Non-Compete Agreement Template

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A non-compete agreement prohibits an employee from working in a similar industry as their employer for a specified time period. The purpose of a non-compete is to prohibit an employee from working for or being a future competitor. Non-competes for employment is legal in 46 States (banned if employment-related in California, Montana, North Dakota, and Oklahoma).

Commonly Includes (3)

A non-compete usually includes three (3) main sections:

  1. Non-Compete. Prohibits from working in the same business.
  2. Non-Solicitation. Prohibits obtaining current or past clients, customers, employees, and contractors.
  3. Non-Disclosure. Prohibits the sharing of confidential or proprietary information and trade secrets.

Table of Contents

By State

By Type (2)

Independent Contractor Non-Compete Agreement – Between a business and a party that is not an employee (individual or entity) that agrees to conduct services while withholding sensitive information.

Employee Non-Compete Agreement – Protects a Company from hiring an individual and teaching ‘trade secrets’ without the fear of the individual using the information against the Company by being hired by another business or going out on their own.

What is a Non-Compete Agreement?

A non-compete agreement prevents current and former employees from competing with their employer in the future. Most agreements will also include confidentiality and non-solicitation clauses to further the protection of their business and customer base.

Video Overview

When to Use?

Hiring New Employees

Let’s say you recently started a new business and it’s starting to thrive. The reason for the business’s success is due to acquiring information that no other competitor has been able to gain. The demand for the business’s product is increasing quickly and the company is in dire need of more employees. In order for new employees to successfully execute their job, they need to know the sensitive information that gives the company such an edge over its competitors. When potential employees apply for your job, being hired would be contingent upon signing a non-compete agreement. Applicants have the right to refuse to sign and as an employer, you have the right to deny employment.

Requesting from Current Employees

Trying to request current employees to complete a non-compete agreement is a bit more tricky and complicated than when requiring new employees to do so. For example – You are the owner of an established business that has obtained confidential information pertaining to the business’s operation. Before disclosing this information to current employees, they each must agree not to share or practice this information with any other company going forth by singing a non-compete agreement. Refusal to sign could result in the firing of an employee.

How to Get a Non-Compete (6 steps)

Step 1 – Lookup the Laws in Your State

It is a good idea to have the employer read the laws on trade secrets in their State to understand what they can or cannot bar the employee from doing. Otherwise, a court may claim the entire agreement is invalid even with a severability clause.

Helpful Resources (State Laws)

Step 2 – Decide What to Prohibit

Decide which competitors the employee will be prohibited from working with if they should quit or leave the employer. This employer may also include language that does not allow them to also work for themselves (self-employment).

If the employee is barred from working in a sector make sure it is specified. As a court may not recognize prohibiting a person based solely from working on the internet. Although, a court would probably acknowledge a specific type of website or app restriction.

Step 3 – Regulate Geographical Areas

The geographical area may also be selected which usually covers the trade-area of the business. It is important not to push beyond this as it may be viewed as excessive. Such as prohibiting an employee from working in Maine when the business has no presence in the State.

Step 4 – Time Period

This is the most difficult part as some States do not allow long time periods of more than five (5) years. Even at this length, it may be deemed excessive. Therefore, a time frame of one (1) or two (2) years is recommended.

Step 5 – Non-Solicitation

Soliciting is the act of recruiting either former employees of the business or their customers for use after leaving. This is usually restricted in the employment agreement but also should be included in any non-compete agreement. This protects the business from losing their clients as a trusted employee will most likely have access to all their information.

Step 6 – Signing

Due to the sensitive nature of these agreements, it is highly recommended to have signed in the presence of a notary public. This makes the guarantee that the employee authorized the form as government-issued identification is required to be presented at the time of signing.

Otherwise, it is in the best interests of the parties to have at least one (1) witness who is not associated with the employer or employee.

How to GET OUT of a Non-Compete

The only way to get out of a non-compete is to have the previous employer authorize a release of liability or seeking legal action.

Release of Liability

General Release of Liability – Enter the terms of the original non-compete and any payment (if any) for the release.

Download: Adobe PDF, MS Word, OpenDocument

 

 

 

Legal Action

A non-compete agreement is commonly taken to a court of law or challenged by the employee for the following reasons:

  • Unreasonable length of time of the non-compete. In most cases, States will not honor perpetual or long durations of non-compete periods. Therefore, if the period is longer than 5 years, there is a chance of proving the agreement was unreasonable.
  • Unreasonable geographical requirements – If it covers the entire country or in an area where the employer is not located.
  • Unreasonable professions identified – The agreement identifies industries that the employer has no part of or relation.
  • Causes undue hardship to fall onto the employee – The employee or their family member is sick and this is their only income source.
  • Discriminatory in nature – Only required for individuals of a certain race, age, group, or sex.
  • Deceitful inducement – Employer advises an employee they wouldn’t enforce it at a later date.

Violating a Non-Compete Agreement

Employee Violation

In the event an employee violates a non-compete agreement the employer can pursue legal action against the employee. Prior to the employee completing a violation, in the event they may go to a competitor, the employer may determine if negotiation is available to retain the employee and avoid legal action. If legal action is pursued, the local courts will review the non-compete agreement for validity and feasibleness. Should the court favor the employer, the rulings could impact the employee by agreeing to an injunction. The injunction is a decree the court orders to keep an individual from violating the non-compete agreement. The decree may force the individual to leave an employer if they employed with a competitor. The court can also opt to have monetary damages be awarded. The courts will require the employer to provide proof that there was an actual loss. Most commonly employers choose to have the non-compete agreement be upheld.

Employer Violation

If an employer violates the non-compete agreement the employee can pursue legal action against the employer. If the employer breaches the non-compete contract (i.e. failing to pay an employee, not providing benefits, or failing to meet other agreed-upon obligations), the employee is relieved of the previously agreed upon non-compete agreement. If the employee files a case in a court of law and the employer is found at fault, the employer is considered solely responsible for all legal fees incurred by both parties. Employers should consult legal counsel when creating non-compete agreements to avoid legal issues.

Is a Non-Compete Legally Binding?

An employee non-compete is legally binding in 46 States and prohibited in four (4) States (California, North Dakota, and Oklahoma). Even if a non-compete is against the law, an employer can still prohibit the employee from disclosing proprietary information (NDA) and soliciting their employees and customers (non-solicitation agreement).

Non-Compete Laws by State

State Legally Enforceable? Maximum Term  Statutes
 Alabama Yes 2 years (Section 8-1-190(b)(4)) Sections 8-1-190 to 8-1-197
 Alaska Yes 2 years (Wirum & Cash Architects v. Cash (1992)) AS 45.50.910 to 45.50.945 (Alaska Uniform Trade Secrets Act)
 Arizona Yes 3 years (Liss v. Exel Transp. Servs. (2007)) ARS 44-401 to ARS 44-407 (Uniform Trade Secrets Act)
 Arkansas Yes 2 years (Ark. Code § 4-75-101(d)) Ark. Code § 4-75-101
 California No *Indefinite period (*for non-disclosure and non-solicitation) Sections 16600-16607 (Business and Professions Code)
 Colorado
 Connecticut
 Delaware
 Florida
 Georgia
 Hawaii
 Idaho
 Illinois
 Indiana
 Iowa
 Kansas
 Kentucky
 Louisiana
 Maine
 Maryland
 Massachusetts
 Michigan
 Minnesota
 Mississippi
 Missouri
 Montana
 Nebraska
 Nevada
 New Hampshire
 New Jersey
 New Mexico
 New York
 North Carolina
 North Dakota
 Ohio
 Oklahoma
 Oregon
 Pennsylvania
 Rhode Island
 South Carolina
 South Dakota
 Tennessee
 Texas
 Utah
 Vermont
 Virginia
 Washington
Washington D.C. No 2 years for the sale of a business (Deutsch v. Barsky, 795 A.2d 669 (D.C. 2002)) D.C. Law 23-209 (Ban on Non-Compete Agreements Amendment Act of 2020)
West Virginia
 Wisconsin
 Wyoming

States that DO NOT recognize Non-Compete Agreements

Non-Compete Agreements are not be recognized by all states. The following United States do not recognize or enforce non-compete agreements:

Sample – Non-Compete Agreement

Download: Adobe PDF, MS Word, OpenDocument

How to Write

Download: Adobe PDF, MS Word, OpenDocument

Article I. The Parties

(1) Agreement Date. Set the official calendar date of this agreement between the concerned Business Owner and Recipient before continuing.

(2) Owner. The Business or Information Owner issuing this agreement to safeguard its proprietary information must be identified with its formal name.

(3) Business Address. Continue this statement with a record of the official mailing address of the Owner expecting compliance with this agreement.

(4) Recipient. The Agreement and Information Recipient, required to comply with this contract upon its execution, must be formally named. Additionally, make sure to document his or her full address. Typically, this will be an Employee, Contractor, or Consultant of the Business or Owner.

Article II. Term

(5) Start Period Date. While the date of this agreement’s effect will be represented by the signatures that each Party is required to supply, the first calendar date when its non-compete conditions must be complied with should also be dispensed. If this will be a calendar date after this document’s execution but before the termination of the Employee (Recipient) then, select the first checkbox presented in the second article. Once selected, a record of the first official date when the conditions of this agreement are imposed should be documented.

(6) Starting Upon An Event. Select the second checkbox statement to set the non-compete conditions to begin upon an event, such as the execution of this paperwork or the termination of the Employee (or Recipient). Make sure to define the event or date that must arrive for the conditions of this agreement to begin.

(7) Other Cause For Imposing Conditions. If a simple date or event does not accurately define when the non-compete requirements of this paperwork will be imposed, then define the process or conditions that will cause the protections of this paperwork to directly apply to both Parties (i.e. the non-compete conditions may be contingent upon the success of a project).

(8) End Period Date. The terms of this non-compete agreement, for the most part, cannot exist indefinitely since this can cripple the Recipient’s (i.e. an Employee) future career in his or her profession. Thus, in addition to protecting the Business or Owner, this document must safeguard the Recipient’s interests as well (required by law in most states). Thus a definition for the termination of the non-compete requirements of this agreement must be included. If the non-compete requirements will end on a specific date, then select the first checkbox statement on this topic and supply this termination date of the non-compete conditions that will be placed on these Parties.

(9) Period Of Effect. If a predetermined time period from the occurrence of a specific event will prompt the non-compete conditions to be satisfied to conclusion then, mark the second “End Period” option. This requires that a definition of the prompting event be defined.

(10) Specific Event For Termination. A process, date, or circumstance may be the prompting action for the non-compete requirements of this paperwork. If this is the case, then choose the third checkbox option and produce the circumstance, event, and any other relevant details defining how the non-compete requirements will terminate.

Article III. Geographical Limits

(11) No Geographical Limits. While the non-compete effect of this agreement should be assigned a distinct start and termination date or event, the physical area where both Parties will feel such effect will also need definition. If this is not applicable (i.e. a purely online business) or if there is no need to set a specific geographical location to limit the Parties, then select the first checkbox statement in Article III.

(12) Defined Geographical Limits. If there will be one (or more) geographical regions where the non-compete conditions in this agreement are to be imposed then use the space in the second checkbox statement to list every region (i.e. neighborhood, city, county, and/or state) where the non-compete requirements will be applied to the Recipient. Make sure to mark the checkbox to this option to apply the list of non-compete areas to the Recipient.

Article IV Non-Compete

(13) Protected Practices. Information the Company or Owner considers sensitive and confidential will need to be set to a protected status. To do so, select the first checkbox statement in the fourth article. Then continue the discussion on the restrictions the Recipient must agree to.

(14) Similar Business. If the Recipient will be expected to refrain from competing with the Owner’s products, services, and business practices in similar (or the same) industry then locate the “Similar Business” condition and mark the corresponding checkbox.

(15) General Use. In some cases, the business practices or information held by the Owner can enable the Recipient to compete unfairly with the Owner once the Recipient enters any area of the same industry. To prevent the Recipient from engaging in any similar products or services or related products and services to the Owner’s industry for the duration of the non-compete conditions, select the “General Use” checkbox.

(16) Specific Uses. If the Business or Owner seeks to only prevent the Recipient from engaging in certain practices, products, or services, then the second checkbox option labeled “Specific Uses” should be selected. Utilize the space provided at the end of this definition to document precisely what actions, procedures, information, or practices fall under the protected status of the Business Owner’s confidential or trade information.

(17) Competitors. The Company Owner can prevent the Recipient from working with all of his or her Competitors or only some of them. Before doing so, this level of protection to the Owner must be set by marking the appropriate checkbox.

(18) All Competitors. Select the “All Competitors” checkbox statement to prohibit the Recipient from associating or working with/for all of the Owner’s Competitors.

(19) Specific Competitors. To allow the Recipient to work with, work for, or associate with some Competitors but not others, select the second checkbox statement. Then list every Competitor the Recipient will be prohibited from working with or consulting.

(20) Employees. Naturally, the potential for the Owner’s intellectual property or confidential information will be at risk if the Recipient is permitted to engage or fraternize with the Company’s Employees after termination. For instance, a basic knowledge of the current events to the Owner’s corporate structure can create an unfair competitive edge to other Companies selling the same services or products as that of the Owner. To restrict the Recipient from engaging with the Owner’s Employees, select the “Employees” checkbox.

(21) All Employees. The “All Employees” option sets the non-compete conditions to prevent the Recipient from engaging with any of the Owners’ Employees (i.e. W2 Employees, Contractors, etc.).

(22) Specific  Employees. If the Owner only requires that some of his or her Employees be considered off-limits to the Recipient, then select the second checkbox statement and name each Employee or Affiliate the Recipient may not conduct business with or be associated with while the non-compete conditions of this agreement are actively in effect.

(23) Customers. Lastly, the non-compete requirement of this agreement can be applied to the Recipient’s behavior with the Owner’s Customers. The “Customers” option must be selected to include this condition.

(24) All Customers. To restrict the Recipient from engaging in business with all of the Owner’s Customers, mark the checkbox corresponding to the “All Customers” statement.

(25) Specific Customers. If the Owner has an extensive Customer population, then it may be considered unfair to restrict the Recipient from dealing with all the Employer’s Customers once the non-compete condition springs to effect. Therefore, to set the option of restricting the Recipient from conducting business with only certain Customers, mark the second checkbox option and use the space in the statement provided to name every Customer the Recipient may not engage in any business with for the duration the non-compete condition is imposed.

V. Purchase Of Release

(26) Cannot Purchase A Release. Some Owners may be willing to release the Recipient from the non-compete conditions that would be imposed on these Parties once this contract is signed. If this is not the case, then check or mark the “Cannot Purchase A Release” option in Article V. This will inform the Signature Recipient that once this agreement is signed, there will be no possibility of being released from the non-compete conditions above until the required term has run its full course.

(27) Can Purchase A Release. If the Company or Owner requiring the non-compete agreement to be placed in effect is willing to allow the Recipient to purchase a release from the conditions it places, then the second checkbox statement that is presented in Article V must be selected. After making this selection, you must produce the requirements and cost the Recipient must meet to purchase a release from liability for any non-competition behavior (defined by this agreement) that he or she may or will engage in.

VI. Confidential Information

(28) Releasing Information. Much of this agreement has focused on the potentially competitive behavior of its Recipient and the control the Owner wishes imposed to prevent the Recipient from contributing to, engaging in, or causing unfair competition on the market. The topic of sensitive information such as the Company or Owner’s intellectual property, trade secrets, proprietary information, and other confidential data should be addressed. If this agreement only pertains to practices and relationships that would cause unfair competition on the market and will not impose any restrictions on the dispersion of the Owner’s information, then select the first statement option.

(29) Protecting Information. If the Owner intends to keep all such confidential information internal and wishes to forbid the Recipient from dispensing it to Third Parties, then select the second checkbox statement in Article VI.

VII. Governing Law

(30) State Of Governance. This agreement must be fully compliant with the current legal atmosphere of the state whose court systems govern its content and effect. Review the conditions that have been set above to make sure they are compliant with the governing State, then name this State in Article VII.

Article VIII. Additional Terms

(31) Applicable Provisions. This agreement covers the majority of legal protections afforded in a general way. It may be tailored to comply with certain localities and it may be furnished with additional terms and conditions that would be allowed in some states but not others. If any additional terms, conditions, or options should be included then use the area in the eighth article to present them to both Signature Parties. This area may be continued to a properly dated, titled, and cited attachment.

IX. Entire Agreement

(32) Recipient Signature. The Recipient who must adhere to the above terms and conditions must provide a binding signature to prove his or her intent to comply with the content of this paperwork.

(33) Recipient Signature Date.

(34) Recipient Name In Print.

(35) Owner Signature. The Company or Owner is also required to sign this paperwork so that he or she can properly benefit from its protection. This will also obligate the Company or Owner to the contents and limits of this paperwork. For this agreement to be entered by a Business Entity (i.e. the Company or Owner is incorporated, and the information is owned by a corporation) then a duly authorized Representative of the Company or Owner may sign this paperwork on its behalf.

(36) Owner Signature Date.

(37) Owner Name In Print.