Non-compete agreements are among the most contested provisions in employment and commercial law. Once standard, non-competes now face increasing legal restrictions — including outright bans in several states and a federal rule that would prohibit most non-competes nationwide.
What Is a Non-Compete Agreement?
A contractual provision where one party agrees not to compete with the other for a specified period and geographic area after the relationship ends. Used in employment contexts (employee agrees not to work for a competitor) and sale-of-business contexts (seller agrees not to compete with the buyer).
Related but distinct provisions: non-solicitation (not to solicit customers or employees), non-disclosure/confidentiality (not to use confidential information), and non-dealing (not to do business with the former employer's customers).
The Legal Landscape
State Law Variation
California, North Dakota, Oklahoma, and Minnesota essentially ban non-competes for employees. Most states permit non-competes that are reasonable. New York recently enacted restrictions. The trend is clear: increasing legal restrictions.
Federal Rule
In 2024, the FTC issued a rule that would ban most non-competes nationwide. Currently subject to litigation, but the trend is clear.
Enforceability Standards
In states that permit non-competes, courts apply a reasonableness test: reasonable in duration (typically 6 months to 2 years), reasonable in geographic scope (no broader than necessary), reasonable in scope (limited to competing work), protects a legitimate business interest (trade secrets, customer relationships, specialized training), and supported by adequate consideration.
The Sale-of-Business Exception
Non-competes in the sale-of-business context are treated more favorably. Courts recognize that the buyer is paying for goodwill that the non-compete protects. Longer durations and broader scopes may be acceptable.
Alternatives to Non-Competes
Non-Solicitation Agreements
Generally more enforceable because narrower. Protects customer relationships without restricting the employee's ability to work.
Confidentiality Agreements
Protect trade secrets and confidential information. Generally enforceable and provide significant protection.
Garden Leave Provisions
Require advance notice of resignation during which the employee remains employed (and paid) but does not perform substantive work.
Forfeiture-for-Competition
Condition benefits (severance, equity vesting) on not competing — doesn't restrict the ability to work, just conditions benefits.
Trade Secret Protection
The Defend Trade Secrets Act and state laws provide robust protection without a non-compete.
Best Practices
- Tailor to the employee and role
- Use the narrowest effective restriction
- Stay current with legal developments
- Consider jurisdiction-specific requirements
Frequently Asked Questions
Are non-competes still enforceable? Depends on state, context, and terms. In some states, most employment non-competes are banned. In others, enforceable if reasonable.
What if my non-compete is too broad? In many states, courts will "blue pencil" (modify) an overly broad non-compete. Some states don't allow this — an overly broad non-compete is entirely unenforceable.
Can I enforce against an employee terminated without cause? In some states, enforcement is disfavored. Some require compensation during the non-compete period.
Are sale-of-business non-competes treated differently? Yes — generally more enforceable with longer durations and broader scopes.
Protect Your Business Interests
The business law attorneys at Poulson Law can help you draft, review, and enforce restrictive covenants. Contact us at 607-547-1195.
