Non-Compete vs Non-Solicitation Agreement: Which Do You Need?

Employers often use restrictive covenants to protect their business interests when employees leave. The two most common types are Non-Compete Agreements (also called non-competition agreements or covenants not to compete) and Non-Solicitation Agreements. While both restrict what a departing employee can do, they differ significantly in scope, enforceability, and current legal trends.

Scope: The Core Difference

A Non-Compete Agreement is a broad restriction that prohibits a former employee from working for a competitor or starting a competing business within a specified geographic area for a specified period after leaving the employer. It restricts the employee's ability to earn a living in their field entirely, regardless of whether they use confidential information or contact former clients.

A Non-Solicitation Agreement is a narrower restriction that prohibits a former employee from soliciting specific people or entities, typically the employer's clients, customers, or other employees. It does not prevent the employee from working for a competitor; it only prevents them from actively reaching out to the employer's relationships to take business or recruit personnel away.

There are two common types of non-solicitation clauses. A customer non-solicitation clause prohibits the former employee from soliciting the employer's clients or customers, usually limited to those with whom the employee had a relationship during their employment. An employee non-solicitation clause (also called a non-recruitment clause) prohibits the former employee from recruiting or hiring the employer's employees.

Enforceability Trends

The enforceability landscape for these two types of agreements has diverged dramatically in recent years, with non-compete agreements facing increasing hostility from legislatures and courts while non-solicitation agreements remain generally enforceable.

Non-Compete Agreements are subject to heightened scrutiny because they restrict an individual's fundamental right to earn a living. Courts traditionally evaluate non-competes using a reasonableness test that considers whether the restriction protects a legitimate business interest (trade secrets, confidential information, customer relationships, specialized training), whether the scope is reasonable in terms of duration (typically no more than one to two years), geographic area, and scope of restricted activities, whether the restriction imposes an undue hardship on the employee, and whether the restriction is harmful to the public interest.

However, the trend is clearly moving against non-compete agreements. As of 2025, multiple states have enacted significant restrictions on non-compete agreements. California has banned non-compete agreements entirely since 1872 under Business and Professions Code Section 16600. California courts will not enforce non-competes even if the agreement was signed in another state and even if the employee agreed to apply another state's law. North Dakota, Oklahoma, and Minnesota have similarly banned non-competes for employees. Colorado, Illinois, Maine, Maryland, Massachusetts, New Hampshire, Oregon, Rhode Island, Virginia, Washington, and Washington D.C. have enacted laws restricting non-competes based on employee income thresholds, limiting them to workers earning above a specified amount.

Non-Solicitation Agreements are generally more enforceable because they are narrower in scope. They do not prevent the employee from working in their field; they only prevent targeted contact with specific people. Courts view this as a more proportionate way to protect legitimate business interests. Even in California, where non-competes are completely banned, the enforceability of non-solicitation agreements is more nuanced. California courts have struck down customer non-solicitation agreements as invalid restraints on trade, but employee non-solicitation agreements may be enforceable if narrowly drafted.

The FTC Proposed Rule

In January 2023, the Federal Trade Commission (FTC) proposed a rule that would ban non-compete agreements nationwide for virtually all workers. The proposed rule would prohibit employers from entering into non-compete clauses with workers, require employers to rescind existing non-competes, and require employers to notify affected workers that their non-competes are no longer enforceable.

The FTC's final rule was issued in April 2024 but was subsequently blocked by federal courts. The U.S. District Court for the Northern District of Texas in Ryan LLC v. FTC ruled that the FTC exceeded its authority. As of early 2026, the legal status of the FTC rule remains uncertain, but the trend toward restricting non-competes continues at the state level regardless of the federal outcome.

Importantly, the FTC's proposed rule specifically excluded non-solicitation agreements from the ban, recognizing them as a more targeted and proportionate tool for protecting business interests.

Reasonable Scope, Duration, and Geography

For both types of agreements, reasonableness is key to enforceability.

Duration for non-compete agreements is typically limited to six months to two years after termination. Courts are more likely to enforce shorter periods. For non-solicitation agreements, courts may accept slightly longer periods, typically one to two years, because the restriction is narrower.

Geographic scope is critical for non-compete agreements. A restaurant chain cannot reasonably prevent a former manager from working at any restaurant in the entire country. The geographic restriction should correspond to the employer's actual competitive market. For non-solicitation agreements, geographic restrictions are less relevant because the restriction is defined by relationships, not territory. A non-solicitation agreement may prohibit contact with specific clients regardless of location.

Scope of restricted activities should be clearly defined and limited to the employee's actual role. A non-compete for a software engineer should not prevent them from working in all of technology, only in the specific area of technology where they had access to trade secrets or competitive information.

Employee vs Independent Contractor Context

Non-compete and non-solicitation agreements can apply to both employees and independent contractors, but the analysis differs.

For employees, these agreements are typically signed as a condition of employment or in exchange for continued employment, a promotion, or additional compensation. Some states require separate consideration beyond continued employment for non-compete agreements signed after the start of employment.

For independent contractors, restrictive covenants may be more difficult to enforce because the contractor is, by definition, an independent business. Overly broad non-compete agreements with independent contractors can also raise antitrust concerns, as they may constitute unreasonable restraints on trade. Non-solicitation agreements are generally more appropriate and enforceable in the contractor context.

Garden Leave

Garden leave (also called garden leave clauses or gardening leave) is an alternative approach that addresses some of the concerns with traditional non-compete agreements. Under a garden leave provision, the employee remains employed (and paid) during the non-compete period but is not required to perform work. The employee is essentially on paid leave, prevented from working for a competitor but receiving continued compensation.

Garden leave is more common in the United Kingdom and has been gaining traction in the United States. Courts are more likely to enforce non-competes that include garden leave provisions because the employee is not suffering financial hardship during the restricted period. However, garden leave increases the cost to the employer.

Key Takeaways

• Non-Compete Agreements broadly restrict working for competitors; Non-Solicitation Agreements target specific relationships.\n- Non-solicitation agreements are generally more enforceable because they are narrower in scope.\n- California completely bans non-competes; many other states have enacted significant restrictions based on income thresholds.\n- The FTC proposed a nationwide ban on non-competes but excluded non-solicitation agreements.\n- For both types, reasonableness in scope, duration, and geography is critical to enforceability.\n- Non-solicitation agreements are often a more practical and defensible alternative to non-competes.\n- Garden leave provisions can improve the enforceability of non-competes by compensating the employee during the restricted period.\n- Given the legal trend against non-competes, employers should consider whether a well-drafted non-solicitation agreement adequately protects their interests.