What is a non-compete agreement?
A non-compete agreement (also called a restrictive covenant) is a promise by an employee or contractor not to work for a competitor, or start a competing business, for a limited time and in a limited area after leaving. It is usually combined with non-solicitation clauses (not poaching clients or staff) and a confidentiality clause. Together they aim to protect client relationships, trade secrets and investment in training.
Enforceability varies widely – read this first
Non-competes are among the most restricted contract terms anywhere, and the rules change often:
- Some US states ban most non-competes. California, for example, generally voids employee non-competes, and states such as Minnesota, North Dakota and Oklahoma also prohibit most of them, subject to limited exceptions (such as the sale of a business).
- Other states limit them by setting minimum earnings thresholds, maximum durations, advance-notice or payment requirements, or by excluding certain workers. Washington, Illinois, Oregon, Colorado and Massachusetts are examples of states with such rules.
- Outside the US, courts in many common-law countries enforce restrictions only if they protect a legitimate business interest and go no further than reasonably necessary. Some countries, such as Germany and France, generally require the employer to pay compensation during the restricted period.
Because of this, non-solicitation and confidentiality clauses are often the safer choice. They protect what most businesses actually care about – clients, staff and information – and courts are generally more willing to enforce them than a full ban on working for a competitor. Check current local rules before relying on the non-compete clause.
Making restrictions reasonable
| Element | More likely to be enforced | Less likely |
|---|---|---|
| Activities | The specific work the person did | "Any business in our industry" |
| Area | Where the business actually operates | "Worldwide" for a local business |
| Duration | Months, matched to how long the risk lasts | Several years |
| Consideration | A new job, promotion or payment | Nothing in return |
How to use this template
- Enter the business and the employee's or contractor's legal names and addresses.
- Describe the restricted activities narrowly, tied to the person's real role.
- Set a realistic area and duration, and the non-solicitation period.
- State what the person receives in return – ideally given at the same time as the restrictions.
- Switch on compensation or extension clauses if needed, then have a lawyer check the result for your location before signing.
Common mistakes
- Using one template everywhere. A clause that works in one state may be void in the next.
- Restricting junior or low-paid staff. Many places limit or ban non-competes for lower earners.
- Springing it on someone after they start. In some places a mid-employment non-compete needs fresh consideration.
- Forgetting contractors. For freelancers, an independent contractor agreement plus an NDA may be enough.
This template is general information, not legal advice. Non-compete law varies by state and country and changes frequently; have a lawyer review any non-compete before you rely on it.
Frequently asked questions
Are non-compete agreements enforceable?
It depends heavily on where the worker lives and works. Some US states, such as California, void most employee non-competes; others enforce them only if they meet income, duration or notice rules; many countries require them to be reasonable and sometimes paid. A narrow, reasonable restriction has the best chance.
What is the difference between a non-compete and a non-solicitation clause?
A non-compete stops someone from working in a competing business. A non-solicitation clause only stops them from actively approaching your clients or staff. Non-solicitation is narrower and is often easier to enforce.
How long can a non-compete last?
There is no universal limit. Courts generally favour periods of months rather than years, and some places set a maximum by law. Match the period to how long your client relationships or information stay sensitive.
Can I use a non-compete with an independent contractor?
Sometimes, but restricting a contractor's ability to work for others can be risky and may suggest they are really an employee. A confidentiality agreement and client non-solicitation clause are often more appropriate.
What happens if part of the non-compete is unenforceable?
Depending on local law, a court may narrow it, strike out only the invalid part, or refuse to enforce it entirely. This template asks for reduction where allowed and keeps the other clauses in force.
