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Home Business Non-Compete Agreement Employee

Employee Non-Compete Agreement Template

Prohibit an employee from working for a competitor or similar area of work to protect intellectual property and customer lists or vendor relationships.

Updated July 4, 2023 | Legally reviewed by Brooke Davis

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. 

A non-compete agreement is considered a “restrictive covenant” under the law. It limits the employee’s right to contract and seek employment. Because of this, employers who use these agreements must be careful when they present them.

A non-compete agreement cannot be given to the employee before a formal job offer has been made, nor may it be given after the employee has been terminated.

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 Employee Agreements are 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.

FTC Proposed Rule

On January 5, 2023, the Federal Trade Commission (FTC) proposed a rule which would make non-compete agreements illegal and invalid in all employment contracts. The public comment period closed on April 19, 2023, and is now under review.

Employers considering using non-compete agreements should monitor the FTC website for updates on this rule, as it is intended to be retroactive to existing contracts and agreements.

Legally Allowed? – By State

The following is a list of the states which allow non-compete agreements as of the date of this page.

State Legally Allowed Does Continuing Employment Equal Sufficient Consideration? Enforceable When Terminated Without Cause?
Alabama Yes Yes Yes
Alaska Yes Not Decided Not Decided
Arizona Yes Yes Not Decided
Arkansas Yes Yes Not Decided
California No W/Exceptions No N/A
Colorado Yes Yes Not Decided
Connecticut Yes No Yes
Delaware Yes Yes Yes
DC Yes Yes Not Decided
Florida Yes Yes Not Decided
Georgia Yes Yes Yes, Factor
Hawaii Yes Yes Not Decided
Idaho Yes Yes Yes
Illinois Yes Yes For Agreements Pre-January 1, 2022: Yes For Agreements Entered On Or After January 1, 2022: No*
Indiana Yes Yes Yes
Iowa Yes Yes Yes, Factor
Kansas Yes Yes Yes
Kentucky Yes No Yes, Factor
Louisiana Yes Yes Yes
Maine Yes Yes Yes
Maryland Yes Yes No
Massachusetts Yes No No (Per New Statute; Yes Before)
Michigan Yes Yes Yes
Minnesota Yes Yes Yes
Mississippi Yes Yes Yes, Absent Bad Faith Or Arbitrary Basis For Termination
Missouri Yes Yes Yes
Montana Yes No No
Nebraska Yes Yes Not Decided
Nevada Yes Yes Undecided**
New Hampshire Yes Yes Not Decided
New Jersey Yes Yes Yes, Factor
New Mexico Yes Yes Not Decided
New York Yes Yes Cases Split
North Carolina Yes No Yes
North Dakota No No N/A
Ohio Yes Yes Yes
Oklahoma No Not Decided N/A
Oregon Yes No Not Decided
Pennsylvania Yes No Yes, Factor
Rhode Island Yes Yes Not Decided
South Carolina Yes No Not Decided
South Dakota Yes Yes Yes, Factor
Tennessee Yes Yes Yes, Factor
Texas Yes No Yes
Utah Yes Yes Yes
Vermont Yes Yes Not Decided
Virginia Yes Yes Yes
Washington Yes No Yes
West Virginia Yes No Not Decided
Wisconsin Yes Yes Not Decided
Wyoming Yes No Yes

* 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

Whether you use a downloadable employee non-compete agreement or create your own, your non-compete agreement should contain these 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 more restrictive the area, the more likely the agreement will be valid. 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 employee.
  • 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

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

Step 2 – Employee Covenants (Agrees)

For [number] of months/years not to engage in any business similar to that of Company.

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.

Employee Non-Compete Agreement Sample

Download PDF
Download MS Word

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

Can a non-compete agreement be negotiated?

Non-compete agreements are often negotiable. You must communicate with your employer or seek legal help to explore your options and aim for fair and reasonable terms for both parties.

By starting discussions and presenting valid reasons for changes to the terms, there is a possibility of reaching a mutually beneficial agreement.

What happens if a non-compete agreement is violated?

There can be legal repercussions When a non-compete agreement is violated. The consequences vary depending on the terms outlined in the agreement and the relevant laws in your jurisdiction. Violating a non-compete agreement may lead to actions such as injunctions, monetary damages, or other remedies as determined by the court in accordance with the agreement and applicable law.

Can a non-compete agreement be challenged in court?

It is possible to challenge the enforceability of a non-compete agreement in court if there are valid grounds to do so. Consult a legal professional who can assess the agreement, understand your rights, and determine if there are lawful bases for challenging its enforceability.

The court will evaluate factors such as the reasonableness of the restrictions, the impact on your ability to secure employment, and the legitimate business interests safeguarded by the agreement.

Related Employment Documents

  • Employee Non-Disclosure Agreement: An employee NDA is used to make sure employees don't use or make public information learned while working through the company.
  • Employment Termination Letter: A document that formally notices an employee that they are being fired or laid off.
  • Employee Onboarding Checklist: Keep track of each element of the onboarding process.

Create an Employee Non-Compete Agreement here!

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Employee Non-Compete Agreement Sample

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