Definition · Employment law and regulation
Non-Compete Agreement
Definition
Non-compete agreements are contract terms in which an employee promises not to work for a competitor, or start a competing business, for a set period and area after leaving. Courts enforce one only when it protects a real business interest and is reasonable in scope, and several US states now ban or sharply limit them.
Also called: Non-compete, Noncompete clause, Covenant not to compete, Restrictive covenant
How a non-compete agreement works
Every non-compete has four moving parts: the restricted activity (what the person cannot do), the geography (where), the duration (how long) and the consideration (what the employee got in exchange for signing). A typical clause for a regional sales manager might bar working for any direct competitor in the same three states for 12 months after leaving.
In most states that still allow non-competes, a court asks three questions. Does the employer have a legitimate interest to protect, such as trade secrets, confidential pricing or customer goodwill the employee built on the company's dime? Is the restriction no broader than needed to protect that interest? And does it impose an undue hardship on the worker or harm the public? Wanting to avoid ordinary competition for labor is not a legitimate interest.
When a clause is too broad, states split on what happens next. Some courts strike the whole thing. Others blue-pencil it (delete the offending words) or rewrite it to something reasonable. That difference matters when your company hires across many states, because the same template can be partly enforceable in one place and void in another.
Non-competes usually sit inside an employment contract or a separate restrictive covenant agreement signed at hire, at promotion, or as part of a separation deal.
Where non-competes are banned or limited
There is no single US rule. In 2024 the Federal Trade Commission issued a rule that would have banned most non-competes nationwide, but a federal court in Texas set it aside before it took effect, and in 2025 the FTC dropped its appeal. The agency still challenges specific agreements case by case as unfair methods of competition, so the federal picture is enforcement, not a blanket ban.
State law does most of the work:
- California treats employee non-competes as void under Business and Professions Code section 16600, and since 2024 it also bars employers from trying to enforce them against California workers no matter where the contract was signed.
- Minnesota voided non-competes signed on or after July 1, 2023.
- North Dakota and Oklahoma have long banned most employee non-competes, and Wyoming voided most new ones from July 1, 2025, with carve-outs such as executive and management staff and trade secret protection.
- Income-threshold states such as Washington, Colorado, Illinois, Oregon, Maine, Virginia, Maryland and the District of Columbia ban non-competes for workers below a pay level, often adjusted each year. Several also require advance written notice.
- Massachusetts bars them for non-exempt workers, caps most at 12 months, and requires garden leave pay or other agreed consideration plus delivery before the offer is final or 10 business days before the start date.
Almost every state keeps an exception for the sale of a business. Rules change often and vary by state, so treat this as orientation, not legal advice, and have counsel review templates every year.
Non-compete vs non-solicitation, NDA and garden leave
People use these terms loosely, but they restrict very different things.
A non-compete stops someone from working in a role or market. A non-solicitation agreement is narrower: the person can work anywhere but cannot poach the old employer's customers or employees for a period. Courts are generally friendlier to non-solicits, and many employers that dropped non-competes kept them. Even so, some states, including California, treat broad customer non-solicits much like non-competes.
A confidentiality agreement or NDA protects information, not the job itself. It usually lasts as long as the information stays confidential and is the least controversial of the three.
Garden leave is a paid notice period during which the employee stays on payroll but does not work, which keeps them out of the market without a post-employment restriction. Massachusetts lets employers use garden leave pay as the consideration that makes a non-compete valid.
What recruiters need to do about non-competes
Two situations come up constantly.
Your candidate is bound by a non-compete. Ask about restrictive covenants at the offer stage, not in the first phone screen, and ask to see the actual agreement rather than relying on a summary. Route it to legal before the offer goes out. Hiring someone in clear breach can expose your company to a claim for tortious interference, and the new hire to an injunction that keeps them off the job for months. Make sure the new hire does not bring documents, customer lists or code from the old employer; that, not the non-compete itself, is where most litigation starts.
Your company wants new hires to sign one. For hourly, frontline and contact-center roles, our practical advice is simple: don't. Many state bans and income thresholds target exactly these workers, the clauses are rarely enforceable against them, and they make offers less attractive in a tight market. A confidentiality agreement plus a reasonable non-solicit covers the realistic risk for most roles below senior sales, engineering and leadership.
For high-volume programs, one non-compete buried in an onboarding packet signed by 2,000 warehouse associates can become a class action or a state attorney general inquiry. Audit the onboarding bundle, not just the offer letter.
Common mistakes employers make
- One national template. A clause that is fine in Florida can be void in California, Minnesota or Washington and can violate notice rules in Oregon or Massachusetts. Use state-specific addenda.
- Springing it after the start date. Several states require the agreement in the offer or a set number of days before day one. Even where it is not required, mid-employment signatures may need fresh consideration such as a raise or promotion.
- Overreach on scope. A two-year, nationwide ban for an account manager who covers one territory invites a court to throw out the entire clause.
- Ignoring remote workers. The law of the state where the employee lives and works often governs, whatever the choice-of-law clause says.
- Never revisiting old agreements. California required employers to notify affected current and former employees that void non-competes would not be enforced. Legacy agreements in a personnel file can still create liability.
Best practice for drafting and using them
Decide role by role whether a non-compete is needed at all. Reserve it for people with real access to trade secrets or key customer relationships, and write down why. Keep duration to 6 to 12 months for most roles, define competitors narrowly (named companies or a specific product market), and tie geography to where the person actually worked.
Give the agreement to candidates with the offer, tell them they may consult a lawyer, and keep a signed copy in the personnel file. Pair it with a separate confidentiality clause and non-solicit so that if a court knocks out the non-compete, the other protections survive.
If you need a starting point, use our non-compete agreement template and adapt it with counsel for each state where you hire.
Frequently asked questions
Are non-compete agreements enforceable?
It depends on the state and the facts. California, Minnesota, North Dakota and Oklahoma ban most employee non-competes. Many other states enforce them only if they protect a legitimate business interest, are reasonable in duration and geography, and meet pay thresholds and notice rules. Courts look closely at clauses for lower-paid workers.
Did the FTC ban non-compete agreements?
The FTC issued a nationwide ban in 2024, but a federal court set it aside before it took effect and the FTC dropped its appeal in 2025. There is no federal ban in force. The FTC can still challenge individual non-competes it considers unfair, and state laws continue to apply.
Can an employer make hourly workers sign a non-compete?
In a growing number of states, no. Massachusetts bars them for FLSA non-exempt workers, and states such as Illinois, Washington, Colorado, Oregon, Maine, Virginia and Maryland set income floors below which non-competes are void. Even where they are allowed, they are hard to enforce against hourly staff.
How long can a non-compete last?
There is no national limit. Six to 12 months is the most defensible range for most roles. Massachusetts and Oregon generally cap non-competes at 12 months, and courts in other states often reject terms of two years or more unless tied to the sale of a business.
Is a non-compete enforceable if you are fired or laid off?
Sometimes. Massachusetts does not allow enforcement against employees terminated without cause or laid off, and some courts elsewhere weigh termination without cause against the employer. Check the agreement and the state where the employee works.
What is the difference between a non-compete and a non-solicitation agreement?
A non-compete limits where someone can work. A non-solicitation agreement only stops them from approaching the former employer's clients or staff. Non-solicits are narrower and more often enforced.