Non-Compete Agreements: When They Actually Hold Up

It was in the offer letter, somewhere after the equity schedule. You signed the whole packet on day one and never read that page again. Now you have a better offer from a competitor.

The honest answer is that it depends on your state, and the range is enormous. In California the clause is void and always was. In Florida it is presumptively enforceable if it protects a legitimate interest. Same document, opposite outcome.

This guide covers what courts actually test, which states have banned non-competes outright, what happens to a clause that reaches too far, and why the calculus changes completely once a European or Brazilian employee is involved.

In April 2024 the Federal Trade Commission finalised a rule banning nearly all non-compete agreements, with a narrow carve-out for senior executives on existing contracts. It was scheduled to take effect that September.

It never did. In Ryan, LLC v. FTC, the Northern District of Texas held that the Commission had exceeded its authority and set the rule aside with nationwide effect in August 2024.

The practical consequence matters more than the litigation history. Employers who had already prepared notices to employees were told to hold them. Employees who read the headlines in spring 2024 and concluded their clause was dead were wrong.

What did change is the temperature. States legislated hard in the same period, agencies kept bringing individual enforcement actions, and courts have become measurably less patient with clauses that read like they were copied from a template. The federal rule failed; the direction of travel did not reverse.

Outside the states that ban them outright, courts apply a version of the same three-part inquiry. Cornell's Wex entry on noncompetition agreements is a useful starting point on the doctrine. The wording differs by jurisdiction. The structure does not.

A legitimate protectable interest. Trade secrets, confidential business information, customer relationships the employee developed on the company's time, and specialised training the company paid for. Ordinary skill is not protectable. Neither is the general desire to stop someone competing, which is the reason most clauses fail this step when they are litigated.

Reasonable scope. Three dimensions, all assessed together.

No undue hardship or public harm. A clause that leaves the employee unable to work in their profession fails. So does one that removes a scarce provider from a community, which is why physician non-competes are separately regulated in many states.

The three parts interact. A two-year term over one county may survive where six months across three states does not. Courts weigh the whole restraint, not each element in isolation.

A non-compete is a contract term, so it needs consideration like any other. The fight is almost always about clauses signed after employment began.

Sign one on day one and the job itself is the consideration. Sign one in year four and the question is what you received for it.

States split three ways. Some hold that continued employment is enough on its own. Some require independent consideration, meaning a raise, a bonus, a promotion or equity given specifically for the signature. Some apply a middle rule where continued employment counts only if the employee stays for a substantial period afterwards.

The practical lesson for employers is short. If you are rolling out new restrictive covenants to an existing workforce, attach something to them and document it. A bare signature request with nothing on the other side is the easiest kind of clause to defeat.

For employees the lesson is the mirror image. If you were asked to sign mid-employment and got nothing for it, that fact is worth raising before you assume the clause binds you.

Four states void employee non-competes almost entirely, and the list has grown.

California is the strongest and the oldest. Business and Professions Code section 16600 makes every contract restraining someone from engaging in a lawful profession void, with narrow exceptions for the sale of a business. Senate Bill 699, effective January 2024, went further: a non-compete is unenforceable in California regardless of where and when it was signed, and an employer who tries to enforce one commits a civil violation. An out-of-state clause does not survive an employee's move to California.

Minnesota banned new employee non-competes agreed on or after 1 July 2023. Existing ones were left alone.

Oklahoma and North Dakota have long-standing statutory prohibitions with limited exceptions.

A larger group restricts rather than bans. Several states set income floors below which a non-compete cannot be used at all, notably Colorado, Illinois, Washington, Oregon, Maine, Maryland, New Hampshire, Rhode Island, Nevada, Virginia and Massachusetts. Others require advance notice before signing, cap duration by statute, or exclude particular occupations.

The governing law clause does not settle this. Courts routinely refuse to apply another state's law where doing so would defeat their own public policy on restraints of trade, and California legislated to say so explicitly.

Three approaches exist, and the difference between them is the difference between a partial win and total loss.

Reformation, sometimes called the equitable approach. The court rewrites the clause to what would have been reasonable and enforces that. Texas and Florida broadly work this way, and so a five-year national restraint may come back as one year in two counties.

Blue pencil. The court may delete words but may not add or rewrite. If the clause is drafted so that striking a phrase leaves a coherent restraint, it survives in reduced form. If it is drafted as a single unbroken sentence, deletion breaks it and nothing is left.

Red pencil, or all-or-nothing. An overbroad restraint is void in its entirety. Nebraska and Virginia have been strict here. The employer who overreached gets no protection at all.

This is why careful drafting separates the restraint into distinct, severable components rather than one long provision. Under a blue-pencil rule, structure is what saves you.

Most of what employers actually want is available through narrower clauses that survive far more reliably.

Customer non-solicitation. The former employee may compete but may not approach the clients they served. Courts uphold these more readily because the restraint is tied to a relationship the employer genuinely built.

Employee non-solicitation, or no-poach. Sometimes called an anti-raiding clause. Enforceable in most states, though a few now restrict them and antitrust regulators have taken an interest in agreements between employers.

Confidentiality and trade secrets. A properly drafted NDA plus state and federal trade secret law protects the information itself without restricting where the person can work. It is indefinite in duration for genuine trade secrets, which a non-compete never is.

Garden leave. The employee stays on payroll during a notice period and does not work. Expensive, and it removes the enforceability question entirely because the person remains employed.

Run the honest test before drafting. If the real concern is a client list, use a non-solicit. If it is technical information, use an NDA. A non-compete is the blunt instrument, and blunt instruments are what courts strike down.

This is where US practice diverges most sharply, and where US employers with staff in Europe or Brazil get caught out.

In France, Germany, Spain and Brazil, a post-employment non-compete without financial compensation does not bind the employee. The obligation to pay is not a negotiating point. It is a condition of validity.

German law adds a mechanism worth understanding. Under § 74a HGB a clause offering less than the statutory half is not simply void: it is unverbindlich, meaning non-binding on the employee. They may ignore it and take the competing job, or honour it and claim the statutory 50% anyway. The choice is theirs.

France requires five conditions together, and the Cour de cassation made financial compensation one of them in a 2002 decision that reshaped French practice. A clause missing any one of the five cannot be enforced against the employee.

Spain writes the limits into statute. Article 21.2 of the Workers' Statute caps the restraint at two years for technical staff and six months for everyone else, and requires both a genuine industrial or commercial interest and adequate compensation.

Brazil has no dedicated statute for post-employment restraints, so courts build the test from constitutional freedom of occupation and the good-faith provisions of the Civil Code. The requirements land in the same place: limited in time, territory and activity, and paid for. Commercial transfers are different and explicitly regulated: article 1.147 of the Civil Code bars the seller of a business from competing with the buyer for five years unless the contract says otherwise.

The operating rule for a US employer is simple. Do not paper a European or Brazilian hire with the US template. It will not bind, and in Germany it may hand the employee a choice you did not intend to give.

Six decisions do most of the work.

Start from the interest, not the restraint. Write down what you are actually protecting. If you cannot name it in a sentence, a court will not find it either.

Set duration from the decay of the information. How long does the confidential material stay valuable? That is your term, and it is usually shorter than the year you were going to write.

Draw geography from the employee's territory. Not the company's markets, not everywhere you might expand.

Name the activity precisely. "Any competing business" is the phrase that loses cases. Describe the role.

Make the components severable. Separate sentences, separate subclauses. Under a blue-pencil rule this is what lets a court save the clause instead of discarding it.

Give consideration and record it. Especially mid-employment, and especially in writing.

The last point is procedural and it decides more disputes than people expect. When enforcement is contested, the first argument is often about which version was signed and when. A signature captured against a document hash with a timestamp removes that argument entirely; a signature page circulating as a loose PDF invites it.

On the drafting itself, our guides on breach of contract and the difference between a contract and an agreement cover what happens when a restrictive covenant is ignored, and what a wet signature is covers the execution formalities.