A non-compete agreement is a restraint against a person from working in the same scope of work for a specific duration and geographical location. It is commonly used by employers to protect the legitimate interests of the business including proprietary information, trade secrets, and goodwill.
On Jan. 5, 2023, the Federal Trade Commission proposed a new rule that would prohibit the use of non-compete agreements and non-compete clauses in employment agreements. (They would still be permitted in the sale of a business.) If implemented, the rule would upend existing non-compete laws in almost every state, and non-compete agreements that were already in effect at the time the rule was created would need to be modified or eliminated.
However, the rule has not yet been implemented. At a minimum, it faces a 60-day public comment period and a 180-day waiting period. It may also be challenged in court.
Table of Contents
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- Washington D.C.
- West Virginia
A non-compete is a covenant that restricts a person’s ability to perform a particular service or specific industry. It’s commonly used to prohibit an employee from working in the same field as an employer after their departure. A non-compete is required to have consideration. Therefore, it’s usually made part of an employment contract.
To protect the legitimate interests of a business, which commonly include:
- Confidential and proprietary information involving trade secrets.
- Customer information.
- Relationships with vendors.
A non-compete is enforceable in all 50 states but is not allowed for employment purposes in California, North Dakota, Oklahoma, and Washington D.C. (see state laws).
Non-Compete. It is understood and agreed that [NAME OF PERSON] shall be held to a non-compete restraint for the specific activities of [SCOPE OF WORK]. Said restraint shall be for the geographical areas of [TERRITORIAL LIMITS] and be in effect for the term of this Agreement and [#] months thereafter. Any promises, benefits, or payments made to the party that is affected by this section shall act as consideration for the non-compete restraint.
Consideration is a payment, benefit, or promise given in exchange for goods, services, or in this case a non-compete restraint. It is required to be part of every non-compete covenant and can be in the form of cash payment or continued employment.
Severability Clause. The Parties acknowledge that this Agreement was made in good faith and in the event that any provisions of this Agreement are deemed to be overly broad, unreasonable, invalid, or unenforceable, only the particular portion shall be invalid and not the entire Agreement. Both Parties agree to allow a court under competent jurisdiction to blue-pencil, reform, or amend this Agreement in accordance with state law.
Blue penciling allows a court to strike out, reform, or amend an otherwise unenforceable non-compete covenant to make it legal under state law. It is allowed in 39 of 50 states if the non-compete was written in good faith and does not impose undue hardships on the person affected.
I. THE PARTIES. This Non-Compete Agreement (“Agreement”) made this [DATE], is made between:
Owner: [OWNER’S NAME], (“Owner”) with a mailing address of [MAILING ADDRESS], and
Recipient: [RECIPIENT’S NAME], (“Recipient”) with a mailing address of [MAILING ADDRESS].
This Agreement is for the purpose of employment in order to protect the legitimate business interests of the Owner.
II. CONSIDERATION. In exchange for the non-compete, the Recipient shall receive the following consideration: [CONSIDERATION]
III. NON-COMPETE. The Recipient shall be prohibited from participating in the following businesses, services, and industries: [NON-COMPETE]
IV. TERM. The Recipient shall be bound to the Agreement for: [START AND END PERIODS]
V. GEOGRAPHICAL LIMITS. The Recipient shall be bound to the non-compete within the following areas: [GEOGRAPHICAL AREAS]
VI. NON-SOLICITATION. The Recipient shall be prohibited from engaging with all employees and customers of the Owner during the term of this Agreement.
VII. CONFIDENTIAL INFORMATION. At no time during the term of this Agreement or after will the Recipient be permitted to divulge, disclose, or use for their own benefit any information that is proprietary to the Owner.
VIII. SEVERABILITY. If any provision of this Agreement is deemed to be invalid or unenforceable, the remainder of this Agreement shall be enforced to the maximum extent of the law.
IX. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of [GOVERNING LAW].
X. ENTIRE AGREEMENT. This Agreement represents the entire agreement between the Owner and Recipient and may only be modified by the signature of both parties hereto.
Owner Signature: ___________________ Date: __________
Print Name: ___________________
Recipient Signature: ___________________ Date: __________
Print Name: ___________________