Non-Compete Agreement

A non-compete agreement is a contract clause that restricts an employee from working for a competitor, or starting a competing business, for a set period of time and within a defined geographic area after leaving their job.

Enforceability varies dramatically by state, and the legal landscape around non-competes has shifted significantly in recent years, so what worked five years ago may not hold up today.

Are Non-Compete Agreements Enforceable Everywhere?

No. Several states, including California, North Dakota, and Oklahoma, ban most employee non-competes outright, regardless of how the agreement is written.

Many other states enforce them only if they're reasonable in scope, duration, and geography, and only when tied to a legitimate business interest like protecting trade secrets, not just limiting competition generally, a distinction Forbes has covered extensively as states tighten their rules.

The FTC's rulemaking activity on non-competes has also added uncertainty at the federal level, so employers should confirm current status before relying on an older agreement.

What Makes a Non-Compete More Likely to Be Enforceable?

What Are Common Alternatives to a Non-Compete?

• Non-solicitation agreements, which restrict poaching clients or employees rather than working for a competitor
• Non-disclosure agreements, protecting confidential information without restricting future employment
• Garden leave provisions, keeping someone on payroll during a transition period
• Strong retention practices, which often do more to prevent departures than a restrictive contract

How Should Employers Approach Non-Competes Today?

Given how much the legal landscape is shifting, blanket non-competes applied to every employee, regardless of role, carry meaningfully more legal risk than they used to, a shift SHRM has tracked closely.

Reserving them for roles with genuine access to trade secrets or high-value client relationships, and reviewing language regularly against current state and federal law, is the more defensible approach.

• Have employment counsel review agreements against current state law before rolling them out broadly
• Consider narrower non-solicitation or confidentiality terms instead, where they'd accomplish the same goal
• Avoid using a non-compete as a substitute for genuine retention efforts, supported instead by real engagement and career growth

How Should HR Manage Non-Compete Agreements Operationally?

Track which employees have signed a non-compete, what version, and when, since agreements often get updated as law changes and old versions can become unenforceable, and make signed copies accessible through employee self-service.

Keeping this documentation inside a single HRIS tied to each employee's record, established during onboarding, avoids the scramble of tracking down a signed copy months or years after someone leaves.

This connects closely to other terms in HR Cloud's HR glossary, especially non-disclosure agreements.

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Frequently Asked Questions

Q: Can an employer require an existing employee to sign a new non-compete?

A: Often yes, but many states require additional consideration beyond continued employment, such as a raise, bonus, or promotion, to make the new agreement enforceable.

Q: Do non-competes apply after a layoff?

A: Some states limit or void non-compete enforcement when the employer initiated the separation, particularly through a layoff rather than a for-cause termination.

Q: Can a non-compete restrict someone from an entire industry?

A: Overly broad restrictions covering an entire industry, rather than a specific competitor or narrow role, are among the most likely to be struck down by courts.

Q: Are non-competes enforceable for remote employees?

A: It depends on which state's law applies, which is often determined by where the employee actually works, not necessarily where the employer is headquartered.

Q: What happens if an employee violates a non-compete?

A: Remedies can include an injunction stopping the competing work, and in some cases monetary damages, though enforcement outcomes vary significantly by state and by how the agreement was drafted.