M&A non-compete and non-solicit clauses protect the goodwill, workforce, customers, and confidential know-how a buyer pays to acquire. If the restrictions are too narrow, sellers may quickly erode deal value. If they are too broad, a court or regulator may refuse enforcement.
This guide outlines twelve drafting tests for buyers, sellers, founders, executives, and investment teams negotiating post-closing restrictive covenants.
Restrictions should protect purchased goodwill without exceeding legitimate business needs. Photo: Pexels.
Why restrictive covenants matter in M&A
A sale-of-business restriction differs from an ordinary employment covenant because the seller receives value for goodwill. Even so, enforceability depends on governing law, competition policy, scope, and facts. Drafting should be supported by a clear commercial rationale.
1. Restricted parties
Identify the sellers, founders, controlling shareholders, affiliates, and key individuals bound. Do not assume an entity covenant automatically binds its owners or personnel.
2. Restricted business
Define the protected business using the target’s actual products, services, customers, and planned activities. Avoid vague references to any business conducted by the buyer’s wider group.
3. Geographic scope
Link territory to markets where the target operates, sells, or has credible expansion plans. A global restriction requires evidence that the acquired goodwill is genuinely global.
4. Duration
Choose a period tied to customer relationships, product cycles, confidential information, and transition needs. Longer periods increase protection but may reduce enforceability.
Scope and duration must be proportionate to the acquired business. Photo: Pexels.
5. Direct and indirect competition
Address operating, financing, advising, managing, or holding an interest in a competitor. Include practical exceptions for passive investments and diversified funds.
6. Customer non-solicitation
Define protected customers and prospects, the relevant lookback period, and prohibited conduct. Distinguish targeted solicitation from general advertising and unsolicited approaches.
7. Employee non-solicitation
Identify covered employees and whether hiring is prohibited only after solicitation. Consider exceptions for general recruitment, unsolicited applications, and employees already terminated.
8. Supplier and partner protection
Where relationships are essential, restrict intentional interference with suppliers, distributors, licensors, and strategic partners. Tailor the covenant to material relationships.
9. Confidentiality and non-use
Coordinate restrictions with confidentiality obligations. Trade secrets may justify longer protection than ordinary business information, subject to applicable law.
10. Carve-outs
Preserve legitimate activities such as retained businesses, disclosed investments, professional practice, pre-existing board roles, and businesses acquired without knowledge of a small competing division.
Clear carve-outs reduce uncertainty while preserving essential protection. Photo: Pexels.
11. Remedies
Address injunctive relief, damages, contractual penalties where lawful, notice, cure, and dispute forum. A remedy clause cannot fix an invalid restriction, so proportional drafting remains essential.
12. Severability and modification
Check whether the governing law permits a court to narrow an excessive covenant. Draft separate restrictions where appropriate, but do not rely on severability to rescue unreasonable language.
Negotiation checklist
- Document the goodwill and relationships being protected.
- Match territory and duration to evidence.
- Define solicitation and competition precisely.
- Coordinate employment and acquisition documents.
- Obtain local-law advice in every material jurisdiction.
Common negotiation pitfalls in M&A non-compete and non-solicit clauses
Restrictive-covenant drafting guidance consistently identifies overbreadth as the single most common reason M&A non-compete and non-solicit clauses fail on enforcement. A geographic scope drawn to cover the whole country when the target only operates in two provinces, or a duration set at five years when three would fully protect the transferred goodwill, invites a court to strike the clause entirely rather than narrow it, depending on the applicable law’s approach to severability. Buyers should scope restrictions to the actual business acquired, not an aspirational future footprint.
A second pitfall is failing to distinguish the founder-seller’s covenant, which is directly tied to the goodwill being purchased and generally receives more latitude, from covenants imposed on rank-and-file employees, which courts scrutinise far more strictly as a potential restraint on livelihood. Applying one uniform non-compete standard across every restricted party in the M&A non-compete and non-solicit clauses is a common drafting shortcut that increases the risk the entire covenant package is challenged.
How Vietnamese buyers and sellers should approach M&A non-compete and non-solicit clauses in practice
Under Vietnamese law, restrictive covenants against former employees interact with labour law protections that are generally more employee-protective than in many other jurisdictions, so M&A non-compete and non-solicit clauses aimed at individuals should be drafted narrowly and, where possible, supported by reasonable compensation for the restricted period to strengthen enforceability. Restrictions on the selling shareholder or founder personally, tied directly to the sale of the business, generally sit on firmer ground than employee-facing covenants.
Local market practice on M&A non-compete and non-solicit clauses typically sets a duration of two to three years for the founder-seller, scoped to the specific industry sector and geographic markets the target actually served, with customer and employee non-solicitation running for a similar or slightly shorter period. Buyers should document the goodwill and customer relationships being protected, since a clear commercial rationale materially improves the covenant’s enforceability if challenged.
A worked example: scope determines enforceability
In one structuring scenario, the buyer’s initial draft imposed a nationwide, five-year non-compete on both the founder-seller and all mid-level managers transferring with the business. Legal review flagged that the manager-level restrictions were unlikely to survive challenge and could taint the entire covenant package. Narrowing the M&A non-compete and non-solicit clauses to a regionally scoped, three-year restriction on the founder alone, with a separate, materially narrower non-solicitation covenant for managers, produced a package both sides could sign with confidence in its enforceability.
Frequently asked questions
Are M&A non-competes always enforceable?
No. Enforceability varies significantly by jurisdiction and may change with legislation or competition policy.
Can a seller retain another business?
Yes, if the retained activities are clearly carved out and do not undermine the goodwill sold.
Does a non-solicit prevent hiring?
Only if the clause says so and applicable law permits it. Solicitation and hiring should be defined separately.
What duration is typical for M&A non-compete and non-solicit clauses in Vietnam?
Two to three years for the founder-seller is common practice, scoped to the specific industry and geography the target served, with employee and customer non-solicitation running for a similar or shorter period.
Are M&A non-compete and non-solicit clauses enforceable against employees in Vietnam?
They are scrutinised more strictly than founder-seller covenants under Vietnam’s employee-protective labour law framework, and are strengthened when paired with reasonable compensation for the restricted period.
Next step
IVLF helps transaction teams draft restrictive covenants, disclosure schedules, and closing protections. Explore our legal services or contact IVLF Lawyer.
Key takeaways
M&A non-compete and non-solicit clauses protect exactly what the buyer paid for: the goodwill, customer relationships, and know-how transferred with the business. Scope and duration should be proportionate to that protected interest rather than maximised for their own sake, since overreach is the most common reason these covenants fail when tested. Buyers who document the commercial rationale for each restriction, and calibrate it to the specific party being restricted, consistently achieve more durable and enforceable protection.
Drafting checklist before signing
Before finalising M&A non-compete and non-solicit clauses, confirm the restricted business is defined by reference to the target’s actual activities, the geographic scope matches where the business actually competes, the duration is proportionate under the applicable law’s enforceability standards, and carve-outs for passive investment or pre-existing unrelated business lines are addressed. A severability clause allowing a court to narrow rather than void an overbroad restriction is also standard protective drafting.
Restrictive covenants are typically negotiated alongside the M&A purchase agreement and representations and warranties. For comparative restrictive-covenant practice, see the ACC resource library.
IVLF’s M&A advisory Vietnam team drafts and negotiates M&A non-compete and non-solicit clauses calibrated to Vietnam’s labour law framework and enforceability standards. If you need a Vietnam M&A lawyer to review your restrictive covenants, contact IVLF. A short enforceability review before signing is usually enough to catch M&A non-compete and non-solicit clauses that are broader than necessary and therefore vulnerable to challenge.
Because remedies for breach of M&A non-compete and non-solicit clauses can include injunctive relief in addition to damages, both parties benefit from clarity on scope before a dispute arises rather than litigating the meaning of an ambiguous restriction after the fact.
This article is provided for general information only and does not constitute legal advice for any specific case. Regulations may change – please consult a qualified professional before acting. Should further analysis be required, please contact one of our lawyers below.
