What About Non-Competes?

Non-Competes: The Basics

A non-compete agreement (also called a "covenant not to compete" or "non-competition clause") is a contract that restricts an employee from working for competitors or starting a competing business for a specified period after leaving their current employer.

Unlike NDAs, which only restrict what you can say, non-competes restrict where you can work. This fundamental difference explains why non-competes are far more controversial and heavily regulated.

State-by-State Status (2025)

The legal landscape for non-competes varies dramatically by state. Here's the current status:

The FTC's Proposed Ban (and What Happened)

In April 2024, the Federal Trade Commission voted 3-2 to ban most employee non-competes nationwide, calling them an "unfair method of competition." The rule would have:

• Banned new non-competes for all workers
• Made existing non-competes unenforceable (except for senior executives)
• Required employers to notify workers that non-competes are no longer enforceable

Non-Compete vs. NDA: Key Differences

Why Non-Competes Are Controversial

Arguments Against Non-Competes

• Wage suppression: Studies show non-competes reduce wages by 4-8%, even for workers who never try to leave
• Reduced innovation: Workers can't take skills and knowledge to new ventures
• Power imbalance: Often signed as condition of employment with no real negotiation
• Overbroad use: Applied to low-wage workers with no access to trade secrets
• California effect: California's ban hasn't harmed its economy; Silicon Valley thrives

Arguments For Non-Competes

• Investment protection: Employers invest in training employees
• Customer relationships: Prevents employees from immediately soliciting customers
• Trade secret backup: NDAs are hard to enforce; non-competes are more preventive
• Freedom of contract: Parties should be able to make agreements
• Recruiting tool: Employers may offer more if they know employee can't easily leave

What Makes a Non-Compete Enforceable?

In states where non-competes are allowed, courts typically require:

1. Legitimate Business Interest

The employer must have something worth protecting, such as:

• Trade secrets or confidential information
• Customer relationships the employee developed
• Specialized training provided to the employee
• Goodwill of the business

2. Reasonable Scope

• Time: Usually 6 months to 2 years. Longer periods require justification.
• Geography: Must match where the company actually does business. Nationwide restrictions for a local business are usually void.
• Activities: Should be limited to actually competitive work, not any employment in the field.

3. Adequate Consideration

The employee must receive something in exchange:

• At hiring: The job itself is usually sufficient consideration
• After employment starts: Many states require additional consideration (promotion, bonus, stock, etc.)
• At termination: Severance may be required for the non-compete to be enforced

4. Not Against Public Policy

Even in states that allow non-competes, courts may refuse enforcement if:

• The restriction effectively prevents earning a living
• The employee was terminated without cause
• The restriction applies to low-wage workers
• The employer is using it to prevent legitimate competition rather than protect secrets

For Employees: What To Do

Before Signing

1. Check your state law: Know whether non-competes are enforceable where you live
2. Negotiate the terms: Ask to narrow the duration, geography, or scope
3. Get something in return: If signing mid-employment, request additional compensation
4. Understand the trigger: Does it apply if you're fired? Laid off? Only if you quit?
5. Keep a copy: Always retain signed agreements

If You've Already Signed

• Review the actual language: Non-competes are often unenforceable due to overbreadth
• Check for changes in law: Your state may have added new restrictions
• Consider your leverage: Employers often don't enforce against non-key employees
• Consult an attorney: Before accepting a competitive position if you have concerns
• Don't assume enforcement: Many non-competes are never enforced; cost/benefit often favors employees

For Employers: Best Practices

In States That Allow Non-Competes

• Be reasonable: Narrow scope makes enforcement more likely
• Provide consideration: Give something concrete in exchange
• Tailor to the role: Executive non-competes should differ from sales rep non-competes
• Update regularly: State laws are changing; review agreements annually
• Have a clear enforcement policy: Selective enforcement can undermine all agreements

In States That Ban Non-Competes

• Focus on NDAs: These remain fully enforceable
• Add non-solicitation: Restrictions on soliciting specific customers/employees are usually allowed
• Consider garden leave: Paid time off during notice periods can limit competitive activity
• Protect trade secrets: Strong information security reduces the need for restrictive covenants

Related Restrictions: Non-Solicitation and No-Poach

Non-Solicitation of Customers

These provisions prevent employees from soliciting specific customers they worked with. Unlike non-competes, they usually allow working for competitors - just not actively taking customers away. Generally more enforceable than non-competes.

Non-Solicitation of Employees

Prevents departing employees from recruiting former colleagues. Common and generally enforceable, though some states limit these as well.

No-Poach Agreements (Between Companies)

These are agreements between companies not to hire each other's employees. Unlike individual non-competes, these are often illegal under antitrust law. The DOJ has prosecuted companies for "naked" no-poach agreements.