Non-Compete Agreement
A contract restricting an employee's ability to work for competitors or start a competing business for a defined period and geographic area after leaving a job.
A non-compete agreement (or covenant not to compete) is a contractual restriction that limits an employee's post-employment activity. Employers use them to protect trade secrets, client relationships, and investments in training. Enforceability varies dramatically by state: California, North Dakota, Oklahoma, and Minnesota ban non-competes almost entirely; most other states enforce them if they are reasonable in scope, duration, and geography.
"Reasonableness" is the key test: courts scrutinize whether the restrictions protect a legitimate business interest (not just market competition suppression), whether the geographic area reflects actual business operations, whether the duration (6 months to 2 years is typical) is proportionate, and whether the employee received adequate consideration (a job offer with the agreement upfront, or additional compensation for signing after employment began).
The FTC issued a final rule in 2024 banning most non-competes for employees nationally; this rule is being litigated in federal courts and its ultimate fate is uncertain. If you're asked to sign a non-compete, have an attorney review it before signing — the restrictions may significantly limit your future earning capacity, and many provisions are routinely overreached and unenforceable.
Real-World Example
The software engineer's non-compete prohibited working for a competitor in "North America" for three years; the court reduced the geographic scope to the two states where the employer actually operated and the duration to 12 months, finding the original terms unreasonably broad.