Restricts competitive activity during and after the NDA relationship. Highly controversial, often unenforceable, and increasingly banned by state law.
⚠ Very High Risk - Often Unenforceable
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Important: Non-Competes in NDAs Are Controversial
Non-compete provisions are increasingly restricted or banned outright in many jurisdictions. California, North Dakota, Oklahoma, and Minnesota void most non-compete agreements entirely. The FTC has proposed a federal ban on non-competes for employees. Before including or agreeing to a non-compete in an NDA, carefully evaluate enforceability in your jurisdiction.
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Plain English Explanation
A non-compete clause in an NDA prevents you from engaging in business activities that compete with the other party during (and sometimes after) the confidential relationship. Unlike non-solicitation clauses (which only restrict hiring employees), non-competes can restrict your entire business operations in certain markets.
Non-competes in NDAs are unusual because NDAs are typically signed at the beginning of a relationship - before you know whether a deal will even happen. Agreeing to restrict your competitive activities based on preliminary discussions can be extremely risky.
Why do parties include them? The requesting party wants to prevent you from using confidential information to compete against them or from "shopping" their ideas to competitors. However, courts increasingly view non-competes as restraints of trade that harm innovation and worker mobility.
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State-by-State Enforceability
Non-compete enforceability varies dramatically by state. This is one of the most jurisdiction-dependent areas of contract law.
Void California
Business and Professions Code 16600 voids virtually all non-competes except in sale-of-business contexts. Cannot be enforced even if another state's law is chosen. Recent 2023 legislation adds penalties for including void non-competes.
Void North Dakota
Non-competes void as against public policy under state statute. Very limited exceptions for sale of business or dissolution of partnership.
Void Oklahoma
Broadly prohibits non-competes under state law. Extremely limited exceptions that rarely apply to NDA contexts.
Void Minnesota
As of July 2023, non-competes are banned for most workers. Does not apply to sale-of-business contexts or dissolution agreements.
Limited Washington
Enforceable only for employees earning over $116,593 (2024) with restrictions capped at 18 months. Must disclose terms before hiring.
Limited Illinois
Banned for workers earning under $75,000 (increasing annually). Requires adequate consideration and reasonable scope/duration.
Limited Massachusetts
Limited to 12 months, requires garden leave or mutually agreed consideration, banned for non-exempt employees and certain professions.
Limited Oregon
Limited to 18 months, only for employees earning over $113,241 (2024), must be disclosed before employment begins.
Reformable Texas
Must be ancillary to enforceable agreement, supported by consideration, and reasonable in scope. Courts may reform overbroad terms.
Reformable New York
Requires reasonableness analysis balancing employer interests against hardship to employee and public harm. Courts may blue-pencil.
Enforceable Florida
Strong enforcement with statutory presumption of validity for reasonable restrictions. Courts required to enforce valid provisions.
Enforceable Georgia
Recent reform made non-competes more enforceable. Must be reasonable in time, territory, and scope of activity.
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Clause Versions - Copy & Paste Ready
NON-COMPETITION
During the term of this Agreement only, the Receiving Party agrees that it will not use Confidential Information to directly compete with the Disclosing Party in the specific product line or service category that is the subject of discussions under this Agreement.
This restriction:
(a) Applies only to the Receiving Party's use of actual Confidential Information disclosed hereunder;
(b) Does not restrict the Receiving Party from engaging in any business activities based on its own independent development, publicly available information, or information lawfully obtained from third parties;
(c) Does not prevent the Receiving Party from continuing any competitive activities that existed prior to the Effective Date of this Agreement; and
(d) Terminates immediately upon expiration or termination of this Agreement for any reason.
For clarity, this Section does not create any post-termination non-competition obligation. Upon termination of this Agreement, the Receiving Party's sole ongoing obligation is to maintain the confidentiality of Confidential Information as otherwise provided herein.
This provision shall not apply in any jurisdiction where non-compete provisions are void or unenforceable as a matter of law, including but not limited to California, North Dakota, Oklahoma, and Minnesota.
Analysis: This version provides limited protection during the term only, with clear carve-outs for independent activities and no post-termination restrictions. It explicitly acknowledges state law limitations. This represents the most defensible form of non-compete in an NDA context.
COMPETITIVE ACTIVITIES
Nothing in this Agreement shall restrict either party from:
(a) Engaging in any business activities, including activities that may compete with the other party;
(b) Developing products or services similar to those discussed under this Agreement, provided such development does not use or incorporate the other party's Confidential Information;
(c) Entering into similar discussions or agreements with any third party, including competitors of the other party; or
(d) Hiring personnel or engaging consultants who have general skills similar to those of the other party's personnel.
Each party acknowledges that the other party may currently be, or may become, engaged in businesses that compete with the other party, and that this Agreement is not intended to restrict such competition.
To the extent any provision of this Agreement could be construed as restricting competitive activity beyond the specific prohibition against misuse of Confidential Information, such provision shall be deemed void and severable.
THE PARTIES EXPRESSLY AGREE THAT NO NON-COMPETE OBLIGATION IS CREATED BY THIS AGREEMENT. The Receiving Party's only obligation is to maintain confidentiality and use Confidential Information solely for the Purpose, not to refrain from competition.
Why this favors the receiving party: This version explicitly disclaims any non-compete obligation while affirming the right to compete. Use this as a counter-proposal when faced with any non-compete language, or include proactively to prevent later disputes about whether confidentiality obligations imply competitive restrictions.
NON-COMPETITION COVENANT
During the term of this Agreement and for a period of twenty-four (24) months following its expiration or termination for any reason, the Receiving Party covenants and agrees that it shall not, directly or indirectly, within the Territory:
(a) Engage in, own, manage, operate, control, finance, or participate in the ownership, management, operation, or control of any business that competes with the Business of the Disclosing Party;
(b) Develop, manufacture, market, sell, or distribute any products or services that are similar to or competitive with the products or services of the Disclosing Party;
(c) Solicit, accept, or service any customers or prospective customers of the Disclosing Party;
(d) Assist any third party in any of the foregoing activities; or
(e) Take any preparatory steps toward any of the foregoing.
For purposes of this Section, "Territory" means the United States and any other country where the Disclosing Party conducts or plans to conduct business. "Business" means any business activity in which the Disclosing Party is engaged or reasonably contemplates engaging.
The Receiving Party acknowledges that the Disclosing Party would suffer irreparable harm from any breach of this covenant and agrees that the Disclosing Party shall be entitled to injunctive relief without bond, in addition to any other remedies available at law or equity, including liquidated damages equal to the greater of (i) all profits earned by the Receiving Party from competitive activities or (ii) $500,000 per violation.
Warning - This clause is extremely aggressive and likely unenforceable: 24-month duration, unlimited geographic scope, overbroad definition of competitive activity, one-sided obligations, and punitive damages. Courts in most jurisdictions would void or dramatically narrow this provision. California, North Dakota, Oklahoma, and Minnesota would void it entirely. Even in enforcement-friendly states like Florida, the unlimited geographic scope is problematic.
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Enforceability Analysis
Courts evaluating non-compete provisions in NDAs typically examine these factors:
Factor
More Enforceable
Less Enforceable
Duration
Term of agreement only, or 6-12 months post
24+ months, or indefinite
Geographic Scope
Specific markets where party operates
Nationwide, worldwide, or unlimited
Activity Scope
Specific product/service line discussed
"Any competing business"
Consideration
Clear mutual exchange of value
One-sided, no real benefit to restricted party
Tie to Confidential Info
Restriction tied to protecting specific CI
General competition restriction
Preexisting Activities
Carve-out for existing business
Requires stopping current activities
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Why Non-Competes in NDAs Are Problematic
Premature Commitment: NDAs are often signed before any deal is certain. Agreeing to non-compete restrictions based on preliminary discussions is extremely risky.
Lack of Consideration: In employment, non-competes are supported by the job itself. In NDA contexts, what consideration supports the restriction?
Asymmetric Risk: The receiving party often bears all the competitive restrictions while the disclosing party can continue operating freely.
Chilling Effect: Even unenforceable non-competes can deter legitimate business activities due to litigation risk and expense.
Overreach: Many parties include broad non-competes hoping they'll be accepted without scrutiny. This doesn't mean they're enforceable or appropriate.
Regulatory Trend: The FTC, multiple states, and courts are moving to restrict or eliminate non-competes. Including them now may create future compliance issues.
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Key Considerations
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Start With Removal: The best approach is often to strike non-compete provisions entirely. NDAs should protect confidential information, not restrict competition. The confidentiality obligations themselves prevent misuse of information.
2
If You Must Accept, Limit Aggressively: Restrict to during-term only, narrow the scope to specific products/services discussed, carve out existing activities, and add explicit state law acknowledgments.
3
California Connection: If either party is based in California or if work will be performed there, the non-compete is likely void regardless of choice of law provisions.
4
Document Preexisting Activities: Before signing, document what competitive activities you're already engaged in. Ensure these are carved out or the restriction only applies to new activities.
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Consider Walking Away: If the other party insists on broad non-compete provisions before any substantive relationship, this may signal an unreasonable counterparty not worth engaging with.