An asset sale can break employee non-competes.

An asset purchase makes you a new legal employer, so the seller’s employee non-competes do not automatically follow the business. Whether they transfer turns on state assignment law and on the covenant’s own words. In a stock purchase or a merger the covenants usually continue. Re-paper the ones the business depends on, early.

Do the seller’s employee non-competes come with the business when I buy the assets?

Employee non-competes and non-solicits do not reliably transfer in an asset purchase. The buyer is a different legal employer, and a restrictive covenant is a personal contract between the employee and the entity that signed it. Some states refuse assignment without the employee’s consent. Others require express assignability language in the covenant.

The mechanism matters more than the conclusion. A covenant binds the employee to a named employer. That employer sold you its assets and went away. The employee quit one employer and started with another on closing day, usually without signing anything new. State assignment law decides whether the old restraint reaches you.

Why do stock purchases and mergers treat employee covenants differently?

A stock purchase leaves the employing entity in place, and a statutory merger passes a constituent entity’s contracts to the survivor by operation of law, so employee covenants generally continue without re-signing. The exception sits in the covenant itself. Change-of-control, assignment, and successor clauses can end the restraint or trigger a consent right. Read every covenant before closing.

Even inside a merger, wording controls. Ohio’s merger statute vests each constituent entity’s assets, rights, and obligations in the survivor without further act. Ohio’s high court still took the point up twice. The first opinion read covenants naming only the original contracting entities to limit who could enforce. On reconsideration the court held the agreements transfer by operation of law and the survivor may enforce them.

Law: Ohio Rev. Code 1701.82(A)(3).

Case: Acordia of Ohio, L.L.C. v. Fishel, 2012-Ohio-2297, modified on reconsideration, 133 Ohio St.3d 356, 2012-Ohio-4648.

Read that as a warning about drafting, not a promise about Ohio. Name one entity, omit successors, and you litigate who the employer is.

Which states let the buyer in an asset sale enforce a covenant it did not sign?

There is no national default on assignability of employee restrictive covenants, and the splits are real. Pennsylvania refuses assignment in an asset sale absent a specific assignability provision. Nevada requires an express assignment clause. Florida permits an assignee or successor to enforce only where the covenant expressly authorized it. Other states are more permissive, and silence is not safe anywhere.

Two consequences follow. Your lender and your tax planning usually push you toward an asset purchase, the structure most hostile to inherited covenants. And covenant diligence runs document by document, keyed to each employee’s work state.

Does the assignment of contracts in the purchase agreement settle it?

Assignment language in an asset purchase agreement moves whatever the seller can lawfully assign. It does not manufacture assignability that the underlying covenant lacks, and it does not bind the employee, who never signed the purchase agreement. A schedule listing employment agreements as assigned assets evidences the parties’ intent. It does not prove enforceability against the employee.

I read the covenant itself before I read the assignment schedule, because the covenant decides whether the schedule matters at all. I ask for signed originals from the personnel files rather than the seller’s summary of who is under contract.

A seller representation that the covenants are valid and assignable is worth having, but know what it buys. It is a claim against a person already paid, usually capped and time-limited. An escrow is negotiated, not standard, and where the seller holds a note your lever is offset. Representation and warranty insurance is uncommon in deals financed this way. And a claim is not an injunction: that relief is discretionary, and a judge decides whether you get it.

The seller can sell you the customer list. The seller cannot sell you the employee’s consent.

Can a non-compete that did transfer still be unenforceable under current law?

Yes. A covenant can transfer cleanly and still fail on its own terms. Restrictive covenant law has moved fast. Earnings thresholds, outright bans, notice requirements, and scope limits can void an older covenant the seller believed was airtight. Some of those statutes apply only going forward, and others reach agreements already signed. The buyer inherits the defect either way.

• Minnesota. Minn. Stat. 181.988 voids covenants not to compete entered into on or after July 1, 2023, with narrow exceptions for covenants tied to the sale or dissolution of a business. Non-disclosure and non-solicitation agreements sit outside the definition. Note the trap: because the ban runs forward, re-papering an older Minnesota covenant can turn an arguably enforceable restraint into a void one.
• California. Section 16600 voids restraints on a lawful profession, trade, or business. Section 16600.5, effective January 1, 2024, makes a void non-compete unenforceable regardless of where and when it was signed. Employers also had to notify employees employed after January 1, 2022 whose agreements contained a void non-compete, in writing, by February 14, 2024. Section 16601 permits a covenant from a seller of goodwill or an ownership interest, read strictly.
• Washington. Stated as of September 2026, a noncompetition covenant is void unless the worker’s earnings exceed a statutory floor. The floor started at $100,000 for employees and $250,000 for contractors and is inflation-adjusted annually by the Department of Labor and Industries, putting the 2026 figures above $126,000 and $317,000. Use the published number. That framework is going away. Under the 2026 amendments, all noncompetition covenants are void beginning June 30, 2027 regardless of when entered into, the definition reaches customer nonservicing and forfeiture-for-competition terms, and employers must try to notify affected workers.
• Illinois. The Freedom to Work Act bars a non-compete unless annualized earnings exceed a statutory threshold that steps up over time, and requires adequate consideration, ancillarity to a valid employment relationship, a legitimate business interest, no undue hardship, and no public injury. The employer must also advise the employee in writing to consult counsel and allow fourteen calendar days to review. An employee who defeats an unlawful covenant recovers fees.

Law: Minn. Stat. 181.988; Cal. Bus. & Prof. Code 16600, 16600.5, 16601; RCW 49.62.010 through 49.62.040, as amended by 2026 Wash. Sess. Laws ch. 149; 820 ILCS 90/10, 90/15, 90/20, 90/25.

Reach differs by statute. Minnesota’s ban and the Illinois Act govern covenants entered into on or after their effective dates; California’s Section 16600.5 and Washington’s coming ban reach agreements signed long before. No federal ban is in force: a court set aside the FTC rule in 2024 and the agency acceded to that vacatur in September 2025.

The date on the signature page tells you little about whether the restraint works today. Check the employee’s state law as it stands when you act.

Which employees actually need a covenant, and which should I leave alone?

Sort the workforce by what the employee can take out the door, not by title or tenure. A restrictive covenant is defensible where the employee holds customer relationships, pricing and margin data, sourcing terms, or technical know-how that a competitor would pay for. Most hourly staff hold none of that. Asking them to sign buys friction.

• Tier one, re-paper in the first weeks. Anyone who owns a customer relationship, quotes jobs, knows your cost structure, or holds credentials the business is licensed on.
• Tier two, confidentiality and non-solicit only. Staff with access to customer lists or vendor terms but no relationship with the account. Several states treat a non-solicit differently from a non-compete.
• Tier three, leave alone. Employees whose departure costs you a hire, not an account.

What consideration does a new non-compete with an existing employee require?

States split on whether continued at-will employment supports a new restraint signed by someone already on the payroll. Wisconsin and Ohio have held that continued employment can be lawful consideration. Pennsylvania requires new and valuable consideration for a covenant entered into after employment begins. Illinois makes adequate consideration a statutory element. Check the employee’s state first.

Where independent consideration is required, give something the employee would not otherwise receive and document it on the covenant’s face. A signing payment, a raise effective on a stated date, a promotion, or a severance promise are the candidates. Pay it. Do not recite it and skip payroll.

A post-closing re-paper has one structural advantage. Your entity is a new employer making an offer, and in many states a restraint presented at the outset stands on firmer ground than one imposed mid-stream. Build each state’s procedure into that timing. Illinois requires the written advice to consult counsel and fourteen days to review; Washington requires disclosure no later than acceptance of the offer. Send the covenant with the offer letter.

What does the re-papering exercise cost me in retention?

Asking an entire workforce to sign restraints days after closing carries a real retention cost, and the cost lands at the worst moment. Employees are already deciding whether to stay with an unknown owner. A broad demand for signatures reads as a threat, and refusals are contagious. Scope the ask narrowly and explain it plainly.

This point cuts against you, so treat it as a constraint. Ask a short list. Pair the ask with the consideration in the same conversation. Do not hand a covenant to your shop-floor lead on payroll-change day.

An unenforceable covenant buys you nothing, and in some states enforcing one pays the employee’s lawyer. A resignation you caused in week two costs you the quarter.

What should I do in the first thirty days after closing?

Run a covenant inventory, then a targeted re-paper. The inventory is document-level: who signed what, with which entity named, in which state, on what date. The re-paper is a short list of names, new agreements naming your entity as the employer, and consideration that matches the law of each employee’s state. Do both before month two.

• Pull every signed covenant and record the named employer entity, the signature date, the work state, and any successor language.
• Compare that list to your structure. Asset purchase means assume nothing transferred until you check the state rule. Stock purchase or merger means read for change-of-control language.
• Sort the workforce into the three tiers and hold the list to names that can take value away.
• For each name, confirm the current state rule on consideration, thresholds, notice, and review periods, then build the offer around it. Pay through payroll.
• Deliver the new agreements with the confidentiality paperwork your entity needs anyway, so the covenant is part of onboarding.
• Calendar a state-law check. Thresholds adjust annually and effective dates arrive.

One note on the loan, stated as of September 2026. SBA revises its operating procedure regularly, and a lender applies the version in force when your loan number issues. SOP 50 10 8 took effect June 1, 2025 for loans receiving a loan number on or after that date and has since been revised by policy notice, and SBA has issued SOP 50 10 8.1 with a stated effective date of October 1, 2026. Ask your lender which version governs your file rather than treating any as permanent. Loan program requirements do not decide whether a covenant transferred. That is state contract law.

Law: SBA SOP 50 10 8, effective June 1, 2025; SOP 50 10 8.1, stated effective date October 1, 2026. Stated as of September 2026; confirm the governing version with your lender.