Between Buyer Seller

If a business has a major change in ownership, (the sale of a business, for example), part of the terms of the sale may be the assignment of the contract to the new owner.As part of the buy/sell process, a new contract may be substituted for a previous contract, with the agreement of both parties.

The U.S. Court of Appeals for the Eighth Circuit issued a decision in July 2016 stating that a non-compete agreement could be enforced by a company that bought all the assets of the employer.

For example, in California a covenant not to compete must have reasonable time and geographic restrictions.However, any amount allocated to the covenant not to compete is ordinary income, taxed at the highest individual tax rate applicable to the seller.

The court held that absent specific language prohibiting assignment, noncompete covenants, even though part of a personal service contract, remain enforceable by an assignee when transferred to the assignee as part of a sale or transfer of business assets regardless of whether the employment contract contains a clause

Voiding a non-compete contract is possible in certain circumstances. For instance, if you can prove that you never signed the contract, or if you can demonstrate that the contract is against the public interest, you may be able to void the agreement.

In a non-compete agreement, you will be taxed at ordinary income levels on the value of the non-compete but you will not be subject to self-employment tax.As an independent 1099 contractor your income is taxed at ordinary income rates as was the case with a non-compete and a traditional employment agreement.

As with many legal issues, the answer is: it depends. If the acquisition is a stock purchase and the acquired company (we'll call it Company B) maintains a separate existence, the non-compete is unaffected. Company B will still be around to enforce the Agreement.

Because the non-competition agreement is now a company asset, it is taxed as the sale of a capital asset, so any monies received for it are taxed at capital gain rates.