Non-compete clauses are included in virtually all purchase and sale agreements. They are designed to ensure that purchasers realize the full value of the acquired business by, for example, prohibiting competition from vendors within a defined area for a certain amount of time. There is no question that such clauses are valuable to purchasers and essential in the mergers and acquisition context.
The Canadian Competition Bureau (the “Bureau”) has long recognized that non-compete clauses “can serve legitimate purposes”. However, the Bureau’s approach to non-compete clauses has been revised in its updated Competitor Collaboration Guidelines (the “CCGs”), which were issued on May 6, 2021 – see our prior blog post titled “New Competitor Collaboration Guidelines”. Significantly, as discussed in more detail below, the Bureau has signalled that it may consider such clauses under the criminal cartel provisions in the Competition Act (the “Act”) where they, for example, amount to a market allocation agreement or there is evidence that they are nothing more than a “sham”.
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