Non-Compete Agreement

What is a non-compete agreement meaning?

Non compete agreement is a legal document that restricts an employee’s competition against their former employer after an employment contract ends.

In the course of employment, an employee acquires a lot of valuable knowledge and information, as well as gets access to an employer’s sensitive data and trade secrets. Once an employment contract ends, an employee may potentially use all their knowledge as unfair competition against their former employers. For instance, an ex-employee may choose to work for a competitor or launch their own business in the same domain.

Despite common practical application of noncompete agreements, state laws may provide different regulations. For instance, the North Dakota state laws ban the application of non-compete agreements in most of the cases. On the other hand, a non compete agreement Illinois shall be concluded with an employee whose annual gross salary exceeds USD 75,000.

In most of the cases, non-competes are incorporated as a separate clause inside the existing employment agreement. Although when stakes are higher and an employee is exposed to a wide range of sensitive information during their employment, parties tend to sign separate non-compete agreements instead.

Who can enter into a non-compete agreement?

Employment Relations

The application of non-competes agreement is used widely in labor markets in the US. This type of a legal document is used daily in employment relations between an employee and employer. It does not matter if an employee is engaged in a full time or a part-time job, as a non-compete agreement could be signed in both cases.

Starting in 2025, the Federal Trade Commission has emphasized on numerous occasions that the conclusion of non-competes for employment agreements with a fixed duration should be prohibited. Even though there is no official ban yet in force, the future enforceability of non-compete clauses might be a question.

Business Relations

Non-competes are widely used between self-employed individuals and big companies, aimed at protecting their business interests. Finally, it is also common to conclude non-competes between companies.

Unlike in employment relations, the application and execution of non-competes in business relations is also governed by antitrust laws.

What is an example of a non-compete agreement?

Generally speaking, a non-compete agreement could be used for any industry and any type of job position. There are lots of non compete agreement examples in daily situations, including:

• TV, Influencing, and Social Media: Imagine a situation when your favorite TV fashion presenter leaves her current job and launches her own podcast about the latest fashion news. Most viewers might stop watching a TV show and switch to a new podcast. A sample of non compete agreement for this case would need to limit a TV presenter’s right to launch similar news podcasts after leaving a TV show.
• Business or Financial Consulting: Jennifer is a junior consultant in a big audit firm. She wants to sit for ACCA exams. Her employer agreed to cover the full price on the condition that Jennifer would work for at least 5 years in the same company. After passing exams, Jennifer decides to leave her current job before the agreed term. For situations like that, a non competition agreement sample may oblige Jennifer to compensate the full price for ACCA exams.
• Medical Services and Healthcare: Doctor A. is a child pediatrician who has been working in Hospital B. for the last 10 years. His little patients love him. Doctor A. does not agree with the hospital’s management and decides to leave his job in order to start his own medical cabinet. In this case, a non competition agreement template can restrict Doctor A. from offering medical services to all his current patients outside the hospital’s premises.
• Lawyers: Peter is a successful attorney in his town who hires a paralegal to help with a workflow. After a few years, a paralegal quits the job to set up his own legal practice. Besides that, the paralegal tries to contact Peter’s current clients to offer them services at a lower price. A sample non compete agreement can limit a paralegal’s ability to solicit Peter’s current clients for a certain period of time.

Are Non-Compete Agreements Legal?

The legality of non compete agreements is a hot topic at all times. The Federal Trade Commission has been trying to ban the application of noncompetes entirely, though no official ban has been enacted yet.

Before jumping on answering this question directly, let’s first find out what it means for a document to be legal. A legal document is a document whose existence and application are not restricted by the law. If a document is legal, it means that:

• It is recognized by a court; and
• It can create, amend, or cease parties’ rights or obligations.

California, Minnesota, Oklahoma, and North Dakota state laws explicitly prohibit the insertion of any noncompete restrictive covenants into employment contracts. The rest of the states recognize the legality of a non-compete agreement.

For instance, if you plan to sign a non-compete agreement California, a signed document won’t have any legal force and validity within California. Besides that, out-of-state similar non-compete agreements won’t be recognized as well within California.

Another example is non compete agreement Michigan. This is one of the few states where a non compete agreement is completely legal without any limitations.

Are Non-Compete Agreements Enforceable?

A non compete agreement’s enforceability means that a document contains all essential elements to be legally binding and can be enforceable in a court. Enforceability applies only to documents that are legal by virtue of a state governing law. A document that is not legal cannot be enforceable by default, though legal documents could be either enforceable or unenforceable.

Legal Document vs. Enforceable Document

Now that we have a definition of what is legal and what an enforceable non-compete agreement is, it is time to find out how they are connected to each other. Let’s summarize all this in a few simple examples:

• Not Legal & Non-enforceable: California state laws ban the application of non-compete agreements. Even if signed, a non compete agreement won’t be legally binding for parties.
• Legal & Non-enforceable: Colorado recognizes the application of non-compete agreements. For a non compete agreement Colorado to be enforceable, an employee’s annual gross salary should exceed USD 124,500. If an employee’s annual gross salary is USD 100,000, a noncompete won’t be enforceable.
• Legal & Enforceable: New York state laws prohibit the conclusion of noncompetes with broadcast employees only. If you sign a non compete agreement New York with a lawyer who works in your law firm, in that case a signed document will be 100 % enforceable.

Key Considerations about Non Compete Agreement Enforceability

Before drafting non compete agreement sample, the following things should be checked first:

• General Ban: Check noncompete laws of a state where you plan to sign a non-compete agreement. If a non compete agreement is legal here, jump on the next steps below.
• Wage Threshold: Check if there is any employee’s minimum annual gross salary threshold below which conclusion of a non-compete agreement is not legal.
• Industry Bans: Check if there is any particular industry where application of a non-compete agreement is directly prohibited.

NDA and Non-Compete Agreement—Know the Difference

Non-Disclosure Agreements (NDAs) and Non-Compete Agreements are widely used in employment relationships. Both documents are aimed at restricting an employee’s bargaining power in different ways. However, the subject matter of those two documents differs significantly.

Right to Work vs. Confidential Information

Under a non-compete agreement, an employee is restricted from taking up a certain job or launching their own business for a specific period of time after the employment contract ends. The non compete agreement meaning is to limit an employee’s competition against their former employer within a certain market of goods or services.

An NDA is aimed to protect an employer’s proprietary information, including databases, technologies, know-hows etc against disclosure. Since employees in the course of their work may have access to such sensitive information, an NDA can help to protect such information.

Under NDA, an employee’s right to work is not affected after an employment contract ends. They can take up other similar jobs on the condition that confidential information remains confidential.

Compensation vs. No Compensation

In most of the cases, a signed non compete agreement provides monetary compensation for an employee. Contrary to that, an NDA usually does not give any type of compensation.

Industry Limitations vs. No Limitations

Non compete agreement laws of some states do not allow concluding non-competes with employees working in certain industries like broadcast, healthcare, social work, etc. On the other hand, NDAs have a wider scope of application, and they are fully recognizable in all states.

Senior Executives vs. Ordinary Employees

As a matter of practice, the meaning of non compete agreements is closely related to high- and senior executives’ employees. In most of the cases this category of employees has access to the biggest amount of the company’s sensitive data. Their expertise and insider information make them a perfect target for competing businesses.

A non-disclosure agreement between the parties usually has a broader application and may apply to almost all employees within the same company.

Types of Non-Compete Agreement: Popular Clauses

A non compete agreement form and content may vary depending on the industry, employee’s position, business’s vulnerability, and many other factors.

• Garden Leave: A garden leave means a certain period of time after the end of employment, within which an employee undertakes to not take up another work with competitors. For the whole period of a garden leave, an employee is being paid a monthly salary.
• Territorial Restriction: A non-compete example clause with a territorial restriction limits an employee’s right to take up a similar job in the same town, county, or state.
• Non-Solicitation: This is a typical clause according to which an employee of the company cannot approach clients or customers of their former employers. Depending on state laws, this clause may have lots of variations.
• Exit Fee: A non-compete agreement may oblige an employee to compensate all costs of their professional education with an employer. For instance, master’s degree fees, bar exam fees, ACCA exam fees, etc.

Get your Non-Compete Agreement Template.

The process of signing a non-compete agreement is pretty straightforward and consists of the following short steps:

• Check: Check if there are any rules in place banning non compete agreements in your state;
• Sign: Make sure the document is duly signed by both parties – an employee and an employer; and
• Keep: Once a document is signed, each party should keep a written copy of a signed document for their own record.