Checklist: Drafting a non-compete agreement (USA)

Introduction

This checklist will assist in-house counsel and private practitioners with drafting an organization’s non-compete agreements.

This checklist covers the following steps:

1. Understand the merits of a non-compete agreement
2. Drafting an enforceable non-compete agreement
3. Enforcing a non-compete agreement

The checklist is presented as a list of requirements that can be checked off as they are addressed. At the end of each step, there are explanatory notes corresponding with each requirement in the checklist.

For further information on this topic, see How-to guides: Overview of US employment law, How to draft an employment contract, How to protect trade secrets in the employment relationship, and How to draft the key provisions of an employee handbook.

Step 1 – Understand the merits of a non-compete agreement

Step 2 – Drafting an enforceable non-compete agreement

Step 3 – Enforcing a non-compete agreement

General notes

A non-compete agreement is a contract between an employer and an employee in which the employee agrees to refrain from working for an employer’s competitor for a specified period after their employment ends. Independent contractors or consultants who are providing services to an organization can also enter into non-compete agreements with it. 

Non-compete agreements are an important tool for organizations to use to protect their legitimate business interests. However, from an employee perspective, non-compete agreements limit their future employment options. Courts and legislators tend to view non-compete agreements critically and it is therefore important that employers draft them carefully. It is also important to note that an increasing number of jurisdictions have prohibited or strictly limited non-compete agreements. Some federal agencies – specifically, the Federal Trade Commission and the National Labor Relations Board – have made moves to restrict or ban non-compete agreements, but those moves have been abandoned or reversed by the Trump administration (see Legal Framework below for further information). 

There is no legal requirement for organizations to enter into non-compete agreements and this checklist is therefore focused on best practice advice, so that when an organization does decide to enter into a non-compete agreement it can have the best possible chance of the agreement being valid and enforceable. 

Drafting a valid and enforceable non-compete agreement requires analyzing the specific facts and circumstances of the relationship and the interests being protected in each case. This checklist provides an overview of the framework for drafting a non-compete agreement that can be adapted to the organization’s specific situation.

For example, organizations use non-compete agreements to protect themselves from ex-employees (or in some cases ex-contractors) using – after they leave the organization – sensitive business information gained during their employment. Agreements are also used to prohibit ex-employees from poaching or recruiting their former colleagues to work for them or for another employer.

Non-compete agreements are also commonly used when an organization is selling all or part of a business, to prevent the purchaser from competing directly with business units or locations that were not part of the sale.

Non-compete agreements may be called covenants not to compete, or restrictive covenants.

Legal framework

Non-compete agreements are governed almost exclusively by state laws, without any real comprehensive framework that provides for uniformity. Because of this, the specific rules followed by each state vary widely. There are some examples below.

• California does not recognize non-compete agreements and an employer who seeks to bind an employee to one after their employment is over (eg, by informing a new employer that there is a non-compete agreement in place) can be sued by the employee.
• Hawai’i banned non-compete agreements in 2015 for organizations that derive the majority of their gross income ‘from the sale or license of products or services resulting from [their] software development or information technology development, or both.’ In 2022, Hawai’i’s Supreme Court acknowledged a recent trend towards restricting the enforceability of non-compete agreements and held that they would be enforced only if the agreement served a ‘legitimate ancillary purpose’ other than limiting competition (see, Prudential Locations, LLC v Gagnon, 151 Haw 136, 146, 509 P 3d 1099, 1109 (2022)).
• In 2016, Utah amended its law so that new non-compete agreements may last no more than a year.
• In 2023, the Minnesota Legislature passed a law that prohibits non-compete agreements entered into after July 1, 2023.
• North Dakota courts have said that the state has a strong public policy against enforcing non-compete agreements (see, Osborne v Brown & Saenger, Inc, 2017 ND 288, ¶13, 904 NW 2d 34, 38); however, such agreements may be allowed in the context of selling a business or dissolving a corporation or LLC.
• In Oklahoma, a non-compete agreement is enforceable only to the extent that the former employee is precluded from directly soliciting business away from their former employer.

• In Washington DC, as of January 1, 2025, non-compete restrictions are banned with regard to employees earning $158,363 or less annually, as well as to medical specialists with annual earnings of $263,939 or less.

• In March 2025, Wyoming enacted Senate File 107, codified as Wyo. Stat. section 1-23-108, which provides that most non-compete agreements entered into on or after July 1, 2025 that restrict a person's right to receive compensation for labor are void. The law broadly applies to agreements with workers, covering both employees and independent contractors. The law also restricts certain training repayment and expense relocation agreements that fail to meet statutory limitations and includes special rules that apply specifically to physicians. Additionally, the law includes key exceptions for agreements related to the sale of a business, protection of trade secrets, executive or management personnel, and professional staff.

Note that some jurisdictions (eg, Hawai’i) that might otherwise limit or prohibit non-compete agreements have an exception for persons engaged in radio or television broadcasting.

Although non-compete agreements have traditionally been regarded as matters of state law, federal regulators have taken an increasingly negative stance towards such agreements. In May of 2023, the General Counsel of the National Labor Relations Board (NLRB) issued a memorandum setting out her opinion that non-compete agreements, except in limited circumstances, are violations of Section 7 of the National Labor Relations Act (29 USC 157), which protects employees’ rights to take collective action to improve their working conditions. On February, 14 2025, the memorandum was rescinded, and not replaced. 

The Federal Trade Commission (FTC) announced on April 23, 2024, a final rule banning non-compete agreements between employers and their workers (the Final Rule), with limited exceptions for existing non-compete agreements with ‘senior executives’ (see FTC press release: FTC Announces Rule Banning Non-Competes. The Final Rule, which would have become effective September 4, 2024, was set aside in August by US District Judge Ada Brown of the Northern District of Texas in Ryan LLC v FTC, 746 F. Supp. 3d 369, 390 (N.D. Tex. 2024). The FTC appealed that decision on October 18, 2024, but it withdrew its appeal in September 2025.

The FTC determined that employers have various alternatives to non-competes that allow them to protect their investments without enforcing non-compete agreements. Trade secret laws and non-disclosure agreements (NDAs) offer well-established methods for safeguarding proprietary and sensitive information. Researchers estimate that over 95% of workers with a non-compete also have an NDA. The FTC also suggests that instead of using non-competes to retain workers, employers can compete on merit by enhancing wages and working conditions to keep employees.

Employers should view the current landscape for non-compete agreements as unchanged. To ensure maximum enforceability, non-compete agreements should be reserved for employees with access to confidential and proprietary information. Employers should also be aware of the general features of an enforceable restrictive covenant, such as reasonable geographic and temporal scopes, while understanding that enforceability often depends on local jurisdiction precedent and the presiding judge's willingness to enforce it.

Any organization seeking to enter into a non-compete agreement should perform adequate due diligence in the state where they have operations, to ensure that any agreements drafted or entered into will meet the specific requirements of those jurisdictions.

On March 7, 2025, the FTC paused its appeals against legal challenges to the Non-Compete Rule for 120 days, a request granted by the circuit courts. This move followed FTC Chair Andrew Ferguson's public statements suggesting a potential reconsideration of the agency's defense of the Rule, influenced by the change in presidential administrations and his own doubts about its value and public benefit.

Key considerations

The primary consideration when preparing a non-compete agreement is to have an agreement that reasonably protects a legitimate business interest without being overly broad in its application. State legislation and the courts will weigh that business interest against the public interest against restricting trade and commerce, as well as the imposition of undue hardship on employees who could be prevented from taking another job due to an overly restrictive non-compete agreement.

Step 1 – Understand the merits of a non-compete agreement

1.1 Understand the meaning and purpose of a non-compete agreement

A non-compete agreement is a contract between an employer and an employee (or sometimes between a purchaser and seller of a business, or between an organization and an independent contractor), typically signed at the start of their employment or business relationship. This checklist is focused on non-compete agreements in the context of the employer and employee relationship.

Whilst non-compete agreements are usually entered into at the start of employment, substantial changes in relationships (eg, a promotion) can also give rise to the need for a non-compete agreement when one had not been in place before. Generally, a non-compete agreement prohibits the employee from competing with the employer’s business directly or indirectly for a specific duration after their employment relationship has ended.

The primary objectives of non-compete agreements are to prevent an employee from one or more of the following activities after their employment with the employer has ended:

• working for an organization or individual that competes with their former employer;
• starting a business that offers the same products or services as their former employer;
• developing products or providing services in competition with their former employer; or
• recruiting former colleagues to join their new business (this can also be covered by a non-solicitation agreement).

Each of these objectives incorporates the primary goal of limiting the ability of the ex-employee to compete directly with their former employer, with the purported justification being that the employer trained and empowered the employee with specific knowledge related to the industry.

In those jurisdictions where non-compete agreements are enforceable, the factors courts generally look at when determining if a specific non-compete is enforceable are listed below.

• Does the non-compete agreement protect an employer’s legitimate business interests (eg, confidential business information, trade secrets, etc.)?
• Is there a reasonable time limitation on the restriction?
• Is the non-compete agreement limited to a specific geographic location (city, county, region, etc.)?
• Has the employee received adequate ‘consideration’ to induce them to enter into the agreement? That is, has the employee received some benefit (eg, a new job, more compensation, or stock options) in return for agreeing not to work for a competitor?

1.2 Consider the value to the employer of entering into a non-compete agreement

An employer should have a legitimate business reason for pursuing a non-compete agreement. Limiting a former employee’s right to work for no reason other than to discourage quitting is not a legitimate reason.

1.2.1 Identify the legitimate business interests of the employer

In the jurisdictions where non-compete agreements are enforceable, the starting point in any analysis of whether or not a particular non-compete is enforceable will be whether it protects a legitimate business interest of the employer. If the non-compete does not protect a legitimate business interest, the employee should not be prohibited from competing against a former employer. Some common legitimate business interests include, but are not limited to:

• trade secrets;
• confidential business or professional information;
• the employer’s relationships with specific customers and clients, either existing or prospective; and
• specialized training.

1.2.2 Consider which employees should be required to enter into a non-compete agreement

Once an employer has identified the legitimate business interests it is seeking to protect, it should then consider which employees, or groups of employees, could jeopardize those interests by competing with the employer after their employment has ended.

The employer should consider limiting its application of non-compete agreements to the roles of certain employees within the organization, in particular, to those who have access to sensitive or confidential information. The primary determinant should be a risk assessment of which employees could harm the employer’s interests if they left the organization and joined a competitor.

Aside from industry-specific requirements, there are roles within any given organization that inherently pose a risk in the event of their departure. One example would be positions of authority, such as executive-level positions. Employees in finance roles often have access to confidential information, and those in sales roles often have detailed information about customers and products; for example, a key salesperson leaving the company and directly competing against it would be far different from a clerical employee who has no direct contact with customers going to a competitor.

Best practice, in particular for large employers, might be to develop an established approach relating to non-compete agreements, when they will be entered into (eg, consistently across specific employee job titles and grades), and when they might be enforced, and to follow the established approach consistently with the business interests of the employer in mind.

1.3 Consider whether the employer would be prepared to enforce a non-compete agreement

Before entering into a non-compete agreement, employers might consider whether they would be prepared to take action to enforce the non-compete agreement if the employee breached it in the future. Employers should also consider the negative publicity from requiring non-compete agreements for all employees, regardless of their job duties. Such publicity could deter well-qualified persons from applying for employment.

1.4 Consider alternatives to a non-compete agreement

Employers should also consider whether a non-compete agreement is necessary or whether a different type of agreement might be more appropriate and sufficient to protect the employer’s business interests. This is especially true in those jurisdictions that are less inclined to enforce non-compete agreements. Such agreements might include the following:

• non-solicitation agreements – preventing solicitation of either customers or employees;
• non-disclosure agreements – preventing the employee from using the employer’s confidential information; and
• training repayment agreements - in which an employee agrees that they will repay the employer for the cost of training provided to them if they fail to continue to work for the employer for a specified period of time.

A significant disadvantage to these types of agreements is that they tend to be less specific than non-compete agreements and, therefore, they may not be as effective at protecting the rights of the organization.

For further information see How-to guide: How to protect trade secrets in the employment relationship.

Step 2 – Drafting an enforceable non-compete agreement

2.1 Ensure the non-compete agreement is in writing

A non-compete agreement should be in writing to fully document the intent of the parties to enter into the agreement, and to eliminate potential ambiguities or misunderstandings about what is or is not prohibited. At least one state, Massachusetts, has a statutory requirement that the agreement must be in writing (see, Massachusetts Noncompetition Agreement Act section 24L(b)(i)).

2.2 Consider whether the non-compete agreement should be included in the employment contract or be a standalone document

A non-compete agreement may be included as a clause in an employment contract, or it may be a separate agreement. By including the non-compete provisions as a part of the employment agreement it is clear what consideration was provided for the agreement. On the other hand, if the non-compete agreement is being sought because of a change in the business or in the employee’s duties, the agreement will probably be in a separate agreement.

2.3 Ensure the non-compete agreement is signed by both parties

In order for a non-compete agreement to be enforceable, it must be demonstrated that the parties have mutually agreed to its terms. See Hough Associates v Hill, CA No 2385-N (Del Ch Jan 17, 2007). Some states also impose a requirement that the employee must have adequate time to consult an attorney prior to executing a non-compete agreement. In Oregon, for example, the employer must inform the employee at least two weeks before the employee’s first day of work that a non-compete agreement is required as a condition of employment.

2.4 Customize the non-compete agreement based on local jurisdictional rules

Most states have adopted some form of standards related to non-compete agreements, such as limits on the length of time or geographic scope, or limits on restrictions on a worker’s freedom to find employment. However, jurisdictions differ widely in interpreting which terms of a non-compete agreement may be considered too broad or overly restrictive and therefore unenforceable. Local jurisdictional rules must be incorporated into all non-compete agreements.

2.5 Ensure the restrictions imposed in the non-compete agreement are sufficiently narrowly drafted

Typical non-compete agreements will include restrictions about the following areas:

• type of employment – the employee is barred from working for a competing organization in the same industry;
• timing – a non-compete agreement should include a clause specifying how long the departing employee must wait before finding employment in the same industry;
• geographical location – some non-compete agreements allow the departing employee to seek employment in the same industry, but only outside a specified geographical area; and
• specified competitors – in certain industries, a non-compete agreement will be so detailed that it actually names the organizations from which the departing employee is barred from seeking employment.

These restrictions should be drafted narrowly, or risk being held unenforceable upon review by a court. Employers must be able to justify and explain why each specific restriction is necessary to protect the employer’s legitimate business interests.

2.5.1 Time period

A non-compete agreement will not be enforceable if the time period it covers is too long. The period considered reasonable varies by state and by the type of business involved, but typically ranges from six months to two years. Longer time periods will likely result in the non-compete agreement being held to be invalid.

2.5.2 Geographic scope

The territory covered by a non-compete agreement must be reasonable. What is reasonable will depend upon the facts and circumstances of each case. An unlimited geographical scope may be reasonable if the employer’s business is sufficiently national and international in scope (see, Superior Consulting Co, Inc v Walling, 851 F. Supp. 839 , 847 (E.D. Mich. 1994)).

2.5.3 Type of prohibited work or services

In addition to restricting where employees can work after they leave the employer, non-compete agreements also may include provisions that govern protection of the employer's trade secrets. These trade secrets may include sales strategies, product information, unique techniques or procedures, business practices, and client lists. Provisions also may include types of work that the employee may not undertake because those services will involve using the former employer’s trade secrets.

2.6 Specify the business interests that the non-compete agreement seeks to protect

An enforceable non-compete agreement should include specific details of the legitimate business interests that the agreement is designed to protect. Employers should consider using a broad definition to cover interests that may develop following execution of the agreement.

Courts are more likely to protect the business interests of the employer when they are clearly defined. This may appear from the scope of the agreement, or from the specific activities restricted.

2.7 Ensure the non-compete agreement offers consideration

A non-compete agreement will not be valid and enforceable unless the employee receives consideration for entering into the agreement. The requirement for valid consideration is generally met when the non-compete agreement is signed at the start of the employment relationship. In most states, sufficient consideration can be found in the employment offer itself and making execution of the non-compete agreement a condition of employment from the outset will satisfy the consideration requirement.

In circumstances where the employee is already employed by the employer but is being asked to sign a non-compete agreement as a condition for receiving a promotion, bonus, or other award, the consideration element may become more complicated. While the consideration requirement is usually satisfied when the agreement is a condition of a promotion, there are exceptions to this treatment. For example in New Hampshire, an otherwise enforceable non-compete agreement will be void and unenforceable unless it is provided to the employee ‘prior to or concurrent with making an offer of change in job classification.’

2.8 Include a reasonable choice of law or forum clause

Due to variations in state laws, choice of law provisions are critical in determining the enforceability of a non-compete agreement. Some state laws are more employer friendly than others when seeking to enforce a non-compete agreement. A choice of law provision will generally be enforced, as long as there is some material connection between the selected law and the parties and purpose of the contract. For example, the selected law may be the law of the jurisdiction in which the employer has its principal place of business, or in which the employee agrees to work.

The drafter of the non-compete agreement generally will choose the venue or forum, establishing the site of any future lawsuit regarding the agreement. Courts are more likely to give effect to choice of forum or venue clauses than they are to choice of law clauses.

While most states will enforce well-drafted choice of law and venue clauses where there is a connection to the chosen jurisdiction, some will not. The most notable example is California, which prohibits choice of law and venue clauses in employment agreements with California based employees. Cal. Lab. Code section 925.

2.9 Define the available remedies in case of a breach

There are various remedies which can be provided for breach of a non-compete agreement, including the following:

• injunctive relief – prevents the former employee from working in a competing job;
• clawback agreement – this provides for a monetary penalty to be paid by an employee who breaches the non-compete agreement; and
• balloon payment or condition – this provides for payment of severance pay by the employer at the end of the non-compete period, provided that the employee does not breach the agreement. This acts as an incentive for the employee to comply with the non-compete agreement.

Since some of these remedies or incentives are outside the scope of what a court might order as a remedy for a breach, the remedy or incentive should be stated clearly in the agreement.

2.9.1 Injunctive relief

The most common action taken by employers in the event of a former employee breaching a non-compete agreement is injunctive relief. While the standards vary among the states, most states require some showing of irreparable harm (harm for which monetary compensation would be inadequate) to obtain injunctive relief. Where the action for breach clause in a non-compete agreement includes injunctive relief, it is advisable to include a provision stipulating that irreparable harm will result from any breach.

2.9.2 Recovery of attorney’s fees and costs

From a strategic perspective, a provision allowing for the recovery of an attorney’s fees for a breach of a non-compete agreement may deter an employee from breaching the agreement, and also create leverage when settling a dispute. These types of clauses have been upheld in many jurisdictions (see, for example, Hilb & Hamilton Agency of Dayton, Inc v Reynolds, 81 Ohio App 3d 330, 610 NE 2d 1102 (1992)).

2.10 Include a savings clause

A non-compete agreement should include a ‘savings clause’ or a ‘severability clause’ in language that will serve to save the remaining parts of the agreement when one part is found to be invalid or unenforceable by a court.

In one case, the court found that the severability clause in the agreement made it possible to excise unlawful language from the non-compete clause without doing undue damage to the remainder of the agreement (see, Swat 24 Shreveport Bossier, Inc v Bond, 808 So 2d 294 (La 2001)).

Step 3 – Enforcing non-compete agreements

Where an employer suspects that a former employee is in breach of a non-compete agreement, there are a number of steps for an employer to take before commencing court action.

3.1 Evidence and evaluation considerations

Employers should investigate whether a breach has in fact occurred and evaluate its likely prospects of success before a court.

3.1.1 Evidence collection mechanisms

An employer should initially conduct an investigation into a potential breach of a non-compete agreement and document the information gathered to evidence the breach. Given the potential damage to an organization that can result from the breach of a non-compete agreement, this step should be carried out without delay when an employer suspects a breach.

3.1.2 Evaluation mechanisms

Before seeking to enforce a non-compete agreement, employers should determine the likelihood of being successful before the court. Ideally, this analysis would have been conducted prior to securing the non-compete agreement from an employee; however, the attitude of the courts in the particular jurisdiction towards enforcing non-compete agreements may have changed in the intervening time, making a once easily enforceable agreement now unenforceable.

3.2 Enforcement options

Employers should evaluate the options available for enforcement through legal action and they should base their decision regarding enforcement on the options available.

3.3 Consider alternative options

Employers should evaluate any alternative options to enforcement action. Examples of these alternatives may include the following:

• direct contact with the employee to alert them of their breach;
• sending a cease-and-desist letter to the employee;
• seeking to negotiate with the employee with a view to releasing the employee from the non-compete agreement and instead entering into less restrictive agreements such as non-solicitation agreements and non-disclosure agreements.

Additional resources

Emma Rockall and Kate Reinmuth, ‘Protect or Prevent? Non-Compete Agreements and Innovation’
US Bureau of Labor Statistics, ‘Noncompete agreements, bargaining, and wages: evidence from the National Longitudinal Survey of Youth 1997’
US Dept. of the Treasury, ‘The State of Labor Market Competition’
Wisconsin Legislative Reference Bureau, ‘Non-competes in Employment Contracts: Recent Legislative Trends’

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