Negotiation Strategy

How to Negotiate or Remove Non-Compete Clauses

Strategies to eliminate or substantially limit non-compete provisions in NDAs, including state law arguments, geographic and time limitations, and alternative protections.

🎯 Your Goal: Removal or Substantial Limitation

Non-compete clauses in NDAs are unusual and often inappropriate. Your primary goal should be complete removal. Unlike employment agreements where non-competes (while controversial) have some accepted rationale, NDAs are typically signed before any substantive relationship exists - making competitive restrictions premature and overreaching.

Key argument: The NDA's confidentiality provisions already prevent misuse of information. A non-compete adds nothing except an unreasonable restraint on legitimate business activities.

Best Outcome

Complete Removal

Strike the non-compete provision entirely. The confidentiality terms provide sufficient protection.

Good Outcome

During-Term Only

Limit restriction to the term of the agreement, with no post-termination restrictions.

Acceptable

Narrow Scope + Short Duration

6-12 months, specific geographic area, limited to exact products/services discussed.

Last Resort

Carve-Outs + Caps

Preserve existing business, cap damages, add state law acknowledgment.

❌ Strategy 1: Push for Complete Removal

Start by asking for the non-compete to be removed entirely. This sets an anchor and often succeeds because many counterparties include non-competes reflexively without strong conviction.

Sample Negotiation Language - Formal

"We note that Section [X] includes a non-competition provision. As a matter of policy, we do not agree to non-compete restrictions in the context of NDAs. The confidentiality obligations in this Agreement already prevent misuse of any disclosed information, making a non-compete unnecessary. We request that Section [X] be deleted in its entirety. If there are specific competitive concerns you'd like to address, we're open to discussing targeted confidentiality protections."

Sample Negotiation Language - Collaborative

"We want to make sure we can move forward with these discussions, but the non-compete clause is a significant concern for us. We're in an active market where we're constantly evaluating partnerships and opportunities. Agreeing to competitive restrictions before we even know if this relationship will go forward doesn't make sense for our business. What specific concerns is this clause trying to address? There may be other ways to address them through the confidentiality terms."

💡 Why This Often Works

Many non-compete provisions in NDAs are template language that the drafter didn't carefully consider. When you push back professionally, the other party often agrees to remove it rather than delay the deal. They may not have strong reasons for including it beyond "that's what our template says."

🌎 Strategy 2: The California Argument

If either party has any connection to California (headquarters, employees, operations, or if work under the NDA could be performed there), California's strong prohibition on non-competes provides powerful leverage.

⚖ California Law: Business and Professions Code Section 16600

California voids nearly all non-compete agreements as restraints on trade. Recent legislation (SB 699 and AB 1076, effective 2024) strengthened these protections:

  • Non-competes are void regardless of where or when they were signed
  • Choice-of-law provisions selecting other states' law will not be enforced against California residents
  • Employers face penalties for including void non-compete provisions
  • Employers must notify current and former employees that their non-competes are void

Sample Negotiation Language

"We note that [your company/our company] has operations in California. Under California Business and Professions Code Section 16600, and recent legislation SB 699 and AB 1076, non-compete provisions are void and unenforceable in California. Courts have consistently held that California's policy against non-competes applies even when another state's law is selected. Rather than include a provision that's unenforceable as to California activities and creates legal uncertainty, we suggest removing Section [X] entirely."

📌 Other Void States

Similar arguments apply if either party has connections to North Dakota, Oklahoma, or Minnesota, all of which broadly void non-compete agreements. Washington, Illinois, and Massachusetts have significant limitations that may also provide leverage.

🕑 Strategy 3: Limit Duration

If the counterparty won't remove the non-compete entirely, duration is often the most negotiable element. Push for the shortest possible period.

Proposed Duration Your Response Counter-Offer Target
36+ months Reject as unreasonable; likely unenforceable During-term only or 6 months
24 months Push back strongly; courts skeptical 6-12 months maximum
18 months Request reduction to standard period 6-12 months
12 months Negotiate for during-term only During-term or 6 months

Sample Negotiation Language

"The proposed 24-month non-compete period is inconsistent with industry standards and raises enforceability concerns in many jurisdictions. Given that this is a preliminary NDA rather than a definitive transaction agreement, an extended post-termination restriction is not appropriate. We would accept a restriction limited to the term of this Agreement only, or alternatively, a maximum of six months post-termination."

🌏 Strategy 4: Limit Geographic Scope

Unlimited or worldwide geographic restrictions are often unenforceable and should be firmly rejected. Even if the counterparty operates globally, that doesn't justify restricting your activities everywhere.

❌ Reject These

"Worldwide," "globally," "in any market," "anywhere the Disclosing Party does business or plans to do business"

✅ Propose These

"In [specific city/state where party operates]," "in the [specific] market segment," "limited to the geographic scope of discussions"

Sample Negotiation Language

"The current language restricts our activities 'worldwide.' This is overbroad and likely unenforceable - courts require geographic restrictions to be reasonably related to the business interest being protected. If you operate primarily in [specific region], we can discuss a restriction limited to that specific geography. We cannot agree to restrictions that would prevent us from operating in markets where you have no presence or competitive concern."

⚠ Common Trap: "Anywhere We Do Business"

Language restricting competition "anywhere the Disclosing Party conducts or contemplates business" effectively creates unlimited geographic scope. This language should be rejected because:

  • You may not know everywhere they do or plan to do business
  • "Contemplates" is undefined and could cover any market
  • Courts often void such provisions as overbroad

💼 Strategy 5: Narrow Activity Scope

Non-competes should be limited to the specific products, services, or activities that are the subject of NDA discussions - not "any competing business."

  1. Identify What's Actually Being Discussed Before the NDA is signed, clarify the specific subject matter. This becomes the basis for any competitive restriction.
  2. Propose Specific, Defined Scope Instead of "any business that competes with Disclosing Party," propose "development or sale of [specific product/service type] that directly incorporates Confidential Information."
  3. Tie Restrictions to Confidential Information Use The restriction should prohibit using confidential information to compete, not competing generally. This maintains the NDA's purpose without overreaching.
  4. Carve Out Existing Activities Ensure anything you're already doing is explicitly permitted, regardless of whether it might be considered "competitive."

Sample Redline Language

"[Original: 'engage in any business that competes with the Disclosing Party'] [Revised: 'use Confidential Information to develop, manufacture, or sell [specific product category] that directly competes with the specific products disclosed under this Agreement, provided that this restriction shall not apply to any activities in which the Receiving Party was engaged prior to the Effective Date']"

🔒 Strategy 6: Preserve Existing Business

One of the most important carve-outs is for your existing business activities. You should never agree to restrictions that require you to stop doing something you were already doing before the NDA.

Sample Carve-Out Language

"Notwithstanding anything to the contrary in this Agreement, nothing herein shall restrict the Receiving Party from: (a) Continuing any business activities in which the Receiving Party was engaged as of the Effective Date, including the development, manufacture, sale, or licensing of any products or services that were in development or offered commercially prior to the Effective Date; (b) Engaging in any business activities that do not utilize or incorporate any Confidential Information of the Disclosing Party; or (c) Developing products or services independently, without access to or use of Confidential Information, even if such products or services are similar to or competitive with those of the Disclosing Party."

💡 Documentation Tip

Before signing any NDA with competitive restrictions, document your existing business activities, products in development, and markets you serve. This creates a clear record of what was "preexisting" in case of later disputes.

💰 Strategy 7: Remove or Cap Damages

Aggressive non-compete clauses often include liquidated damages, disgorgement of profits, or other penalty provisions. These should be removed or substantially capped.

⚠ Dangerous Language to Watch For

  • "Liquidated damages equal to [X]% of Receiving Party's revenue"
  • "Disgorgement of all profits from competitive activities"
  • "Injunctive relief without bond"
  • "Attorney fees and costs regardless of outcome"

Sample Negotiation Language

"The liquidated damages provision - disgorgement of all profits plus $500,000 per violation - would expose us to potentially ruinous liability. Courts routinely void such provisions as unenforceable penalties rather than reasonable damage estimates. We need to either remove this provision and rely on actual damages (which adequately protect your interests), or cap potential damages at a reasonable level such as [proposed cap]. We also cannot agree to waive the bond requirement for injunctive relief."

⚖ Strategy 8: Add State Law Acknowledgment

If you cannot eliminate the non-compete, add language acknowledging that it is unenforceable in certain jurisdictions. This prevents future arguments about application in void states.

Sample Language to Add

"This non-competition provision shall not apply in any jurisdiction where non-compete agreements are void or unenforceable as a matter of law, including but not limited to California (per Business and Professions Code Section 16600), North Dakota, Oklahoma, and Minnesota. To the extent the Receiving Party performs activities in such jurisdictions, or is a resident of such jurisdictions, this provision shall be deemed void as to such activities or individuals. The Disclosing Party acknowledges that the Receiving Party [has operations in / employs individuals in / may perform work under this Agreement in] [California/other state], and that this provision may not be enforced as to such activities or individuals."

🔄 Alternative: Propose Confidentiality Enhancements Instead

When pushing back on non-competes, it helps to offer alternative protections that address the counterparty's underlying concerns without restricting competition.

Enhanced Confidentiality Terms

Offer stronger confidentiality protections - longer survival periods, stricter use limitations, more robust security requirements.

Specific Use Restrictions

Agree not to use confidential information for specified competitive purposes, rather than broadly restricting all competitive activity.

Non-Solicitation Instead

If the concern is talent poaching, a reasonable non-solicitation clause may satisfy the need without restricting business operations.

Standstill Provisions

For M&A contexts, a targeted standstill preventing unsolicited acquisition attempts may address the real concern.

Sample Negotiation Language

"We understand you want to protect sensitive information shared during these discussions. Rather than a non-compete, which raises significant enforceability issues, we'd propose strengthening the confidentiality provisions to address your specific concerns. For example, we could agree to a longer confidentiality survival period, add explicit restrictions on using confidential information for competitive product development, or include enhanced security requirements. These protections address the information misuse concern directly without restraining our general business operations."

🚫 When to Walk Away

Sometimes the right negotiation outcome is declining to sign the agreement. Consider walking away when:

  • The counterparty insists on broad non-compete terms and won't negotiate meaningfully
  • The restrictions would prevent you from operating in your core business
  • The potential deal value doesn't justify the competitive constraints
  • The counterparty's inflexibility on this issue signals they'll be difficult to work with
  • You suspect the counterparty's primary goal is restricting your competition, not legitimate information protection

💭 Walking Away Can Be Strategic

Sometimes indicating that you're prepared to walk away brings the counterparty back with more reasonable terms. If you've clearly explained your concerns and proposed reasonable alternatives, a polite "I'm afraid we can't move forward under these terms" may prompt reconsideration.

📝 Negotiation Checklist

Before accepting any non-compete clause in an NDA, ensure:

  1. You've Attempted Complete Removal The default should be no non-compete. Only accept one if there's a compelling reason.
  2. Duration is Reasonable During-term only is ideal. No more than 6-12 months post-termination in any case.
  3. Geographic Scope is Limited Specific markets where the counterparty actually operates, not worldwide.
  4. Activity Scope is Narrow Tied to specific products/services and use of confidential information, not all competition.
  5. Existing Business is Protected Explicit carve-out for anything you were doing before the NDA.
  6. State Law Limitations Acknowledged Void in California, North Dakota, Oklahoma, Minnesota, and limited elsewhere.
  7. Damages Are Reasonable No disproportionate liquidated damages, disgorgement, or penalty provisions.
  8. The Restriction is Mutual If you're restricted from competing, they should be too.

🔗 Related Resources

Non-Compete Clause Language

Copy-paste ready versions of non-compete provisions at different restriction levels.

Non-Solicitation Clauses

A more limited restriction that may satisfy counterparty concerns.

Negotiating Non-Solicitation

Strategies for the related but less controversial non-solicitation provisions.

Purpose Limitation

Restrict information use without restricting competition generally.