What is a non-compete agreement?
A non-compete agreement restricts someone from competing against a company after they leave. It usually binds an employee or the seller of a business. The restriction runs for a set time and within a set area. Its job is to protect trade secrets, client relationships, and goodwill.
A covenant not to compete only holds up if it is reasonable. Courts weigh the duration, the geography, and the range of activity restricted. They also want real consideration, meaning the person received something of value in return. Enforceability then varies enormously from one state to the next.
When do you need one?
The classic case is hiring an employee who will see trade secrets or key clients. A non-compete gives the employer a way to protect that access. It also matters when you sell a business, since the buyer needs the seller not to reopen next door. That sale context is the most reliably enforceable of all.
Contractors raise the same concern when they learn your methods and customers. For them, a contractor non-compete can fit, though scope matters even more. When the real worry is poaching clients or staff, a narrower tool often works better. A well-drafted release can also document a restriction that both sides agree to waive.
What it should include
Start with the parties: the company and the person being restricted, named in full. State the duration clearly, and keep it short, because shorter terms are far more enforceable. Tie the geography to where the business truly competes, not to the whole country. A restriction anchored to reality survives review.
Define the scope as specific activities, not "any competition anywhere." Spell out the consideration the person receives, whether a job, pay, or sale proceeds. Close with dated signatures from both parties. Noting that each side had a chance for independent legal review strengthens the document.
Is there a federal non-compete ban?
No. The Federal Trade Commission issued a rule in 2024 that would have banned most non-competes. A federal court struck it down before it took effect. In September 2025, the FTC dropped its appeals and let the rule be vacated.
So non-competes remain governed by state law, not a federal ban. The FTC has said it will still challenge specific abuses case by case. An overbroad non-compete can draw scrutiny even without a national rule. For now, your state's law is what decides enforceability.
Where non-competes are banned or limited
Four states void employee non-competes almost entirely: California, Minnesota, North Dakota, and Oklahoma. In those states, reach for a non-solicitation or an NDA instead. A growing group of states allows non-competes only above an income threshold. Colorado, Illinois, Maine, Maryland, Oregon, Virginia, and Washington all restrict them for lower-earning workers.
Even where non-competes are allowed, courts differ on how to handle an overbroad one. Some states blue-pencil, striking the offending words but enforcing the rest. Others reform the covenant, rewriting it down to a reasonable limit. A few take an all-or-nothing view and void the entire clause. The table below shows each state's rule, its duration limits, and the governing law.
Non-compete vs. non-solicitation vs. NDA
These three tools protect different things, and the narrower ones are easier to enforce. A non-compete bars competition outright, which is why courts scrutinize it hardest. A non-solicitation agreement only stops someone from poaching your clients or staff. It leaves them free to work in the field, so judges uphold it more readily.
An NDA protects confidential information rather than restricting where someone works. Many employers layer all three, matched to the real risk. If your goal is guarding client relationships, a non-solicitation often does the job. Save the non-compete for cases where nothing narrower will protect the business.
Common mistakes to avoid
The biggest mistake is using a non-compete in a state that bans them, which makes it dead on arrival. Close behind is an unreasonable term, whether a long duration or a nationwide radius. Both invite a court to strike or shrink the restriction. Overbroad scope, restricting far more activity than needed, has the same effect.
Forgetting consideration is a quieter trap. An existing employee usually needs something new, like a raise or promotion, for the covenant to bind. Relying on a non-compete when a non-solicitation would hold up better is another frequent misstep. Match the tool to the risk, and keep every term tied to a legitimate business interest.