Noncompete

What is a noncompete agreement?

A noncompete agreement is a contract between an employer and an employee, wherein the employee agrees not to seek employment with one of the employer’s competitors both during their tenure and for a specified length of time afterward. Noncompete agreements are also sometimes referred to as noncompete clauses and noncompete covenants.

Noncompetes are intended to protect employers by making it harder for employees to share trade secrets, contacts, or knowledge they gained while working for a company with one of that company’s direct competitors. However, the enforceability of noncompete agreements varies from state to state, and certain states won’t enforce noncompete agreements at all.

In April 2024, the Federal Trade Commission issued a final ruling to ban noncompete agreements entirely in order to protect workers’ rights and promote labor market competition. However, a court order overturned that decision, and the future enforceability of noncompetes is currently unclear.

Noncompete FAQs

What are some alternatives to a noncompete agreement?

Nondisclosure agreements and nonsolicitation agreements are two potential alternatives to a noncompete. Like noncompetes, these agreements seek to protect employers from potential loss of business, but they differ a bit in scope and intent.

Nondisclosure agreements—also known as NDAs—prohibit employees from sharing proprietary information, such as trade secrets, but they typically do not bar employees from seeking employment with a competitor.

Nonsolicitation agreements, on the other hand, specifically prohibit employees from soliciting clients of their former employer with the intent of bringing them over to a new firm. They can also be used to prevent former employees from luring other employees away from their old employer to a new company.

How long are most noncompete agreements valid?

The length of a noncompete may be limited by state law, but it’s common for these restrictions to stay in effect anywhere from six months to two years. 

What makes a noncompete invalid?

Some states don't allow for noncompete agreements at all. And even in those that do, the enforceability of noncompetes can be tricky since they must typically be deemed "reasonable" in order to be upheld. State laws vary, but generally speaking, a noncompete could be considered invalid if any of the following issues apply:

• Employees aren’t compensated fairly for signing the noncompete. In most cases, the promise of employment may be enough to fulfill this requirement; however, in certain situations, employees may be entitled to additional compensation.
• The company doesn’t have a legitimate competitive interest. In order to enforce a noncompete, a business must be able to prove that it holds trade secrets or proprietary information that must be protected in order for it to remain competitive in the industry.
• The scope of the noncompete is too broad. Noncompetes must be deemed reasonable in order to be enforced. If the time length is too long or the restrictions placed upon the employee are so wide-reaching that they prevent workers from gainful employment in their chosen industry, it can affect the enforceability of noncompetes. 

What happens if you break a noncompete?

If you violate the terms of a noncompete agreement, your employer could take legal action against you, which could include suing you for damages or preventing you from accepting a new job offer. It’s important to remember that noncompetes aren’t legal in every state, and other states have restrictions as to how they are enforced. 

If you’re worried about violating a noncompete agreement or clause, it can be a good idea to consult a legal professional to understand whether the noncompete you signed is enforceable or not, and to what extent it might affect your future job prospects.