Non-compete agreements: what they are and when they hold up

A non-compete clause restricts an employee from working for a competitor, or starting a competing business, for a set period after leaving. The rules that apply to them vary considerably from one state to another, and they continue to change.

Where the law stands

In the United States, enforceability is mostly a matter of state law. Some states refuse to enforce non-competes altogether, others restrict them for lower-paid workers or particular professions, and many will enforce them only if they are reasonable. A national rule proposed by the Federal Trade Commission was set aside by a federal court and did not take effect, so advice should be based on the law of the state that governs your agreement.

What courts usually consider

• Whether the employer has a legitimate interest to protect, such as confidential information or client relationships.
• The duration of the restriction, with a few months to two years most often seen.
• The geographic area and the type of work restricted.
• Whether the employee received something of real value in exchange.
• Whether the clause is broader than needed for that legitimate interest.

For employees

Read the clause before you accept an offer, and negotiate it at that point, when you have most leverage. If you are already bound, seek advice before you begin new work. Related restrictions on soliciting clients or staff, and on the use of confidential information, are often easier for employers to enforce.

For employers

Tailor the restriction to the role. A narrow clause that protects a real interest is far more likely to be upheld than a blanket one, and overbroad clauses can create legal and reputational risk.