Since President Biden’s July 2021 direction to the Federal Trade Commission (“FTC”) to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility,” the FTC has ratcheted up its scrutiny of and investigations into non-compete agreements and other restrictive covenants. Now, the FTC has expanded beyond post-employment restrictive covenants to tackle “sale of business” non-competes. Most recently, the FTC voted in favor of a deal-changing proposed order against ARKO Corp. related to its 2021 acquisition of sixty fuel outlets from Corrigan Oil Company.

Traditionally, agreements not to compete by sellers in the context of a sale of business engender less scrutiny from agencies and courts than post-employment restrictions. This is understandable: a buyer should be permitted to protect the business (assets, goodwill, etc) it has purchased. As the Sixth Circuit explained in Hall v. Edgewood Partners Insurance Center, Inc., “where the restrictive covenant is bargained for as part of an asset sale—rather than an employment agreement—the courts will typically enforce it” to protect “the integrity of the transaction.” F. App’x 392, 396 (6th Cir. 2018). As with all restraints of trade, restrictive covenants like non-competes (even deal-based non-competes) must be ancillary to an employment relationship or a legitimate business transaction and reasonably necessary to protect legitimate business interests. This standard is...

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