What It Does
A non-compete clause is a contractual provision that restricts one party, often an employee, seller, or contractor, from engaging in competing activities for a defined period, within a defined geographic area, and against a defined scope of business. Courts assess enforceability by whether the restriction is reasonable in time, geography, and scope, and whether it protects a legitimate business interest. Enforceability varies sharply by jurisdiction: California, Minnesota, and several other states void most employee non-competes, and federal regulators have moved to limit them, so the governing law often decides the outcome.
Restricts the covered party from competing within a defined scope of business
Sets the geographic area where competition is restricted
Fixes the duration of the restriction after the relationship ends
Ties the restriction to a legitimate business interest, such as trade secrets or customer goodwill
Often pairs with non-solicitation and confidentiality obligations to protect the same interests
State legislatures and federal regulators have moved steadily to narrow or ban employee non-competes, making jurisdiction the central drafting question.
When You'll See It
Non-compete clauses appear in employment agreements, executive offer letters, M&A purchase agreements, partnership and equity agreements, and some vendor and franchise contracts. The drafting and enforceability vary most by jurisdiction and by context: a non-compete tied to the sale of a business is treated far more favorably than one in an ordinary employment contract. See also: non-solicitation, confidentiality, and intellectual property assignment.
Examples
NIKE, Inc.
Elliott Hill, Covenant Not to Compete and Non-Disclosure Agreement
Time-limited (18 mo), worldwide
One-Sided
2024
“...and for eighteen (18) months thereafter (the ‘Restriction Period’), Employee will not directly or indirectly own, manage, control, or participate in the ownership, management or control of, or be employed by, consult for, or be connected in any manner with, any business engaged anywhere in the world in the athletic footwear, athletic apparel or sports equipment, sports electronics/technology and sports accessories business, or any other business that directly competes with NIKE...”
Performance Food Group, Inc.
Patrick T. Hagerty, Letter Agreement
Activity-scope, nationwide
One-Sided
2024
“‘Competitive Business’ means any other person or entity which is engaged in or preparing to become engaged in (x) distributing, managing, processing, cutting, and/or packaging food and foodservice products and associated inventory, as well as related services ... to restaurants, schools, hospitals, convenience stores and/or other institutions or establishments that serve food...”
Ingevity Corporation
Steven Hulme, Employment Offer Letter
Activity-scope (2-yr look-back)
One-Sided
2022
“...own, maintain, finance, operate, invest or engage in any business that competes with the businesses of the Company and its affiliates in which [you] were materially involved during the two years prior to your termination; or (ii) provide services, as an employee, consultant, independent contractor, agent or otherwise, to any business that competes with the Company and its affiliates...”
ACI Worldwide, Inc.
Executive, Severance Agreement
Geographic (Restricted Territory)
One-Sided
2022
“For a period of 18 months following the Date of Termination, Executive will not: (1) enter into or engage in any business that competes with the Company’s Business within the Restricted Territory; (2) solicit customers with which Executive had any contact or for which Executive had any responsibility ... at any time during the one year prior to such Date of Termination...”
Zimmer GmbH (Zimmer Biomet)
Jehanzeb Noor, Confidentiality, Non-Competition, and Non-Solicitation Agreement
Garden leave (paid non-compete)
One-Sided
2025
“To the extent Employee is unable to obtain employment consistent with Employee’s training and education solely because of the provisions of this Agreement, the following terms will apply upon expiration of any severance benefits ... (‘Non-Competition Period Payments’): (a) Employer will make payments to Employee equal to 100% of the Employee’s monthly base salary at the time of Employee’s termination...”
Negotiate
You are protecting the business
Tie the non-compete to a specific legitimate interest: trade secrets, customer goodwill, or specialized training.
Keep the duration reasonable for the jurisdiction, often 6 to 24 months.
Limit geography to where the business actually competes, not a blanket nationwide ban.
Pair it with non-solicitation and confidentiality so protection survives even if the non-compete is voided.
For M&A, tie the restriction to the seller and the goodwill acquired, where courts enforce it more readily.
You want freedom to work
Narrow the scope to the specific role or product line, not the entire industry.
Shorten the duration and the geographic reach.
Add a carve-out for passive investment and for work that does not use confidential information.
Seek a garden-leave or paid-during-restriction provision where the law requires consideration.
Confirm the governing law is a jurisdiction that scrutinizes or limits non-competes.
A non-compete is only as good as the state law behind it. Before you rely on one, confirm it is enforceable where it will be litigated, and back it with non-solicitation and confidentiality that stand on their own.
Red Flags
A duration or geographic scope so broad it is likely unenforceable, which can void the whole restriction
A non-compete in a jurisdiction such as California that voids most employee non-competes, offering false comfort
No legitimate-business-interest hook, leaving the restriction as a bare restraint on competition
A restriction not supported by consideration where the governing state requires it
Reliance on the non-compete alone, with no non-solicitation or confidentiality backstop if it falls
FAQs
This content is for informational purposes only and does not constitute legal advice.
