Employee Non-Compete Agreement Template

An employee non-compete or non-competition agreement is a clause included in an employment contract. It prohibits an individual or entity from working in the same type of business or area of work for a certain period or within a specific geographical range.

Table of Contents

• Are Employee Non-Compete Agreements Legal?
• Legally Allowed? - By State
• Non-Compete Clause
• What to Include
• How to Write
• Employee Non-Compete Agreement Sample
• Ethical Considerations
• Frequently Asked Questions

Are Employee Non-Compete Agreements Legal?

Non-compete agreements are still legal as long as they have been drafted by the state’s laws and are narrowly written to protect a legitimate business concern. At present, no states have made non-compete agreements illegal.

Legally Allowed? – By State

Here is a summary of how non-compete agreements are currently treated in various states. Note that the new Federal Rule supersedes state laws that permit non-compete clauses:

* If the employer enters a non-compete with an employee who is terminated, furloughed, or laid off “as the result of business circumstances or governmental orders related to the COVID-19 pandemic,” unless the employee is paid the equivalent of their base salary (fewer earnings from new employment).

** Except in connection with a reduction in force, “reorganization or similar restructuring of the employer,” in which case the employee must be paid “salary, benefits or equivalent compensation,” including severance.

Non-Compete Clause

If you have an existing employment contract, you can use this standard non-compete clause with your current agreement:

”[Insert employee name] agrees and covenants (Check all that apply) ☐ during the term of this Agreement ☐ for a period of [insert number of months the clause will last] months following the voluntary or involuntary termination of employment, not to: (Check all that apply)

☐ Provide goods or services which directly or indirectly compete with [insert company name]
☐ Invest either directly or indirectly in a business that directly or indirectly competes with [insert company name]
☐ Solicit [insert company name] employees to leave their employment
☐ Engage in any other activities that result in injury to [insert company name]
☐ Other: [insert any other terms].’‘

What to Include

Ensure your non-compete agreement includes the following elements:

• Compensation: If this agreement is an addendum to an existing employment agreement, there must be an additional payment for it to be effective.
• Geographic region: The agreement should be reasonable and not overly restrictive. The employee must be able to find employment within a reasonable distance upon termination.
• Time frame: A non-compete may not be indefinite or last an excessive time. Some courts have found more than a year to be too lengthy.
• Industry: The non-compete must be specific to your business or the employee’s specialization.
• Competitors: It is not necessary to list all your competitors within the region, but a court should be able to see the limits you are trying to place on your employees.
• Damages: You should indicate the relief you seek if the employee breaches the agreement. Usually, it is injunctive (an order to stop working for the new employer) rather than monetary (money damages).

To be enforceable, a non-compete agreement may not restrict an employee from working anywhere in any capacity. It must only limit them from doing identical work for your immediate competitors.

How to Write

You can follow these step-by-step instructions if you decide to use our downloadable employee non-compete template.

Step 1 – Date, Parties, Location

Add the date, parties, and location information where the agreement is completed.

Step 2 – Employee Covenants (Agrees)

Specify the restrictions in terms of time and scope.

Step 3 – Confidentiality Agreement

Applicable or inapplicable. This box should be checked if the employer wants the agreement to contain confidentiality and non-compete agreements. Otherwise, they should leave it blank, and the agreement will not include the confidentiality agreement. Employers should note that states are likelier to enforce a confidentiality agreement than a non-compete agreement.

Step 4 – Governing Law

Enter the state where this agreement is to be enforced.

Step 5 – Dispute Resolution

• Court litigation: If this choice is selected, enter state or district court. Employers should note that some jurisdictions may require or assign cases to mediation before litigation.
• Arbitration: The American Arbitration Association is the default agency that oversees arbitration nationwide. Some companies have their preferred arbitrators, which may already be listed in the employment agreement. Employers should verify what type of dispute resolution their legal department uses when creating an agreement.

Step 6 – Signatures

To make the agreement binding, ensure the company representative/HR and the employee sign.

Employee Non-Compete Agreement Sample

Below, you can download an employee non-compete agreement template in PDF or Word format.

Ethical Considerations

Non-compete agreements must be handled ethically to balance protecting business interests and respecting employee rights. Keep the following points in mind when using employee non-compete agreements:

1. Fairness: Employers should use non-competes to protect legitimate business interests, not stifle employee career growth.
2. Transparency: Employers must communicate the implications of a non-compete agreement to the employees.
3. Proportionality: Agreements should be reasonably limited in duration, geography, and scope to avoid overly restricting employees’ future career options.
4. Consideration: Employers should provide adequate compensation or benefits in return for the restrictions imposed by the non-compete.
5. Employee Well-being: Employers should consider the impact of non-compete agreements on employees’ well-being and livelihood. It may not be ethically justifiable if the agreement causes undue stress or financial hardship.

Frequently Asked Questions