the going concern value of the acquired business would be substantially diminished if a seller were to compete with the buyer following the sale. Therefore, to the extent permissible under relevant state law, buyers would be well advised to utilize non-compete agreements in connection with acquisitions, redemptions of departing owners and other bona fide sale transactions.
If you have any questions on how to best protect the going concern value of your acquisitions, please contact Frier Levitt today.
