Updated January 25, 2023
A non-compete agreement prohibits someone from working in the same business (or line of work) for a specific time period and geographical area. A non-compete is commonly used for employment purposes, the sale of a business, and partnership dissolution.
An agreement should be drafted in accordance with state laws and written in a reasonable manner to protect a legitimate business interest.
Proposed Non-Compete Ban: Jan. 5, 2023
The Federal Trade Commission (FTC) has proposed a new rule that would declare non-compete agreements to be “an unfair method of competition,” prohibiting businesses from using them with their workers. Non-competes in the sale of a business would still be allowed.
The rule is not yet in effect, and must undergo at least 60 days of public comment and a 180-day waiting period; it may also be delayed by litigation. But if implemented, the rule could have far-reaching implications for firms and workers throughout the country, including for non-compete agreements that were already in effect before the rule was announced.
By State
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- 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.
- West Virginia
- Wisconsin
- Wyoming
By Type (3)
Independent Contractor Non-Compete Agreement – Allows a business that hires a contractor to prohibit them from working in the same scope of work.
Download: Adobe PDF, MS Word, OpenDocument
Employee Non-Compete Agreement – Protects an employer from an employee using learned trade secrets against them.
Download: Adobe PDF, MS Word, OpenDocument
Sale of a Business Non-Compete Agreement – Allows a buyer to protect themselves by requiring the seller not to compete in the same business being purchased.
Download: Adobe PDF, MS Word, OpenDocument
Table of Contents |
What is a Non-Compete Agreement?
A non-compete agreement prevents an individual from working in the same or similar business of another organization, usually a former employer. A non-compete cannot last forever, but it can be used to restrain someone from performing a profession for a specific duration and geographical area.
Requirements (5)
- Legitimate interest. The purpose cannot simply be to minimize competition. The person being restrained must pose a significant threat to the legitimate interests of a business.
- Consideration. There must be an exchange so that each party benefits from the transaction. This benefit is known as “consideration” and can be in the form of employment, compensation, etc.
- Duration. There must be a fixed term. The start date can begin with an event, such as the termination of employment.
- Geographical area. The area(s) where a person is restrained from conducting the same or similar business.
- Scope of work. The specific services the person is prevented must be defined.
When to Use
A non-compete is commonly used when:
- Obtaining employees
- Selling a business
- Dissolution of a partnership
- Hiring contractors
- Obtaining employees
- Looking for real estate (in a listing agreement).
Is It Legal?
- A business sale non-compete is legal in every state.
- An employee non-compete is legal in every state except:
Sample
Download: Adobe PDF, MS Word, OpenDocument
Non-Compete Agreement
1. THE PARTIES. This Non-Compete Agreement (“Agreement”) made this [DATE], is made between:
OWNER: [NAME] (“Owner”) with a mailing address of [ADDRESS] shall have ownership of this Agreement under which:
RECIPIENT: [NAME] (“Recipient”) with a mailing address of [ADDRESS] shall be bound to the covenants mentioned in this Agreement.
Hereinafter the Owner and Recipient shall be known separately as a “Party” and together as the “Parties.”
2. CONSIDERATION. In exchange for the Non-Compete, the Recipient shall receive the following consideration: [CONSIDERATION]
3. TERM. The Recipient shall be bound to this Agreement, specifically, the terms of this Agreement for:
Start Period: (check one)
☐ – Date of [DATE]
☐ – Beginning immediately after: [EVENT] (“Event”).
☐ – Other. [OTHER]
End Period: (check one)
☐ – Date of [DATE]
☐ – [#] months after the Event.
☐ – Other. [OTHER]
The start period and end period shall collectively be known as the “Term.”
4. GEOGRAPHICAL AREAS. The Recipient shall be bound to this Agreement for the following geographical areas: [GEOGRAPHICAL AREAS]
5. NON-COMPETE. The Owner shall possess, in accordance with the terms of this Agreement, the following protections from the Recipient engaging in the following activities: [SCOPE OF WORK]
6. NON-SOLICITATION. The Owner shall have the following protections from the Recipient in accordance with this Agreement: (check all that apply)
☐ – Employees. The Recipient shall be prohibited from engaging with any former or current employees, contractors, affiliates, and similar parties of the Owner under which a business relationship has been created.
☐ – Customers. The Recipient shall be prohibited from engaging with any former or current customers, clients, and similar parties of the Owner under which a business relationship has been created.
7. PURCHASE OF RELEASE. The Parties agree that the Recipient: (check one)
☐ – Can Purchase a Release. The Recipient has the option, during the Term or any period thereafter, to purchase and waive all liability under this Agreement for the sum of $[#] as payment to the Owner.
☐ – Cannot Purchase a Release. The Recipient has no option, during the Term or any period thereafter, to purchase the rights of this Agreement from the Owner for the purposes of waiving any liability or releasing themselves under this Agreement.
8. CONFIDENTIAL INFORMATION. The Owner and Recipient agree that the Recipient shall be prohibited from releasing Confidential Information. The Recipient shall be prohibited from expressing or sharing any and all technical and non-technical information provided by the Owner, including but not limited to: data or other proprietary information relating to products, inventions, plans, methods, processes, know-how, developmental or experimental work, computer programs, databases, authorship, customer lists (including names, buying habits or practices of any clients), names of vendors or suppliers, marketing methods, reports, analyses, business plans, financial information, statistical information, or any other subject matter pertaining to any business of the Owner or any of its respective clients, consultants, or licensees that is disclosed to the Recipient under the terms of this Agreement.
Limitations. Confidential Information shall not include information which:
- Has become generally known to the public through no wrongful act by the Recipient;
- Has been rightfully received by Recipient from a third party without restriction on disclosure and without breach of an obligation of confidentiality running either directly or indirectly to the Recipient;
- Has been approved for release to the general public by written authorization of the Owner;
- Has been disclosed pursuant to the requirement of a governmental agency or a court of law without similar restrictions or other protections against public disclosure; or,
- Has been independently developed by the Recipient without use, directly or indirectly, of the Owner’s Confidential Information.
Employees and Contractors. The Recipient agrees to disclose Confidential Information to any agents, affiliates, directors, officers, or any other employees, collectively known as the “Employees,” solely on a need-to-know basis and represents that such Employees have signed appropriate non-disclosure agreements or have taken appropriate measures imposing on such Employees a duty to third parties:
-
- To hold any third-party proprietary information received by such Employees in the strictest confidence;
- Not to disclose such third-party Confidential Information to any other third party; and
- Not to use such Confidential Information for the benefit of anyone other than to whom it belongs without the prior express written authorization of the Owner.
Best Practices. The Recipient acknowledges they may or may not have access to the Owner’s Confidential Information and agrees that it shall not directly or indirectly divulge, disclose, or communicate any of the Confidential Information to any third party, except as may be required during any formal business association or dealings on behalf of the Owner for any event, with the prior written approval of the Owner. The Recipient acknowledges that no license of the Confidential Information, by implication or otherwise, is granted to the Recipient by reason of this Agreement. Additionally, the Recipient acknowledges that it may only use the Confidential Information in connection with its business dealings with the Owner and for no other purpose without the prior written consent of the Owner.
Records. The Recipient further agrees that all Confidential Information, including, without limitation, any documents, files, reports, notebooks, samples, lists, correspondences, software, or other written or graphic records provided by the Owner or produced using the Owner’s Confidential Information, will be held strictly confidential and returned upon request to the Owner.
Return of Materials. Upon termination or expiration of this Agreement, or upon written request of the Owner, the Recipient shall promptly return to the Owner all physical and digital materials representing the Owner’s Confidential Information and all copies thereof. The Owner shall notify the Recipient immediately upon discovery of any loss or unauthorized disclosure of the Confidential Information.
9. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of [STATE] without reference to its conflicts of laws principles. Any disputes arising from or related to the subject matter of this Agreement shall be heard in a court of appropriate jurisdiction of the Owner’s principal office, and the Parties hereby consent to the jurisdiction and venue of these courts.
Severability. If any provisions of this Agreement or its applications are held to be invalid, illegal, or unenforceable in any respect, the validity, legality, or enforceability of any other provisions and applications herein shall not in any way be affected or impaired.
Remedies. Should the Recipient breach any of the provisions of this Agreement, the Recipient agrees to reimburse the Owner for any loss or expenses incurred by the Owner as a result of any prohibited use or activity under this Agreement, including, without limitation, court costs and reasonable attorney’s fees incurred by the Owner in enforcing the provisions hereof. The Recipient further agrees that any unauthorized use or activity shall result in irreparable damage to the Owner and that the Owner shall be entitled to an award by any court of competent jurisdiction of a temporary restraining order and/or preliminary injunction against such unauthorized use or activity by the Recipient without the need to post a bond. Such remedies, however, shall not be deemed to be the exclusive remedies for any breach of this Agreement but shall be in addition to all other remedies available at law of equity.
10. ADDITIONAL TERMS. [ADDITIONAL TERMS & CONDITIONS]
11. ENTIRE AGREEMENT. This Agreement represents the entire agreement between the Parties and may only be modified by the signature of both Parties hereto.
Owner Signature: _____________________________ Date: _________________
Print Name: _____________________________
Recipient Signature: _____________________________ Date: _________________
Print Name: _____________________________
For the comprehensive document, please download the free form or hit “create document.”
Non-Compete Clause
A non-compete clause (NCC) prohibits a party from disclosing or using proprietary information that has been learned for their own benefit. Such clauses are usually included in a different type of agreement like an employment contract or business purchase agreement.
While more concise than a fully-fledged non-compete agreement, if written correctly, clauses can still be effective in protecting a business from someone else who knows and understands trade secrets from competing against them.
Sample Clause
Non-Compete. It is understood by all parties that [NAME OF INDIVIDUAL] is already or shall be made aware of proprietary information, including trade secrets, which could be harmful to the other interested parties in this Agreement. In exchange for the aforementioned consideration, [NAME OF INDIVIDUAL] agrees not to compete under the following terms:
- Scope of work. For the specific business or practice of: [SERVICES].
- Term. For the duration of: [TERM].
- Geographical areas. Strictly for the areas of: [JURISDICTION].
How to Get a Non-Compete (6 steps)
- Look Up the Laws in Your State
- Decide What to Prohibit
- Choose Geographical Areas
- Select a Time Period
- Adding a Non-Solicitation Clause
- Signing
Step 1 – Look Up the Laws in Your State
It is recommended to search the laws in your state to ensure that a non-compete is enforceable. Even if a non-compete for employment is unenforceable, it is legal in every state for the sale of a business or in a partnership dissolution.
Step 2 – Decide What to Prohibit
Decide the specific scope of work the employee will be prohibited from working. It is important to make sure the limitation is as specific as possible. If the non-compete is too broad, it will be deemed unreasonable by a local court.
For example, in a Louisiana case (Paradigm Health System v. Faust (2017)), an agreement was ruled too broad when a physician was prohibited from the entire “practice of medicine” rather than “pain management,” which was his field.
Step 3 – Regulate Geographical Areas
In many states, the geographical limitation can only be for the areas the employer or employee served. In addition, the geographic limit should not impose a greater area than is necessary to protect the goodwill of the business.
What is deemed “reasonable” is decided by a court in tandem with the time period selected. If a greater geographic area, the time period must be lesser, and vice-versa.
Step 4 – Time Period
Depends on the state, but the time period of a non-compete is usually between one to five years. Generally, the states allow for a non-compete for a sale of a business to be longer.
Step 5 – Adding a Non-Solicitation Clause
Adding a non-solicitation clause gives an employer the protection that an employee will not obtain their current or past co-workers and customers. This is often deemed as a “protectable business interest” by a state and differs under the law from a general non-compete clause.
Step 6 – Signing
It is best to sign a non-compete at the same time as an offer of employment. In some states, this is required. For example, if a non-compete is presented after the employment period begins, the agreement could be ruled unenforceable.
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 seek legal action.
Release of Liability
When seeking a release of liability, there must be consideration made such as a monetary payment. Therefore, it is best to approach an employer with the reasons why the non-compete is not valid and determine if there is a price they will accept for a release.
Non-Compete Release – To free a person of liability and hold harmless regarding a non-compete.
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 five 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 with.
- 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.
State Laws
| State | Legally Enforceable to Employees? | Maximum “Reasonable” Term | Blue Penciling / Reformation Allowed? |
| Alabama | Yes, if it preserves a protectable interest. Prohibited for “lawful professions“. | 2 years | Yes |
| Alaska | Yes, to protect trade secrets by “reasonable” means. | 5 years | Yes |
| Arizona | Yes, except for attorneys, broadcast employees, and physicians. | 3 years if “special training or additional education is required.” Otherwise, 2 years or less is required. | Yes |
| Arkansas | Yes, if it is ancillary to an employment contract that preserves a “protectable business interest.” Cannot be written in a manner greater than necessary to protect the business. | 2 years | Yes |
| California | Strictly forbidden for employment purposes. Includes remote workers and independent contractors. | 5 years (for the sale of a business) | Courts will not modify a non-compete that is too broad or unreasonable. May only “reform contracts only where the parties have made a mistake and not for the purpose of saving an illegal contract.” |
| Colorado | Yes, but only for the protection of trade secrets, employees who have worked at least 2 years, employees with executive positions, and for a seller of a business. | 1 year | Blue penciling is specifically not allowed and the courts have stated a contract “cannot contractually obligate a court to blue pencil noncompete provisions.” |
| Connecticut | Yes, except for attorneys, broadcast employees, homemakers (incl. companions and home health services), physicians, and security guards. | 5 years | Allowed if the non-compete includes a severability clause allowing the court to modify the agreement. |
| Delaware | Yes, except for attorneys and physicians. | 1 year | No |
| Florida | Yes, if it is in writing and proves there is a legitimate business interest. Attorneys are prohibited from entering a non-compete. | 6 months to 2 years for employees, contractors, and partners or shareholders in a business entity; 1 to 3 years for a former distributor, dealer, franchisee, or licensee of a trademark; and 3 to 7 years for the sale of a business. | Yes |
| Georgia | Yes, but only for employees that: solicit customers, engage in sales, manage the enterprise, manage 2 or more employees, can hire and fire, and have managerial responsibility. Attorneys are prohibited from entering a non-compete. | 2 years for employees and 5 years for the sale of a business. | Allowed but a court cannot write new language, only strikeout terms that make the non-compete unenforceable. |
| Hawaii | Yes, but must pass the reasonable test. Prohibited for employees in the technology business. | 3 years | No laws |
| Idaho | Yes, for “key employees” and “key independent contractors” and must protect a legitimate business interest. | 18 months unless consideration is offered to extend longer. | Yes |
| Illinois | Yes, it must be to protect a legitimate business interest and reasonable. Employee requirements include must be making $75,000 or more and have worked for at least 2 years with professional and financial benefits. | 5 years | Yes, may reform or sever provisions. |
| Indiana | Yes and determined by (1) whether the restrictive covenant protects a legitimate interest; and (2) whether the restrictive covenant is reasonable in scope as to the time, activity, and geographic area restricted. Prohibited for attorneys and strict limitations on physicians. | 2 years. Cannot enter a mile range, must include specific municipalities. | Yes, may delete words, terms, or sections. Cannot write new conditions. |
| Iowa | If the restriction is reasonably necessary for the protection of the employer’s business; If it is unreasonably restrictive of the employee’s rights; and Is it prejudicial to the public interest. | 3 years | Yes, although the court may not re-write terms. |
| Kansas | Yes, if it is reasonable under the circumstances and not adverse to the public welfare. Prohibited for attorneys. | 2 years | Yes |
| Kentucky | Yes, if consideration is given to the recipient. Prohibited for attorneys. | 5 years | Yes |
| Louisiana | Yes, if it mentions specific parishes and localities (and the employer must operate in such areas); products and services refrained from working; and cannot be for longer than 2 years. Prohitbited for car salespersons and attorneys. | 2 years | Yes, if it mentions a geographical area. |
| Maine | Yes, if it is reasonable and no broader then to protect the employer’s legitimate business interests. A notice must be given at least 3 days prior to an offer of employment. Cannot go into effect until 1 year after the start of employment or 6 months after the agreement is signed, whichever is later. Prohibited against low-wage workers (below 400% of the federal poverty level); broadcasting employees; and attorneys. | 4 years | Yes |
| Maryland | Yes, with the exception of low-wage employees making $15 per hour or less $31,200 annually or less. Prohibited for attorneys. | 3 years | Yes |
| Massachusetts | Yes, if it meets the following: right to legal counsel, signed 10 days prior to employment, protects business interests, and must pay at least 50% of the employee’s salary during the non-compete period.
Prohibited for non-exempt employees under FLSA, undergraduates or interns, employees terminated without cause, minors (18 or under), nurses, social workers, broadcast employees, attorneys, and physicians. |
12 months | Yes |
| Michigan | Yes, if it is “reasonable as to its duration, geographical area, and the type of employment or line of business.” Prohibited for attorneys. | 6 months to 3 years | Yes |
| Minnesota | Yes, if it is reasonable and mentioned “at the inception of the employment relationship.” Prohibited for attorneys. | 2 years for employment-related. 10 years for the sale of a buisness. | Yes |
| Mississippi | Yes, if it doesn’t grant “unfair competition by an ex-employee as as by unreasonable oppression by an employer.” Prohibited for attorneys. | 6 years | Yes |
| Missouri | Yes, it must be “no more restrictive than is necessary to protect the legitimate interests of the employer.” Prohibited for secretarial or clerical services and for attorneys. | 1 year | Yes |
| Montana | Not permitted for employment purposes. Is enforceable for a seller of a business, partnership dissolution, and business agreements (with conditions). | 12 months | Yes |
| Nebraska | Yes, if it follows 3 requirements: (1) is the restriction reasonable in the sense that it is not injurious to the public; (2) is the restriction reasonable in the sense that it is no greater than is reasonably necessary to protect the employer in some legitimate interest; and (3) is the restriction reasonable in the sense that it is not unduly harsh and oppressive on the employee. Prohibited for attorneys. | 3 years | No |
| Nevada | Yes if it is supported by consideration, restraint, no undue hardship, and appropriate restrictions. Prohibited for hourly workers and attorneys. | 2 years (cannot be for an area larger than where the employer services its customers) | No |
| New Hampshire | Yes except for low-wage employees, physicians, attorneys, and must be presented at time of employment. | 5 years | Yes |
| New Jersey | Yes as long as it: (1) protects the legitimate interests of the employer; (2) Imposes no undue hardship on the employee; and (3) is not injurious to the public. Prohibited for psychologists and attorneys. | 3 years | Yes |
| New Mexico | Yes, if the non-compete if not meant to “stifle competition” and is no more restrictive than required to protect the interests of the employer. Prohibited for health practitioners. | 3 years | No definitive ruling has been made by a New Mexico court. |
| New York | Yes, if it passes the three-pronged test. Prohibited for attorneys. | 2 years for employment-related. 5 years for the sale of a business. | Yes but only if the “unenforceable portion is not an essential part of the agreed exchange.” |
| North Carolina | Yes if it is (1) In writing (per § 75-4); (2) Reasonable as to the time and territory; (3) Made a part of the employment contract; (4) Based on valuable consideration; and (5) Designed to protect a legitimate business interest of the employer. Prohibited for attorneys and locksmiths. | 5 years for “extreme conditions.” Time and territory restrictions are viewed in tandem. | Yes if the agreement includes a severability clause. |
| North Dakota | Not for employment purposes. Allowed for the sale of a business or the dissolution of an entity. | 10 years | Yes |
| Ohio | Yes as long as it includes “geographic and temporal restrictions.” Prohibited for attorneys. | 5 years | Yes |
| Oklahoma | Not for employment purposes. Allowed for for the sale of a business or a partnership dissolution. | 5 years | Yes |
| Oregon | Yes, but comes with statutory limitations and must be for a protectable interest. Prohibited for attorneys. | 12 months | Yes |
| Pennsylvania | Yes, if the restrictions are reasonable necessary for the protection of the employer and limited for a duration and geographic extent. Prohibited for attorneys. | 2 years for employment, 5 years for the sale of a business. | Yes |
| Rhode Island | Yes, except for non-exempt workers under FLSA, interns, minor, physicians, and attorneys. | 1 year | Follows the partial-enforcement rule. |
| South Carolina | Yes, if it is reasonable, not unduly harsh to an employee, limited to a time and place, and supported by valuable consideration. Prohibited for attorneys. | 3 years | Yes |
| South Dakota | Yes, except for health care providers and attorneys. | 2 years | Yes |
| Tennessee | Yes, except for physicians and attorneys. | 2 years | Yes |
| Texas | Yes, if it’s signed at the time of employment (unless additional consideration is given during employment) and must be limited ti time, geographical area, and scope of activity. Prohibited for physicians and attorneys. | 2 to 5 years is deemed a “reasonable time.” | Yes |
| Utah | Yes, if it is “reasonable.” Prohibited for broadcast employees and attorneys. | 1 year for employees, 5 years for the sale of a business. | Utah courts have not specifically ruled. |
| Vermont | Yes, if the restraint is not greater than to protect the business and does not outweigh the employee’s hardship or public policy. Prohibited for attorneys. | 5 years for employment, 3 years for the sale of a business. | No |
| Virginia | Yes, except for low-wage employees and attorneys. | 3 years for employment, 5 years for the sale of a business, and 5 years for a partner dissolution. | No |
| Washington | Yes, except employees must be paid at least $100,000 (adjusted for inflation based on the rate since 2020); Ind. contractors are limited if the total cost of the project is more than $250,000; Performers are limited for a maximum of 3 days; and attorneys are prohibited. | 18 months unless a party can give “clear and convincing evidence” that a longer duration is merited. | Yes |
| Washington D.C. | No, except for the sale of a business. | 2 years for the sale of a business. | Yes |
| West Virginia | Yes, except there are limitations for physicians. Strictly prohibited for attorneys. | 5 years | Yes |
| Wisconsin | Yes, as long as it passes the 5-point test. Prohibited for attorneys. | 2 years for employment, 7 years for the sale of a business. | No |
| Wyoming | Yes, if it is (1) In writing; (2) Part of a contract of employment; (3) Based on reasonable consideration; (4) Reasonable in duration and geographical limitations; and (5) Not against public policy. Prohibited for attorneys. | 1 year | No |