Non-Compete Agreement

A non-compete agreement is a contractual provision restricting a former employee from working for competitors for a defined period within a defined geographic scope. Sometimes standalone, sometimes part of an employment agreement or restrictive covenants, it typically runs 6-24 months and covers specific cities, states, or worldwide. Employers use non-competes to protect against employees taking competitive knowledge and customer relationships to competitors. Enforceability varies dramatically by jurisdiction (unenforceable in California, North Dakota, Oklahoma; varying in other states; federal rule changes in 2024-2025 affected enforceability for many workers). It is one of the most-litigated and most-jurisdiction-dependent employment provisions.

The structure:

Duration: typically 6-24 months post-termination. Longer durations less likely to be enforceable.

Geographic scope: typically defined region (state, country) or "wherever the company operates." Broader scope less enforceable.

Scope of restricted activity: usually competing businesses or specific job functions. Broader restrictions less enforceable.

Consideration: courts often require something given in exchange for the non-compete (e.g., signing bonus, equity grant, employment itself).

Jurisdiction matters enormously:

California: non-competes generally unenforceable (Business and Professions Code Section 16600). Major employers like tech can't enforce non-competes on California-based employees.

Other states: varying enforceability. Some states (Florida, Massachusetts) enforce more readily; others (Colorado, Illinois) have specific salary thresholds or other constraints.

Federal rule (2024): FTC issued rule banning most non-competes; legal challenges ongoing.

International: many countries have stricter limits than the US.

Common alternatives (when non-competes aren't enforceable):

Non-solicitation: restricts soliciting customers or employees but doesn't prevent working at competitor.

Confidentiality / trade secret: protects information without restricting employment.

IP assignment: ensures company owns IP created during employment.

The strategic question:

For employers: should we use non-competes? Depends on jurisdiction, what we're actually trying to protect, and whether the cost (employee resistance, legal expense, doubtful enforceability) is worth it.

For employees: should we sign? Often unavoidable but worth understanding implications. In California, less concern; in other jurisdictions, can affect career mobility.

What founders get wrong: Using generic non-compete language across jurisdictions without recognizing that enforceability varies dramatically. The right discipline: jurisdiction-specific advice; alternatives like non-solicit and confidentiality where non-compete won't work.

Related: Non-Solicitation Agreement · Restrictive Covenants · Employment Agreement · NDA · Work for Hire

FAQ

What is a non-compete agreement?
A contractual provision restricting a former employee from working for competitors for a defined period (typically 6-24 months) within a defined geographic scope. Used by employers to protect against employees taking competitive knowledge to competitors.

Are non-competes enforceable?
Varies dramatically by jurisdiction. Unenforceable in California, North Dakota, Oklahoma. Varying enforceability in other US states. The FTC's 2024 rule banned most non-competes (legal challenges ongoing). International rules vary widely. Always seek jurisdiction-specific counsel.

What are alternatives if non-compete isn't enforceable?
Non-solicitation (restricts soliciting customers/employees but not working at competitor), confidentiality/trade secret protection (protects information without restricting employment), IP assignment (ensures company owns work product), and golden handcuffs (equity vesting incentivizes staying without legal restriction).