Non-compete agreement: what makes one enforceable

A non-compete agreement restricts someone from competing with a business after the relationship ends. Enforceability is entirely a question of state law: California, Minnesota, North Dakota and Oklahoma void employee non-competes, and everywhere else a court asks whether the restriction protects a legitimate business interest and is reasonable in duration, geography and scope of activity. A covenant that overreaches on any of the three is often worth less than a narrow one, because several states will strike it out rather than narrow it.

The four elements a court looks at

1. A protectable interest. Confidential information, customer relationships, goodwill or specialised training. Wanting less competition is not, by itself, a protectable interest.

2. Duration. Twelve months is the practical benchmark for most employee covenants; beyond that, enforceability varies sharply and some statutes cap the period outright.

3. Geography. Limit it to where the person actually worked or where the business genuinely competes. No geographic limit is the single most common reason a non-compete fails — a nationwide restriction on a regional sales manager reads as punishment rather than protection.

4. Consideration. For a new hire, the job offer itself is usually enough. For someone already employed, many states hold that continued employment is not sufficient — you need to give something extra: a bonus, a raise, a promotion. This is the mistake that quietly voids covenants years later, when the employer rolls out new paperwork to existing staff and gives nothing in return.

The states where the answer is simply no

In California, Minnesota, North Dakota and Oklahoma, an employee non-compete is void. Asking someone there to sign one does not create a bargaining chip; in California it can create liability for the employer.

What still works in those states — and everywhere else:

• Confidentiality agreements. Enforceable in all fifty states. Usually the clause that actually protects the business.
• Trade secret law. Protects trade secrets independently of any contract, provided you took reasonable steps to keep them secret.
• Customer non-solicitation, where the state permits it — though California restricts these too.
• IP assignment, so work product belongs to the company from the outset.

Statutory conditions in other states

A growing group of states regulates non-competes without banning them: minimum earnings thresholds below which a covenant cannot apply, mandatory advance notice before signing (commonly 10 or 14 business days), garden-leave or comparable consideration requirements, and outright bans for particular occupations such as healthcare or hourly workers.

Washington, Colorado, Illinois, Oregon, Maine, Maryland, New Hampshire, Rhode Island, Virginia, Massachusetts and Nevada all have rules of this kind, and the figures are indexed or amended regularly. Look up the current number for your state rather than trusting any article's — including this one.

Blue-pencilling: why aggressive drafting backfires

If a covenant is too broad, states diverge on what happens. Some reform it, narrowing the restriction to what is reasonable and enforcing that. Others apply a strict blue-pencil rule, striking offending words but adding nothing. And some refuse to rewrite at all and void the covenant entirely.

That last group turns aggressive drafting into a gamble with no upside: the employer who asked for five years and the whole country ends up with nothing, where two years in three states would have held.

The sale of a business is different

Non-competes given by the seller of a business are treated far more favourably, including in California, which permits them within a statutory exception tied to a genuine sale of goodwill or ownership interest and limited to the area where the business operated. Buyers of small businesses routinely — and reasonably — insist on one.

Practical guidance

If you are the employer: decide what you are actually protecting. If it is information, an NDA does the job in every state. Restrict only the people who genuinely hold customer relationships or confidential information — a blanket rollout to every employee is the pattern legislatures have been reacting against.

If you are being asked to sign: check the duration, the geography and whether your state bans or conditions these covenants. Ask whether it is triggered by any departure or only by resignation, and ask for a carve-out for your general skills. An unenforceable clause can still deter a future employer who does not want the argument, so negotiate it even where it would ultimately fail.

Generate the agreement

Our template covers employees, contractors and sellers of a business, with the restricted activity, duration, geographic scope, customer and employee non-solicitation, confidentiality and garden leave. In the four states where employee non-competes are void it produces a confidentiality and non-solicitation agreement instead, and it flags an unlimited geography, a duration beyond what most states enforce, a covenant given for continued employment alone, and the states with statutory thresholds.

→ Non-Compete Agreement

Related: NDA vs non-compete · Non-Disclosure Agreement · Employment Agreement.