A Non-Compete Agreement (also called a covenant not to compete or restrictive covenant) is a legally binding contract in which one party, typically an employee or business seller, agrees not to engage in competitive business activities against the other party for a specified period of time within a defined geographic area after the employment or business relationship ends. The agreement protects legitimate business interests including trade secrets, customer relationships, specialized training investments, and goodwill.

The enforceability of non-compete agreements varies dramatically across states, making jurisdiction one of the most important considerations. California (Business and Professions Code Section 16600) bans non-competes for employees almost entirely, with narrow exceptions for business sale contexts. Oklahoma (15 O.S. Section 219A) and North Dakota (Century Code Section 9-08-06) similarly prohibit employee non-competes. In contrast, states like Florida (Section 542.335) explicitly authorize non-competes and provide a statutory framework with presumptively reasonable time periods. The FTC proposed a nationwide ban on non-compete clauses in 2024, though its implementation has faced legal challenges.

Most states that permit non-competes apply a reasonableness test examining three factors: the duration of the restriction (typically one to two years), the geographic scope (limited to areas where the employer actually conducts business), and the scope of restricted activities (narrowly tailored to the employee's actual role). Courts in many jurisdictions, including Texas, apply a reformation doctrine that allows judges to modify overly broad non-competes to reasonable terms rather than invalidating them entirely. Other states, like Virginia, follow a strict construction approach where overbroad agreements are voided completely.

Non-competes are distinct from non-solicitation agreements, which only restrict contacting specific clients or employees, and non-disclosure agreements, which protect confidential information. While all three are restrictive covenants, non-competes impose the broadest restriction by prohibiting the individual from working in the same industry or field altogether.

A Non-Compete Agreement is necessary in several specific business situations. An employer is hiring a senior executive, sales director, or key technical employee who will gain access to the company's most sensitive trade secrets, strategic plans, customer relationships, and proprietary methodologies. The non-compete protects against the employee joining a direct competitor and leveraging that knowledge to divert business.

A business owner is selling their company and the buyer requires the seller to agree not to open a competing business in the same market for a defined period. Under the Restatement (Second) of Contracts Section 188, courts consistently enforce non-competes in business sale contexts with greater latitude on scope and duration than employment non-competes because the seller receives substantial consideration (the purchase price) in exchange for the restriction.

A company is investing significant resources in specialized training, certifications, or professional development for an employee and needs assurance that the employee will not immediately take those skills to a competitor. A medical practice, law firm, or professional services firm is bringing on an associate or partner who will develop close relationships with the firm's client base and must be restricted from taking those clients to a competing practice upon departure.

A franchisor is granting franchise rights and must prevent the franchisee from operating a competing business during the franchise term and for a reasonable period after termination to protect the brand and territorial exclusivity. A technology company is engaging a contractor who will develop proprietary systems and must prevent the contractor from building identical solutions for competing clients.

An enforceable Non-Compete Agreement requires careful drafting of several essential elements, with each provision directly impacting the agreement's enforceability in court. The restricted activities clause must precisely define what competitive activities are prohibited, limited to the specific industry, business line, or role that the employee actually performed. Courts routinely strike down agreements that broadly prohibit working in an entire industry when the employee's role was limited to a specific function within that industry.

The geographic scope must be reasonably limited to the territory where the employer actually conducts business or where the employee had direct involvement. A nationwide restriction for a regional sales representative would likely be deemed unreasonable, while the same scope might be appropriate for a C-suite executive of a national company. Some states, including Texas under Business and Commerce Code Section 15.50, allow courts to reform geographic scope rather than invalidate the entire agreement.

The duration must be reasonable, with most courts accepting one to two years for employment contexts and up to five years for business sale non-competes. Under Florida Statute Section 542.335, restrictions of six months or less are presumptively reasonable, while those exceeding two years carry a presumption of unreasonableness that the employer must rebut.

Consideration is a critical enforceability factor. For new employees, the job itself typically constitutes adequate consideration. For existing employees asked to sign a non-compete mid-employment, additional consideration such as a raise, promotion, bonus, or continued employment must be provided, with requirements varying by state. The agreement should include a severability clause allowing courts to enforce remaining provisions if one is struck down, a choice of law provision specifying the governing jurisdiction, and a remedies clause establishing the right to injunctive relief and liquidated damages. Garden leave provisions, requiring the employer to pay the employee's salary during the restriction period, significantly increase enforceability across all jurisdictions.