Extended Commission Periods for Employment: How Business Brokers Block Legitimate Career Opportunities

In our ongoing series examining the 14 Hidden Dangers Lurking in Business Broker NDAs, we have explored numerous problematic provisions that create financial and legal risks for buyers. We have examined attorney-in-fact clauses granting brokers power over your assets, one-sided liability allocations, and hidden jury trial waivers. Today we turn to a provision that extends broker control far beyond the business purchase itself: extended commission periods that function as illegal restraints on trade by claiming broker compensation for any employment, consulting, or contractor relationship you form with a seller. These provisions violate fundamental principles of North Carolina law and may constitute unenforceable restraints on your right to work and conduct business.

The Actual Language From Business Broker NDAs

During our review of business broker confidentiality agreements currently in use, we found the following provision defining when buyers must pay broker commissions:

"Prospect shall be obligated to pay Broker its full commission if Prospect buys, leases, receives in trade or otherwise obtains any part of the Business during the two year period commencing from the date of the Effective Date, or has an employment, independent contractor or consulting relationship directly or indirectly with Seller."

This language appears in multiple broker NDAs across different states. Let's parse exactly what it says and why it creates such serious legal problems. The provision claims broker commission rights extend beyond purchasing the business to include any employment relationship with the seller. The two-year "tail period" means this obligation lasts for 24 months after you sign the NDA, even if you never pursue purchasing the business at all.

The consequence of this language is larger than you may think. Imagine you sign the NDA to evaluate a business for purchase. After reviewing the opportunity, you decide it is not right for you and decline to proceed. Six months later, you unexpectedly encounter the seller at an industry conference. The seller is impressed with your background and offers you a position as a key employee or consultant. You accept the opportunity because it aligns with your career goals and offers attractive compensation. Under the broker NDA provision, the broker can now claim they are entitled to their full commission because you have formed an employment relationship with the seller.

The broker provided no services in facilitating this employment relationship. They played no role in identifying the opportunity, connecting you with the seller, or negotiating your employment terms. Yet they can demand compensation as if they had brokered the entire arrangement.

North Carolina Law Declares Unreasonable Restraints on Trade Illegal

To understand the fundamental legal problems with these extended commission provisions, we must examine North Carolina law governing restraints on trade. North Carolina General Statute Section 75-1 is exceptionally clear on this point: "Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce in the State of North Carolina is hereby declared to be illegal." This statute reflects a strong public policy disfavoring provisions that restrict people's ability to work and conduct business.

While this statute addresses broad combinations that constitute monopolies or cartels, it also encompasses narrower restrictions in contracts between parties. North Carolina courts have extended the statute's principles to individual contracts that unreasonably restrain a person's freedom to engage in lawful business activities.

The extended commission periods in broker NDAs represent exactly the type of restraint on trade that North Carolina law disfavors. These provisions attempt to restrict your ability to form employment relationships with a specific person (the seller) for a defined period of time. This is a classic restraint on trade: a contractual provision designed to limit your freedom to work and conduct business.

Why These Provisions Exceed Legitimate Business Interests

North Carolina courts have developed a framework for evaluating whether restraints on employment are reasonable and enforceable. While this framework developed primarily in the context of non-compete agreements between employers and employees, the principles apply broadly to any contractual provision that restricts someone's right to work.

For a restraint to be enforceable, it must be reasonable as to three factors: time, territory, and scope. Importantly, it must protect a legitimate business interest of the party seeking to enforce the restriction.

Applying this framework to broker NDA extended commission periods reveals why they fail. First, the time restriction is two years, which approaches the outer boundary of reasonableness even for legitimate non-compete provisions. Courts have generally approved restrictions up to two years, but only when paired with narrow territory and scope limitations.

Second, the territory is unlimited. The provision applies to any employment relationship with the seller, regardless of where that employment occurs or what work is involved. This sweeping geographic scope significantly strengthens the argument that any time restriction is unreasonable.

Third, the scope is far too broad. The provision captures any employment, consulting, or contractor relationship with the seller. It makes no distinction between roles related to the business you evaluated and completely unrelated positions. Under the broker's language, you could be prohibited from working as a janitor for the seller's facility if that somehow qualifies as an "employment relationship," even though the broker has no legitimate interest in preventing you from becoming a janitor.

Most importantly, broker commission obligations have no legitimate business interest to protect. North Carolina courts have consistently held that employment restraints must protect legitimate business interests such as trade secrets, confidential business information, or customer relationships. A broker has no legitimate interest in preventing you from forming employment relationships with a seller unless the employment relationship somehow involves circumventing the broker's commission on a business purchase.

Yet the extended commission provision makes no distinction between employment that constitutes circumvention of the business sale and employment that is completely unrelated. If you were evaluating a restaurant and declined to purchase it, but the owner offers you a job as a manager, the broker claims commission even though you are not circumventing the purchase of the business. You are simply taking a job.

How Extended Commission Periods Function as Trade Restraints

The extended commission periods operate as trade restraints through multiple mechanisms. First, they directly restrict your freedom to work. By threatening to charge you full broker commission for any employment relationship with the seller, these provisions create a financial deterrent to accepting legitimate job opportunities. Buyers who recall or understand the NDA provisions may decline attractive employment positions to avoid unexpected financial obligations.

Second, they create confusion and uncertainty that makes people hesitant to act. Buyers who remember that an extended commission period exists but cannot recall its exact terms face uncertainty about whether accepting employment would trigger obligations. This uncertainty alone may cause people to decline opportunities.

Third, they attempt to control behavior beyond the legitimate scope of the brokerage relationship. The broker did not introduce you to the employment opportunity. They played no role in facilitating the employment relationship. Yet they claim the right to control your employment choices through financial penalties. This is the essence of a trade restraint: using contractual language to control conduct beyond what is necessary to protect legitimate interests.

North Carolina courts have been particularly skeptical of broad restraints that attempt to control conduct unrelated to legitimate business interests. In one case discussed in reported decisions, courts struck down employment restrictions that were overly broad in scope, even though they might have been reasonable as to time and territory. The principle is that restrictions must be narrowly tailored to protect only legitimate interests, not used as blunt instruments to control broad categories of conduct.

Why Consideration Is Missing From These Extended Commission Provisions

Another legal weakness in extended commission periods involves consideration, a fundamental requirement for enforceable contracts. Consideration means that each party must receive something of value in exchange for their obligations.

When you sign the NDA to evaluate a business for purchase, the consideration is clear: the broker provides you access to confidential business information in exchange for your agreement to keep it confidential and pay commission if you purchase the business. This mutual exchange of value makes the confidentiality obligations enforceable.

However, employment relationships have nothing to do with the information provided in the NDA. The broker provides no value specific to facilitating employment opportunities. They perform no services related to connecting you with employment opportunities. They took no steps to facilitate the employment relationship. Yet they demand compensation for it.

This absence of consideration may render the extended commission provisions unenforceable. If the broker provided no value or services related to the employment relationship, they cannot demand payment for it. The principle that contracts require an exchange of consideration is fundamental to contract law and reflects the basic notion that parties should not be required to pay for goods or services they did not receive.

The Public Policy Against Restraints on Employment

Beyond specific contract law doctrines, a broader public policy principle supports striking down extended commission provisions. North Carolina's laws and court decisions consistently reflect a strong public policy favoring freedom to work and engage in lawful commerce.

North Carolina General Statute Section 75-1 reflects this policy. The statute was passed in 1913 to prevent combinations in restraint of trade and monopolistic practices. It reflects the foundational principle that the economy and individual freedom are best served when people can work where they choose and engage in lawful business activities without unreasonable contractual restraints.

Courts apply this policy when evaluating employment restrictions. Even provisions that might technically satisfy the "reasonable as to time and territory" framework will be struck down if they violate public policy or if the restraint is so overreaching that it shocks the conscience.

Extended commission periods that restrict employment opportunities unrelated to the brokerage function shock the conscience. They attempt to use financial obligations to control behavior far beyond what is necessary to protect the broker's legitimate interests in being compensated for business sales they facilitate.

Practical Consequences and Litigation Risk

While the extended commission provisions may be unenforceable if challenged in court, they create serious practical risks for buyers. First, most buyers will not have the resources or knowledge to challenge the provision. When a broker demands commission on an employment relationship, buyers face a choice: pay the demand or hire an attorney and litigate the enforceability issue. Many buyers settle rather than litigating, even though they believe they have a strong legal argument.

Second, the financial exposure creates uncertainty around employment decisions. A buyer evaluating a job opportunity must consider not just salary and benefits, but also the possibility of unexpected broker commission obligations. This uncertainty may cause buyers to decline opportunities they would otherwise accept.

Third, the settlements or payments that result serve the broker's purposes even if the provisions are ultimately unenforceable. The broker benefits from the intimidation effect and from buyers who pay without challenging the clause.

What Buyers Should Do

If you are presented with a broker NDA containing an extended commission period that includes employment relationships, you should immediately object to this provision and request modification. Here are specific steps to take:

First, propose eliminating employment relationships entirely from any commission obligations. State clearly that employment, consulting, and contractor relationships with the seller trigger no commission obligation to the broker under any circumstances.

Second, if the broker insists on some form of commission tail for business purchases, limit it to actual business acquisitions. Define precisely what transactions trigger commission obligations and make clear that employment relationships are excluded.

Third, require that any commission obligation is narrowly tailored to transactions substantially similar to the business you evaluated through the broker. This prevents the broker from claiming commission on completely unrelated arrangements.

Fourth, request that the broker disclose what legitimate business interest is protected by restricting your employment with the seller. If they cannot articulate a legitimate interest (and they cannot, because they facilitated no employment relationship), the restriction fails basic contract law principles.

If the broker refuses to modify these provisions, seriously reconsider whether you want to use this broker. A broker who insists on restricting your ability to work with sellers they are not facilitating employment with is demonstrating that their priority is extracting compensation by any means possible, rather than providing legitimate brokerage services.

If you have already signed an NDA with an extended commission provision, document your understanding in writing. Communicate with the broker explaining your position that employment relationships in which the broker played no facilitating role trigger no commission obligations. Should a dispute arise, this documentation may support your argument that the extended commission provision is an unenforceable restraint on trade.

Moving Forward With Lawful Provisions

Extended commission periods that sweep in employment relationships represent another example of brokers attempting to use contractual language to impose obligations that violate fundamental principles of North Carolina law. These provisions function as illegal restraints on trade by attempting to control your employment choices and restrict your freedom to work.

Reasonable businesses should only require compensation for services actually provided or transactions actually facilitated. Employment relationships that develop independently from any broker involvement should never trigger commission obligations, and attempting to impose such obligations through contract language does not overcome the public policy that disfavors unreasonable restraints on trade.

Insisting on fair, narrowly tailored commission provisions is not unreasonable. It is a necessary protection of your freedom to pursue legitimate business opportunities, accept employment, and conduct business without unreasonable contractual restrictions that violate North Carolina law.

In our next article, we will examine a provision that reveals how brokers have structured their NDAs to shift all risk to buyers while taking none themselves: broad indemnification clauses that require buyers to defend brokers against any claims related to confidential information, even while brokers disclaim all responsibility for the accuracy of that information. We will explore how this contradiction creates enormous potential liability for buyers and virtually no accountability for brokers.

Important Legal Disclaimer: This article provides general educational information about extended commission periods in business broker NDAs and North Carolina contract law principles. It does not constitute legal advice for any specific situation. While contract law principles are discussed here, state laws vary and the enforceability of specific provisions depends on the facts and circumstances of each case. Reading or relying on this article does not create an attorney-client relationship with Howard Law. If you have questions about extended commission periods in a specific NDA or need assistance modifying or challenging such provisions, contact Howard Law at www.ehowardlaw.com for professional legal consultation.

---

Howard law is a legal and M&A advisory firm providing experienced representation for buyers and sellers navigating business transactions nationwide. We specialize in protecting client interests from unqualified or unethical intermediaries while ensuring successful deal completion with appropriate professional standards. Contact us at www.ehowardlaw.com for consultation on your business acquisition needs.