Terms in a contract which restrict the right of one party to contract freely after determination of the contract or during its continuance. They occur in contracts of employment where the employee agrees not to compete with the employer or practise his trade within a given area or time after leaving his employment. They may also appear in the contract for the sale of a business where the vendor agrees not to compete with the purchaser, perhaps within a given area, or in any way diminish the value of the goodwill. Another instance would be a contract for the sale of goods which restricts the rights of the buyer to purchase elsewhere. Such covenants are disliked by the law and are generally only enforceable when they are thought necessary for the protection of the party concerned and are not against the public interest.
Reference: The Penguin Business Dictionary , 3rd edt.