What is a non-compete agreement in the US?

A non-compete agreement (or covenant not to compete) is a contract clause that restricts an employee from working for competitors or starting a competing business within a defined geographic area and time period after leaving the employer. They are designed to protect trade secrets, customer relationships, and competitive business information.

Enforceability varies enormously by state. California, North Dakota, Minnesota, and Oklahoma effectively ban non-competes for employees. Most other states enforce 'reasonable' non-competes — courts scrutinise scope, duration, and geographic area. A 1-year nationwide ban on all business in an industry is rarely enforceable; a 6-month ban in the local area from soliciting existing clients often is. Courts may 'blue-pencil' (rewrite) overbroad provisions to make them enforceable.

In 2024, the FTC issued a rule banning most non-competes, but federal courts blocked its enforcement pending further litigation. The position at federal level remains uncertain. The trend in state law is strongly toward limiting or banning non-competes. If you have signed one, consult an employment attorney — many non-competes employees have signed are unenforceable in their state.