I sold my marketing agency last year. The APA included a 3-year non-compete covering the same metro area for similar services. I now run a completely different business, a coffee shop, and have no involvement in marketing. The buyer just sent a letter claiming I'm in breach because I've been seen having lunch with a few of my old clients. They're threatening to withhold part of the earnout. Do I need a lawyer? This seems ridiculous, but I'm worried.
Non-Compete
What to do if a buyer accuses you of breaching the non-compete
Yes, get a lawyer. The buyer is probably just trying to get out of paying the earnout. Having lunch with clients isn't breaching a non-compete—they need to prove you're actually competing. But you need someone to send a fiirm response.
What does the non-compete actually say? Does it specifically prohibit solicitation? Even if it does, having lunch — unless you're pitching them — probably doesn't qualify. But if the language is broad, they might try to stretch it. Don't ignore it, but don't panic either.
I'm not a lawyer, but I went through something similar. The buyer accused me of breach because I referred a former client to a friend's business. It took a strongly worded letter from my attorney to make them back off. Cost me $500 but saved the earnout.
Wait, they're withholding earnout based on an accusation? That's a separate issue. Usually earnout disputes have to go through arbitration or court. Have you checked the dis pute resolution clause in your APA?
The burden of proof is on them. They have to show you're actually competing, not just that you had lunch. But if you're friendly with those clients, they might argue you're subtly soliciting. Document everything and keep your distance for now.
How long ago did you sell? If it's been over a year, and you haven't done any marketing work, they're grasping at straws. Also, does the non-compete define 'competing business'? A coffee shop almost certainly doesn't qualify.
I'd be more worried about the earnout holdback. If they're using this as a pretext, you might need to demand an accounting. But defi nitely get a lawyer to review the APA before you respond in writing.
Lawyer up. Don't try to handle this yourself. The buyer is likely hoping you you'll just cave and give up the earnout. A decent attorney can shut this down quickly if the claim is as weak as it sounds.