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Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

In the past, agreements not to compete were a popular way for employers to protect their businesses from competition. These clauses prevent an ex-employee from working for a competitor or setting up a business in the same industry for a set period of time. However, with changes in the legal landscape, the efficacy of these agreements has become uncertain and it is important for employers to understand their purpose and importance.

At ��������Ƶ, we believe understanding agreement not to compete is key to protecting your business and investments. Our team provides access to market-standard templates through our open source legal template library – so you can create tailored non-compete documents without an expensive lawyer or expert. Here’s why they are important:

Agreements not to compete are an essential tool for protecting employers’ competitive advantage by preventing confidential information - such as trade secrets or customer lists - being used by competitors once an employee leaves the company. They also ensure that any investments made in training and development are retained within the business rather than benefitting a rival firm.

However, these clauses are subject to state laws and can be challenged if deemed unreasonable or overly restrictive; meaning employers must consider both their local jurisdiction and common law principles when drafting them. It helps if limits set out in terms of duration, geographical area and type of employment are reasonable; particularly as courts may rule unenforceable those which do not meet certain criteria such as being fair and reasonable towards employees.

As such, whilst it may be tempting for business owners who aren’t familiar with agreements not to compete thinking ‘I don’t need one’, understanding their importance is essential when considering how best to protect your organisation from competition. With ��������Ƶ’s free step-by-step guide helping you draft customised documents quickly, easily – without requiring you having an account – there’s no excuse not to ensure your business is properly protected today! Read on below for more details on our template library now…

Definitions

Confidential Information: Information that is not intended to be disclosed to the public, usually due to its sensitive nature.
Injunctive Relief: Legal action taken to prevent a person from doing something, such as preventing a former employee from competing.
Non-Disclosure Agreement: A legally-binding agreement which requires a person not to share confidential information.
Non-Solicitation Agreement: A legally-binding agreement which prevents a person from attempting to solicit or otherwise entice away customers of a particular entity.
Restrictive Covenant: A legally-binding agreement which places restrictions on a person’s activities or behavior.

Contents

1. Overview of the legal landscape surrounding agreements not to compete and the various state laws that govern them
2. An analysis of the differences between states
3. An overview of the most common restrictions found in agreements not to compete
4. Exploring the reasons why agreements not to compete might become a thing of the past
5. The potential implications of this shift
6. Changes in technology and the ways employers can protect their interests
7. An examination of the alternatives available to employers in lieu of agreements not to compete
8. Non-disclosure agreements
9. Non-solicitation agreements
10. Other restrictive covenants
11. A discussion of the potential risks and benefits of agreements not to compete
12. Potential legal limits on their enforceability
13. Benefits to employers in terms of preserving trade secrets
14. Guidance on how to draft an agreement not to compete that meets the requirements of the relevant state laws
15. An analysis of the specific language needed
16. The best ways to ensure it is legally enforceable
17. Advice on how to enforce an agreement not to compete
18. Seeking an injunction to prevent a former employee from competing
19. Understanding the legal remedies available to employers
20. Strategies for staying up-to-date on the changing legal landscape surrounding agreements not to compete
21. Utilizing legal services and resources
22. Consulting with experts in this area
23. Staying informed of new court rulings and other developments
24. Guidance on how to terminate an agreement not to compete
25. The specific actions required to terminate the agreement
26. Potential risks to employers when terminating the agreement
27. How employers can ensure that their agreements not to compete are fair to both parties
28. An explanation of the importance of drafting fair and reasonable agreements
29. Ideas for ensuring a reasonable scope and duration of the agreement
30. A review of the potential implications of using agreements not to compete with independent contractors
31. The possibility of misclassification issues
32. How to ensure that the agreement meets all applicable legal requirements

Get started

Overview of the legal landscape surrounding agreements not to compete and the various state laws that govern them

• Research the current laws and regulations for agreements not to compete in your state
• Visit the labor department website for your state to find out more
• Look up any relevant case law concerning non-compete agreements in your state
• Read up on any relevant rulings or interpretations of statutes related to non-compete agreements
• Take note of any relevant legislation that has been proposed or enacted in your state
• Compile a list of the applicable laws and regulations for agreements not to compete in your state

When you can check this off your list:

• When you have a comprehensive understanding of the legal landscape surrounding agreements not to compete in your state.

An analysis of the differences between states

• Research the various state laws surrounding agreements not to compete
• Make a list of the differences in the laws from state to state
• Compare and contrast the restrictions that are allowed in each state
• List out the differences in the legal standing of agreements not to compete in each state
• Once you have a comprehensive understanding of the differences between states, you have completed this step
• Move on to the next step for an overview of the most common restrictions found in agreements not to compete

An overview of the most common restrictions found in agreements not to compete

• Research the restrictions typically found in agreements not to compete
• Identify the components found in most agreements not to compete
• Summarize the restrictions commonly found in agreements not to compete
• Make a list of the most common restrictions

You will know when you can check this step off your list and move on to the next step when you have a comprehensive list of the most common restrictions found in agreements not to compete.

Exploring the reasons why agreements not to compete might become a thing of the past

• Research the current legal landscape surrounding agreements not to compete and why it might be changing
• Analyze the potential effects of changes in the legal landscape on the prevalence of agreements not to compete
• Examine the potential benefits of removing agreements not to compete, such as increased employee mobility
• Consider the potential drawbacks of removing agreements not to compete, such as weakened employee loyalty
• Summarize your findings in a report

Once you have researched and analyzed the reasons why agreements not to compete might become a thing of the past, and summarized your findings in a report, you can check this off your list and move on to the next step.

The potential implications of this shift

• Analyze potential implications of agreements not to compete becoming a thing of the past
• Consider the implications for the current labor landscape in regards to wages and competition
• Evaluate potential effects on businesses including the potential for increased competition
• Understand the potential impact of this shift for employees, employers, and the market as a whole

You can check this step off your list when you have a thorough understanding of the potential implications of agreements not to compete becoming a thing of the past.

Changes in technology and the ways employers can protect their interests

• Review the changes in technology that have occurred in the past few years
• Analyze how this technology has changed the employment landscape
• Understand how employers can use technology to protect their interests
• Consider the ways that technology has increased the risk of trade secrets
• Investigate how employers can use technology to better monitor and protect their interests
• Research the advantages and disadvantages of employers turning to technology to protect their interests

When you can check this off your list:

• Once you have thoroughly researched the changes in technology and the ways employers can protect their interests, you can check this step off your list and move on to the next step.

An examination of the alternatives available to employers in lieu of agreements not to compete

• Research the different alternatives available to employers to protect their interests, such as non-disclosure agreements and intellectual property rights.
• Consider the advantages and disadvantages of each alternative.
• Decide which alternative will work best for your company.
• When you have a clear understanding of the alternatives available and have chosen the one that best suits your company’s needs, you can check this step off your list and move on to the next step.

Non-disclosure agreements

• Understand the purpose of a non-disclosure agreement (NDA) - a type of contract that creates a confidential relationship between two or more parties, which prevents the parties from disclosing any confidential information
• Determine if an NDA is necessary - they are typically used in situations where sensitive information needs to be shared, such as when an employer is recruiting or interviewing potential employees
• Draft an NDA that meets the needs of both parties - make sure it outlines the terms of the agreement and any potential penalties for breach of contract
• Educate yourself on the laws and regulations governing NDAs in your state or country - this is important to make sure the agreement is legally enforceable
• Once the NDA is signed, ensure that all parties are complying with the terms of the agreement - this can be done through regular check-ins and monitoring of any confidential information that is being shared

When you can check this off your list and move on to the next step:

• When the NDA is finalized, signed, and all parties are in compliance with the terms of the agreement, you can move on to the next step of the guide: Non-solicitation agreements.

Non-solicitation agreements

• Research the legal requirements of non-solicitation agreements in your state or country.
• Determine whether non-solicitation agreements are enforceable in your jurisdiction.
• Consider the impact of non-solicitation agreements on the labor market.
• Review the potential implications of non-solicitation agreements on employee mobility and job opportunities.
• Evaluate the potential risks and benefits of implementing non-solicitation agreements.

You can check this step off your list when you have a thorough understanding of the legal requirements, implications, and risks associated with non-solicitation agreements in your jurisdiction.

Other restrictive covenants

• Review other restrictive covenants that could be used as an alternative to agreements not to compete
• Consider how non-disclosure agreements, non-competition agreements, non-solicitation agreements and other restrictive covenants might be used to protect an organization’s interests
• Analyze the potential pros and cons of using alternative restrictive covenants
• When you have a good understanding of alternative restrictive covenants and their potential benefits and risks, you can move on to the next step.

A discussion of the potential risks and benefits of agreements not to compete

• Identify and analyze the risks and benefits associated with agreements not to compete
• Understand the potential implications of having such agreements in place
• Consider the potential financial and legal implications of having such agreements in place
• Develop a strategy to weigh the pros and cons of using agreements not to compete
• Determine the best approach to mitigate the risks and maximize the benefits associated with agreements not to compete

When you can check this off your list and move on to the next step:

• When you have identified and analyzed the risks and benefits associated with agreements not to compete
• When you have developed a strategy to weigh the pros and cons of using agreements not to compete
• When you have determined the best approach to mitigate the risks and maximize the benefits associated with agreements not to compete

Potential legal limits on their enforceability

• Learn about the relevant state laws and how they may limit the enforceability of agreements not to compete
• Research court decisions related to the enforceability of these agreements
• Determine the potential legal limits that may exist

Once you have researched the relevant state laws and court decisions and determined the potential legal limits, you can check off this step and move on to the next step.

Benefits to employers in terms of preserving trade secrets

• Research the applicable state laws on non-compete agreements
• Determine the benefits to the employer of having a non-compete agreement, such as protection of trade secrets or confidential information
• Consider the trade-offs between the potential benefits to the employer and the potential harm to the employee
• Once you have identified the benefits to the employer, make sure they are included in the agreement
• Check that the agreement is reasonable in scope and duration
• When you have completed this step, you will have identified the benefits to the employer in terms of preserving trade secrets.

Guidance on how to draft an agreement not to compete that meets the requirements of the relevant state laws

• Research and become familiar with the state laws relevant to the agreement not to compete in the relevant state
• Determine the scope of the employee’s activities and the geographical area to which the agreement will apply
• Determine the time period for which the agreement will be in effect
• Draft the agreement not to compete in accordance with the relevant state laws and make sure that it is clear, concise and easy to understand
• Make sure that the agreement not to compete is reasonable in terms of its scope, geographical area and duration
• Have the agreement not to compete reviewed by an attorney to ensure that it meets the requirements of the relevant state laws
• Have the employee sign the agreement not to compete
• Check off this step and move on to the next step: An analysis of the specific language needed.

An analysis of the specific language needed

• Research the relevant state laws to determine what language must be included in the agreement not to compete
• Identify the specific language needed to ensure the agreement is legally enforceable
• Ensure the language used is clear, simple and straightforward so that it is easy to understand
• Ensure the language is specific enough that it covers all the necessary areas of the agreement
• Check the language for any potential loopholes or ambiguity
• Once the language has been finalized, check it again to make sure it meets the requirements of the relevant state laws
• Once the language has been checked and finalized, the step is complete and you can move on to the next step.

The best ways to ensure it is legally enforceable

• Make sure the agreement not to compete is in writing and signed by both parties.
• Make sure that the agreement not to compete is reasonable in its duration, geographic scope, and activities restricted.
• Ensure that the agreement not to compete is specific to the job and relevant to the skills and knowledge of the employee.
• Make sure that the agreement not to compete is supported by consideration.
• Consult an experienced attorney to ensure compliance with applicable state laws.

You know you can check this off your list and move on to the next step when you have drafted an agreement not to compete that meets all of the factors outlined above and have consulted an experienced attorney to make sure it is legally enforceable.

Advice on how to enforce an agreement not to compete

• Draft the agreement in accordance with state laws governing non-compete agreements
• Ensure that the agreement is reasonable in scope and duration
• Provide something of value to the employee when they sign the agreement
• Require the employee to sign the agreement in front of a notary
• Follow up with the employee to make sure they understand the terms of the agreement
• Have the employee sign an acknowledgment of understanding
• Once the agreement is signed, keep it on file and remain vigilant in monitoring the employee’s compliance
• When the employee violates the terms of the agreement, take swift action to protect your business

Once you have drafted the agreement, ensured it is reasonable, provided something of value to the employee, required the employee to sign the agreement with a notary, followed up to make sure they understand the terms of the agreement, have the employee sign an acknowledgment of understanding, kept it on file, and monitored the employee’s compliance, you can check off this step and move on to the next step.

Seeking an injunction to prevent a former employee from competing

• Research the law in your jurisdiction to determine if it is permissible to seek an injunction to prevent a former employee from competing.
• Consult with legal counsel to determine the best course of action to take in seeking an injunction.
• Draft a complaint to be filed in court, including the facts and arguments that support the injunction.
• File the complaint in the appropriate court.
• Respond to any objections or counter-arguments from the former employee.
• Argue your case in court, making sure to provide sufficient evidence to support your claims.
• If the court grants the injunction, have it served on the former employee.

You will know you have completed this step when you have successfully argued your case in court and the court has granted the injunction.

Understanding the legal remedies available to employers

• Research applicable federal, state, and local laws governing non-compete agreements and other relevant labor laws
• Familiarize yourself with the various types of legal remedies available to employers, such as breach of contract, misappropriation of trade secrets, and tortious interference
• Consult with a qualified attorney to determine the most appropriate legal remedy for your situation
• When you feel you have a sufficient understanding of the legal remedies available to employers, you can check off this step and move on to the next.

Strategies for staying up-to-date on the changing legal landscape surrounding agreements not to compete

• Subscribe to a relevant legal publication to stay informed of relevant case law
• Follow blogs, podcasts, and online forums related to the issue
• Attend seminars or webinars related to the issue
• Consult with a lawyer who specializes in this area of law
• Connect with other professionals who are knowledgeable in the area

When you can check this off your list and move on to the next step:

• Once you have completed all of the above points, you will be up-to-date on the changing legal landscape surrounding agreements not to compete and can move on to the next step.

Utilizing legal services and resources

• Do research online or in local libraries to find laws, regulations, and Supreme Court cases related to agreements not to compete
• Look for legal services and resources, such as statutes, court opinions, and practice guides, that provide information on agreements not to compete
• Consult with legal experts who specialize in this area such as attorneys, mediators, or arbitrators
• Utilize online legal services where attorneys can provide legal advice for a fee
• You know you can check this off your list when you have a good understanding of the legal landscape related to agreements not to compete and have consulted with legal experts.

Consulting with experts in this area

• Identify experts in the area, such as experienced labor and employment lawyers and economists.
• Consult with those experts to gain knowledge of the current landscape in the area of agreements not to compete.
• Ask questions and take notes during the consultations to gain a full understanding of the issue.
• Once you have a clear understanding of the current landscape, you can move on to the next step.

Staying informed of new court rulings and other developments

• Subscribe to legal journals and newsletters related to non-compete agreement laws
• Follow legal news websites and blogs for updates on court rulings and legislation
• Monitor relevant social media accounts for updates
• Check with your legal counsel for any developments that may affect your organization
• When you feel confident that you have an understanding of the latest developments in the area of non-compete agreements, you can check this off your list and move on to the next step.

Guidance on how to terminate an agreement not to compete

• Familiarize yourself with the details of the agreement not to compete.
• Research any changes to the laws that may affect the agreement.
• Notify the other party of the termination of the agreement.
• Get a written release from the other party that acknowledges the termination of the agreement.

You’ll know you can move on to the next step when you’ve received written confirmation of the termination of the agreement.

The specific actions required to terminate the agreement

• Obtain a written notification of the agreement being terminated.
• Ensure that the agreement is signed by both parties, and a copy is provided to each party.
• Send a certified letter to the other party that provides a summary of the agreement and its termination.
• File all documentation and records related to the agreement in a secure, easily accessible location.

You will know when you have completed this step when you have obtained a written notification of the agreement being terminated, both parties have signed it, a copy has been provided to each party, and a certified letter has been sent to the other party with a summary of the agreement and its termination. You have also filed all documentation and records related to the agreement in a secure, easily accessible location.

Potential risks to employers when terminating the agreement

• Understand the potential legal implications of terminating the agreement not to compete.
• Familiarize yourself with the state-specific laws that may apply.
• Research any precedents in court cases that could affect a potential termination of the agreement.
• Consult with an attorney if needed to ensure that you are aware of any potential risks to the business.

Once you understand the potential legal implications of terminating the agreement, familiarize yourself with the state-specific laws that may apply, research any precedents in court cases that could affect a potential termination of the agreement, and potentially consult with an attorney to ensure that you are aware of any potential risks to the business, you can check this off your list and move on to the next step.

How employers can ensure that their agreements not to compete are fair to both parties

• Ensure that the agreement is limited geographically, temporally, and functionally
• Review and consider the employee’s experience and position to ensure the agreement is reasonable and appropriate
• Make sure the agreement is specific and clear on the type of activities that are restricted
• Avoid using overly broad language when describing what the employee can and cannot do
• Consider all factors that may be relevant to the employee’s ability to earn a living in their field of expertise

You will know when you can check this off your list and move on to the next step when you have fully reviewed and considered all of the criteria outlined above.

An explanation of the importance of drafting fair and reasonable agreements

• Understand the purpose of a non-compete agreement and why it is used
• Consider the restrictions of the agreement and how they will impact the employee
• Evaluate if the restrictions are reasonable and necessary for the employer
• Examine the duration of the agreement to make sure it is not overly long
• Ensure that the employee is adequately compensated for any restrictions they are subject to
• Check that the agreement complies with state and local laws
• Review the agreement with an attorney to ensure it is legally binding and enforceable

When you can check this off your list and move on to the next step:

• After you have reviewed the purpose, restrictions, duration, compensation, and legality of the agreement and it has been reviewed by an attorney.

Ideas for ensuring a reasonable scope and duration of the agreement

• Analyze the nature of the work: Consider the scope of work and the duration of time that should be covered in the agreement.
• Consider the geographical scope: Determine the geographical area that should be covered by the agreement.
• Address the employee’s current and past activities: Determine if there are any activities or jobs that the employee has undertaken that may be affected by the agreement.
• Balance the interests of the parties: Consider the balance of interests of the parties in drafting the agreement.
• Consider any applicable laws: Determine if any local or state laws may impose any restrictions on the terms of the agreement.

When the above bullet points have been completed, you can move on to the next step which is a review of the potential implications of using agreements not to compete with independent contractors.

A review of the potential implications of using agreements not to compete with independent contractors

• Research current state and federal laws that govern the enforceability of agreements not to compete with independent contractors
• Consult with an attorney on the best course of action for your particular situation
• Examine the potential implications of using such agreements, such as the potential for misclassification issues
• Consider how a non-compete agreement could affect the independent contractor’s ability to work for other companies
• Determine the scope and duration of the agreement needed to best protect your interests

Once you have completed the research and consulted with an attorney, you can check this step off your list and move on to the next step.

The possibility of misclassification issues

• Understand the implications of misclassifying an independent contractor as an employee
• Familiarize yourself with the potential risks of misclassifying an independent contractor as an employee in regards to the agreement not to compete
• Analyze the agreement to ensure that the independent contractor and employer are properly classified
• Determine the legal implications of misclassifying the independent contractor as an employee
• Consult with a legal expert, if necessary, to ensure that the agreement meets all applicable legal requirements

You can check this off your list and move on to the next step when you have a clear understanding of the potential implications of misclassifying an independent contractor as an employee in regards to the agreement not to compete.

How to ensure that the agreement meets all applicable legal requirements

• Consult with an experienced employment attorney to ensure that the agreement meets all applicable legal requirements
• Make sure the agreement is reasonable in terms of time, geography, and scope
• Ensure that the agreement is not overly restrictive, and is tailored to the specific situation of the employee
• Include language that makes clear the employee’s right to seek legal counsel
• Have the employee sign the agreement to demonstrate their consent
• When all of the above steps have been completed and the agreement meets all applicable legal requirements, you can move on to the next step in the process.

FAQ

Q: What is the difference between an agreement not to compete and a non-compete clause?

Asked by Maria on June 11th, 2022.
A: An agreement not to compete is a contractual clause that an employee agrees to when they start their employment, which prevents them from working for a competitor for a certain period of time after leaving their job. A non-compete clause is a similar contractual clause that businesses use to protect their interests and prevent employees from working in a certain industry or geographical area.

Q: Are agreements not to compete enforceable in the UK?

Asked by Michael on April 15th, 2022.
A: Generally speaking, agreements not to compete are enforceable in the UK as long as they are deemed reasonable. In order to be deemed reasonable, they must be carefully tailored to suit the particular industry and context of the business. Additionally, they must protect the legitimate interests of the business, and not be harmful to any competition laws or wider public interest.

Q: Can agreements not to compete be used for SaaS companies?

Asked by Matthew on March 4th, 2022.
A: Yes, agreements not to compete can be used for SaaS companies as long as they are deemed reasonable. However, given the nature of SaaS companies – where customer relationships may be more important than specific trade secrets – it is important to consider other methods of protection such as confidentiality agreements and non-disclosure agreements.

Q: What are the legal implications of breaking an agreement not to compete?

Asked by Mark on August 8th, 2022.
A: If an employee breaks an agreement not to compete, they may be subject to legal action from their former employer. Depending on the particular circumstances, this could involve them being sued for damages or injunctive relief (i.e. being prohibited from competing). It is therefore important for employees to fully understand the implications of any agreement not to compete before signing it.

Q: How do EU laws affect agreements not to compete?

Asked by Mary on January 19th, 2022.
A: EU laws have a significant impact on agreements not to compete, particularly in terms of their enforceability and scope. In particular, EU competition law generally prohibits employers from using such agreements in order to limit competition in the internal market – i.e. across EU Member States – and requires that any restrictions imposed must be necessary and proportionate in order to protect legitimate interests (such as trade secrets).

Q: Are there alternatives to agreements not to compete?

Asked by Margaret on July 7th, 2022.
A: Yes, there are alternatives to agreements not to compete which businesses can use in order to protect their interests without restricting competition or imposing unreasonable restrictions on employees’ ability to work elsewhere. These include non-disclosure agreements (which protect trade secrets), confidentiality clauses (which restrict the sharing of confidential information) and intellectual property clauses (which protect inventions).

Q: Does US law recognize agreements not to compete?

Asked by Max on February 2nd, 2022.
A: Yes, US law does recognize agreements not to compete as long as they are reasonable and do not impose unreasonable restrictions on employees’ rights or restrain competition in the marketplace. US courts have generally been willing to enforce such agreements if they are limited in duration and geographical scope; however, some states have stricter requirements than others so it is important for employers and employees alike to familiarize themselves with their local laws before entering into such an agreement.

Q: What happens if an agreement not to compete is found invalid?

Asked by Melissa on November 17th, 2022.
A: If an agreement not to compete is found invalid due to being overly restrictive or otherwise unenforceable according to applicable laws, then it will no longer be legally binding upon either party and will have no effect whatsoever. This means that both parties will then be free from any restrictions imposed by the agreement and can go about their business without fear of legal repercussions.

Example dispute

Lawsuits Referencing Agreement Not To Compete

• A plaintiff may raise a lawsuit referencing an agreement not to compete if they believe their former employer has acted in breach of the agreement.
• The plaintiff must prove that the agreement not to compete was valid and that their former employer has acted in violation of it.
• The plaintiff must provide evidence that the agreement not to compete was present and that it was being violated. This could include proof of similar activities by their former employer which should have been prohibited according to the agreement.
• The plaintiff must provide proof that their former employer’s actions have had a negative impact on their ability to compete in the same market.
• The plaintiff can seek damages for any losses they have suffered due to their former employer’s breach of the agreement.
• Settlement of the suit may be reached if the former employer agrees to discontinue the activities which were in breach of the agreement not to compete.
• If damages are awarded, they can be calculated based on the plaintiff’s losses due to the breach of the agreement not to compete.

Templates available (free to use)

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