- · Swiss courts and the Competition Commission impose precise duration, geographic, and subject-matter limits on post-sale non-compete clauses that many advisors routinely exceed.
- · A non-compete in an M&A context is assessed as an ancillary restraint to the business transfer, not as an employment restriction, which changes the analytical framework entirely.
- · Overbroad clauses are rarely voided outright; they are more commonly reduced by cantonal courts, leaving both parties in an uncertain position that could have been avoided with tighter drafting.
- · Careful coordination between competition law thresholds and civil law proportionality analysis (Art. 27 CO) is essential, particularly when the seller remains employed post-closing.
There is a pattern that appears with some regularity in Swiss SME transactions. The buyer's counsel inserts a non-compete clause spanning five years, covering all of Europe, and prohibiting the seller from engaging in any activity tangentially related to the sold business. The seller's counsel pushes back, negotiations stall, and both parties eventually agree on language that pleases neither side and, more consequentially, may not survive judicial scrutiny regardless.
Swiss law is not indifferent to this dynamic. The Swiss Competition Commission and the civil courts have, over time, drawn lines that are specific enough to serve as genuine drafting guides. The problem is not that the law is unclear. The problem is that these boundaries are frequently set aside in favor of negotiating leverage, only to resurface as enforcement disputes long after closing.
This article outlines where those boundaries sit and what they mean for advisors and sellers structuring a transaction.
The first and most consequential point of orientation is analytical. A non-compete clause in the context of a business sale is not evaluated primarily as an employment restriction. It is assessed as an ancillary restraint to the business transfer itself.
This distinction matters in practice. The Swiss Competition Commission permits such clauses only when three conditions are met: the restriction must be directly related to the concentration, necessary to implement it, and proportionate in terms of duration, geographic scope, and subject matter. Clauses that exceed these thresholds are not automatically void, but they become vulnerable to judicial reduction or non-enforcement, which introduces exactly the kind of uncertainty that well-structured transactions are designed to eliminate.
The SECO study on non-compete and restrictive covenants (Study No. 66, January 2026) reinforces the observation that overly broad post-sale restrictions carry meaningful legal risk within the Swiss framework, even in transactions that fall well below competition law notification thresholds.
Swiss Competition Commission guidance is precise on duration. If only goodwill transfers to the buyer, the permitted maximum is two years. If both goodwill and know-how are transferred, the ceiling rises to three years. These limits apply regardless of whether the transaction triggers any formal merger notification obligation.
This is worth emphasizing because a common assumption among buyers is that a smaller deal operates in a kind of legal grey zone where such thresholds are merely advisory. They are not. A cantonal court assessing a five-year non-compete in a CHF 3 million SME sale will apply the same proportionality framework as it would in a larger transaction.
The practical implication is that advisors should structure duration precisely from the outset. If only goodwill is transferring, a three-year clause is already exposed. If know-how transfers alongside goodwill, a three-year clause sits at the outer boundary, which means it will be defensible only if the remaining parameters are tightly drawn.
Geographic restrictions must correspond to the territories where the target company actually operated or had established commercial reach prior to closing. An SME based in canton Zurich with no documented activity in French-speaking Switzerland cannot credibly be subject to a national non-compete on all those territories.
There is a measured exception. The restriction may extend to regions where the sellers had made documented investments or had concrete plans to enter at the time of transfer, provided that expansion was already underway at closing. The operative word is documented. Aspirational market entry that existed only in a pitch deck is unlikely to withstand judicial scrutiny as a basis for geographic expansion of the clause.
This places a modest but real burden on due diligence. Advisors representing buyers would do well to surface evidence of actual or actively developing market presence, since that evidence simultaneously supports the business valuation and the geographic scope of post-closing protection.
The non-compete must cover only the specific activities the target carried out before closing, in the markets where those activities were conducted. Sellers are not restricted from entering entirely different industries simply because those industries might conceivably compete with some adjacent part of the buyer's broader portfolio.
There is a nuance on products and services that were in advanced development at the time of transfer. Such goods or services can be included within the non-compete's subject matter, provided they were fully developed at closing, even if not yet commercially launched. This is a sensible carve-in: a buyer who acquires a business partly on the strength of an unreleased product line has a legitimate interest in ensuring the seller does not immediately commercialise that same product independently.
The CMS Law analysis of non-compete clauses in Swiss M&A transactions notes that precision in subject matter drafting is among the most consistently litigated dimensions of post-sale restrictions, and that vague language broad enough to encompass activities the target never actually conducted tends to draw judicial skepticism.
Non-solicitation clauses, meaning restrictions on approaching or hiring employees and customers, are governed by the same analytical framework as non-compete restrictions. The same duration limits, geographic scope constraints, and subject matter proportionality apply.
Absolute prohibitions on hiring specific key employees are permissible but must be narrowly defined. A blanket restriction on hiring any individual who was employed by the target at any point in the preceding three years is the kind of language that invites reduction. A precisely scoped restriction covering named individuals or defined roles over a defined period is both more defensible and, incidentally, more practically useful to the buyer.
The non-compete binds the seller and can extend to closely related persons, including family members and affiliated entities, provided that extension is justified by the structure of the transaction. If the seller's spouse holds shares and might otherwise step into a competing role, including that person within the clause is defensible. Extending the clause reflexively to every affiliate entity without transactional justification is not.
This dimension of drafting is easy to overlook in deals where ownership structures are more complex, such as family-owned SMEs with partial stakes held across multiple generations or holding vehicles. Advisors should map the ownership and operational structure carefully before determining the appropriate scope of persons bound.
A scenario that arises frequently in SME transactions is one where the seller remains employed by the business post-closing, often in a transitional capacity during a handover period. This creates a dual-regime scenario that requires explicit coordination.
When the seller is also an employee, Swiss employment law comes into play alongside the competition law framework. Article 340a of the Code of Obligations caps employment-related non-competes at three years, except in special circumstances. The employment-law restriction and the M&A-law restriction are not simply additive: they must be considered together, with attention to which regime governs which obligation and for how long.
Advisors who draft the employment arrangement and the share purchase agreement independently, without coordination between the two, routinely produce contracts whose combined effect is either more or less restrictive than intended, and sometimes internally inconsistent.
Contractual penalties for breach of a non-compete are permissible and enforceable under Swiss law, provided they are calibrated to deter breach without being excessive. Penalties should specify per-day or per-breach amounts, since ambiguous penalty provisions tend to produce ambiguous enforcement.
Buyers may also reserve the right to claim damages beyond the contractual penalty if actual loss exceeds the stipulated amount. This reservation should be explicit in the contract rather than assumed. Courts do not automatically permit the stacking of contractual penalties and full damages claims unless the agreement clearly contemplates it.
One provision that belongs in virtually every post-sale non-compete but is frequently omitted is the passive minority shareholding carve-out. The passive holding of minority shares in a competing entity, for pure investment purposes and without any managerial or operational role, is typically permissible and should be expressly carved out of the non-compete.
A seller who holds a small equity stake in an unrelated fund that happens to own a competing company should not be treated as a non-compete violator. Drafting the clause without this carve-out creates unnecessary friction and, if litigated, is unlikely to produce a result the buyer actually wanted.
Separate from and running alongside the competition law framework is the civil law constraint of Article 27 of the Code of Obligations. Swiss courts may reduce non-competes that excessively restrict the seller's economic freedom or threaten professional viability. The analysis is one of proportionality, and the typical remedy is reduction, not outright invalidation.
This has a consequence that advisors sometimes underestimate. A clause that is technically reduced rather than voided still leaves the parties in dispute about what the reduced version actually permits. The litigation cost, the reputational friction, and the distraction from post-closing integration are real costs even if the buyer ultimately prevails in a narrowed form.
Precise drafting aligned with Swiss competition-law thresholds from the outset is not a conservative option. It is the structurally efficient one.
Several observations follow from the framework above.
First, advisors should treat the Competition Commission's duration thresholds as starting points for drafting, not ceilings to be tested. A clause positioned at the outer edge of permissibility in duration will need to be correspondingly narrow in every other dimension to remain defensible in aggregate.
Second, geographic scope should be grounded in evidence assembled during due diligence, not in aspirational language designed to satisfy the buyer's commercial instincts. The evidence that supports the scope of the non-compete is largely the same evidence that supports the valuation of the acquired business.
Third, dual-regime scenarios involving post-closing employment arrangements require explicit coordination between the M&A and employment law frameworks. This is a drafting task that benefits from involvement of counsel comfortable in both areas, rather than sequential review by specialists working in isolation.
Fourth, contractual penalties should be calibrated and specific. Penalty provisions that are vague or excessive invite judicial intervention and introduce the same uncertainty that the penalty was designed to eliminate.
Finally, passive investment carve-outs and definitions of closely related persons should be treated as standard provisions, not optional refinements.
It would be a misreading of the Swiss legal framework to conclude that sellers are systematically protected from meaningful non-compete obligations. They are not. Swiss courts enforce well-drafted, proportionate post-sale restrictions, and buyers have legitimate interests in the goodwill and know-how they have acquired.
The point is narrower. Courts will not enforce what the law does not permit, and what the law does not permit is surprisingly precisely defined. The gap between what many parties draft and what Swiss courts will enforce is not a gap that benefits either side. It benefits uncertainty.
Discretion · Precision · Permanence.
The same qualities that describe a well-run M&A process describe a well-drafted non-compete clause. Precision in drafting, aligned with the specific contours of Swiss competition and civil law, is the most reliable path to a restriction that actually protects what the buyer paid for.
