What is a non-compete agreement

A non-compete agreement is a contract, or a clause inside a larger contract, in which one party agrees not to compete with another for a set period, within a defined area, in a defined line of work. It shows up in two very different settings: an employment relationship, where a worker accepts limits on where they can work next, and the sale of a business, where a seller accepts limits so the buyer actually receives the goodwill it paid for.

Signing one and being bound by one are different things. There is no national rule that makes a non-compete enforceable, and no national rule that bans it. Enforceability is decided by the law of the state where the person works, and the states now disagree with each other more sharply than they did five years ago. The same clause can be fully enforceable in Florida, capped in Texas, unenforceable in Minnesota, and grounds for a lawsuit against the employer in California.

This guide describes United States practice. Each state rule below is named in the sentence where it applies, because none of them travel. This is general information, not legal advice about a specific agreement.

Names and adjacent instruments

Non-compete agreement, noncompete, non-competition agreement, covenant not to compete, and non-compete clause all describe the same instrument, and several neighboring documents get called one by mistake. Nothing turns on the label. The word "agreement" suggests a standalone document, but most non-competes live inside something larger: an employment agreement, an offer letter, a separation agreement, an equity grant, a partnership agreement, or a purchase agreement in a deal.

Restrictive covenant is the wider family the non-compete belongs to. The other members of that family are frequently confused with it, and the difference is not cosmetic, because several states regulate the non-compete and leave its cousins alone.

• Non-solicitation agreement. A promise not to approach the former employer's customers or employees. Minnesota's statute voids covenants not to compete but states expressly that the term does not include a non-solicitation agreement or an agreement restricting the use of client or contact lists [4].
• Non-disclosure agreement (NDA), also called a confidentiality agreement. A promise not to use or reveal specified information. Minnesota puts non-disclosure and trade secret agreements outside its ban as well [4]. An NDA restricts what you may say, not where you may work.
• No-hire and no-poach clause. A promise between two businesses not to hire each other's staff. The worker is not a party and usually never sees it.
• Garden leave. The employee stays employed and paid through a notice period, but stops working. Florida's 2025 statute defines a covered garden leave agreement as up to four years of advance notice during which the employer keeps paying the same salary and benefits, and the employee does not have to provide services after the first 90 days [6].
• Forfeiture and repayment clauses. Language that takes back equity, a bonus, or training costs if you go to a competitor. Washington will treat these as non-competes from June 30, 2027, when its definition expands to any provision that requires an individual to return, repay, or forfeit a right, benefit, or compensation as a consequence of engaging in a lawful profession, trade, or business [5].

The meaningful subtypes follow the relationship rather than the drafting. An employment non-compete restrains a worker after separation. A sale-of-business non-compete restrains a seller so that the goodwill transfers with the business. A dissolution covenant restrains partners, members, or shareholders when a business winds up, which Minnesota allows even though it voids the employment version [4]. A franchise covenant restrains a franchisee, and Washington treats a covenant signed in a compliant franchise sale as something other than a non-competition covenant [5]. Courts across the country give the employment version the least room and the sale version the most.

No federal ban is in effect

The Federal Trade Commission (FTC) published a Non-Compete Rule on May 7, 2024. It would have made it an unfair method of competition, and therefore a violation of section 5 of the FTC Act, to enter into non-competes with workers on or after September 4, 2024, and it would have made existing non-competes unenforceable after that date for everyone except senior executives [1].

That rule never took effect. A federal district court in Texas held it unlawful and set it aside in Ryan, LLC v. FTC, finding that the Commission had acted in excess of its statutory authority and that the rule was arbitrary and capricious. On September 5, 2025, the Commission voted 3 to 1 to dismiss its appeals in the Fifth and Eleventh Circuits and to accede to the vacatur. On February 12, 2026, the FTC published a final rule removing the Non-Compete Rule from the Code of Federal Regulations (CFR), leaving part 910 removed and reserved [1]. The agency's own rule page now states that the Noncompete Rule is not in effect and is not enforceable [1].

Federal attention did not stop with the rule. The FTC has continued to challenge specific non-compete programs case by case. On April 15, 2026, it issued a complaint and a proposed consent order against Rollins, Inc., the parent of Orkin, HomeTeam, and Critter Control, over non-competes imposed on more than 18,000 employees. According to the complaint, the agreements typically barred pest-control work for two years within a 75-mile radius of one of more than 700 locations, covered technicians and customer-service representatives, were imposed on employees who could not negotiate and received no extra compensation for signing, and were backed by hundreds of cease-and-desist letters. The Commission also sent warning letters to 13 other companies in the same industry. The final consent order was approved on June 22, 2026 by a 2 to 0 vote, and it requires Rollins to stop enforcing the agreements and to tell current and former employees that they are free to compete, including by starting their own business [2].

Read those two facts together. No federal rule bans non-competes, and a blanket program covering lower-paid workers is still a federal enforcement target.

State law decides enforceability

Five states show the range of what is now possible. Nothing below is a general rule, and none of it applies outside the state named.

California voids them. Every contract by which anyone is restrained from engaging in a lawful profession, trade, or business is void to that extent, and the statute must be read broadly to void any non-compete in an employment context, no matter how narrowly tailored, unless it fits an exception in the same chapter [3]. The state added teeth in 2024. A void agreement is unenforceable regardless of where and when it was signed, entering into one or attempting to enforce one is a civil violation, and the employee can sue for injunctive relief, actual damages, and attorney fees [3]. California employers also had to send individualized written notice, to the last known address and email, telling current employees, and former employees who were employed after January 1, 2022, that their clause was void, by February 14, 2024 [3].

Minnesota voids them prospectively. Any covenant not to compete contained in a contract or agreement is void and unenforceable, with exceptions only for covenants agreed on during the sale of a business or in anticipation of its dissolution. The ban took effect July 1, 2023 and applies to contracts entered into on or after that date, so older Minnesota non-competes are not swept away by it. Employers also may not require a Minnesota-based employee to litigate a Minnesota claim elsewhere or to give up the substantive protection of Minnesota law [4].

Washington is mid-transition. Today a non-competition covenant is void unless the employer disclosed its terms in writing no later than the worker's initial acceptance of the offer, or provided independent consideration if it was signed after employment started, and unless the worker's annualized earnings exceed a threshold that the Department of Labor and Industries adjusts every year. For 2026 the threshold is $126,858.83 for employees and $317,147.09 for independent contractors [5]. A covenant longer than 18 months is presumed unreasonable, and one enforced against a laid-off worker requires the employer to pay their base salary for the enforcement period, less what they earn elsewhere [5]. On June 30, 2027 that regime ends. All non-competition covenants become void regardless of when they were signed, enforcing, threatening to enforce, or even representing that a worker is bound becomes a violation, and employers must make reasonable efforts to notify affected current and former workers by October 1, 2027 [5].

Florida moved the other way. Its long-standing statute enforces restrictive covenants that are reasonable in time, area, and line of business and supported by a pleaded and proven legitimate business interest, and it instructs courts to modify an overbroad restraint rather than strike it, and not to construe it narrowly against the restraint [6]. Then the Florida Contracts Honoring Opportunity, Investment, Confidentiality, and Economic Growth (CHOICE) Act took effect on July 1, 2025. For a covered employee, meaning one earning more than twice the annual mean wage of the relevant Florida county and not a licensed health care practitioner, an employer may use a garden leave agreement of up to four years, a non-compete of up to four years, or both. The employee must be given at least seven days to consider the agreement before the offer expires and must be advised in writing of the right to seek counsel. If the employer sues, the court must preliminarily enjoin the employee, and the injunction can be dissolved only on clear and convincing evidence [6].

Texas enforces on conditions, and caps health care. A covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time it is made, and only to the extent its limits on time, geographic area, and scope of activity are reasonable and impose no greater restraint than necessary to protect the goodwill or other business interest of the promisee [7]. Since September 1, 2025 a physician non-compete must offer a buyout no greater than the physician's total annual salary and wages, expire no later than one year after the contract or employment ends, limit the area to a five-mile radius from the physician's primary practice location, and state its terms clearly in writing, and it is void entirely if the physician is involuntarily discharged without good cause. Comparable limits now apply to dentists, nurses, and physician assistants. Those changes reach only covenants entered into or renewed on or after that date [7].

Purpose and common uses

A non-compete exists to stop a specific kind of loss: someone leaves with knowledge, relationships, or standing built inside the business, and uses them immediately against it. Whether a court accepts that purpose depends on what the employer can actually prove. Florida's statute is unusually explicit about the interests it will recognize, listing trade secrets, valuable confidential business information that falls short of a trade secret, substantial relationships with specific existing or prospective customers, customer goodwill tied to a trade name or a geographic or marketing area, and extraordinary or specialized training, and it voids any covenant not supported by such an interest [6].

In practice, non-competes cluster around a few situations.

• Senior or strategic hires who see pricing, roadmap, margin structure, or acquisition plans.
• Revenue roles where the person becomes the customer's main relationship.
• Sale of a business, where the buyer is paying for goodwill and needs the seller not to rebuild the same business next door. California allows this one by name, permitting a seller of goodwill or of an ownership interest to agree not to carry on a similar business within a specified geographic area where the business was carried on, for as long as the buyer carries on a like business there [3].
• Partner, member, and shareholder exits, including covenants agreed in anticipation of dissolution [4].
• Franchise relationships, where the covenant protects a territory rather than an employer.

The instrument is also far more common than the "senior executive" framing suggests. Research published in the Journal of Law and Economics found that about 18 percent of United States labor force participants were bound by a non-compete and 38 percent had agreed to at least one at some point, that only around 10 percent negotiate the terms, and that roughly a third are presented with the agreement after they have already accepted the job offer [8]. The FTC's pest-control case is the same pattern at scale: technicians and customer-service representatives, no negotiation, no extra compensation [2].

Parties and their obligations

An employment non-compete has two parties: the employer, which is a specific legal entity, and the named individual. A sale-of-business covenant also has two, the buyer and the seller, but the seller is usually an owner rather than an employee, and the covenant often sits in the purchase agreement rather than in any employment paperwork.

Getting the entity right matters more than it looks. If a group runs several operating companies, the entity on the signature block is the one with a covenant to enforce. Successors and assignees are a separate question again, and at least one state answers it in the statute: a Florida court may not refuse enforcement because the person enforcing is an assignee or a successor, provided the covenant expressly authorized that [6]. If a business is bought, merged, or restructured, whether the covenants came along is a document question, not an assumption.

The restrained party's obligation is to stay out of the defined activity, in the defined area, for the defined period. The obligations running the other way are easy to overlook, because they are what usually gets missed in practice. A Washington employer must disclose the covenant by the time the offer is accepted, provide independent consideration if it comes later, and pay a laid-off worker through any enforcement period [5]. A Florida employer using garden leave keeps paying salary and benefits through the notice period [6]. A Texas physician covenant has to carry a buyout [7]. A California employer had a notification duty and now faces a private right of action if it tries to enforce a void clause [3].

Key terms and clauses

Every non-compete turns on the same handful of dials. The dials are set by drafting; the legal ceiling on each one is set by the state.

Duration. How long the restriction runs after separation. Florida presumes any employment restraint of six months or less reasonable and any restraint longer than two years unreasonable, while for a seller of a business it presumes three years or less reasonable and more than seven years unreasonable [6]. Washington presumes anything over 18 months unreasonable [5]. Texas caps physician covenants at one year [7]. Florida's CHOICE Act allows four years for a covered employee [6].

Geographic area. A radius, a list of states, a customer territory, or nothing at all. Texas fixes five miles from the primary practice location for physicians [7]. California ties a sale-of-business covenant to the area where the business was actually carried on [3]. The FTC's complaint against Rollins described a 75-mile radius measured from any of more than 700 locations, which in practice covered most of the country [2].

Scope of restricted activity. The most important dial and the one most often left vague. "Any business competitive with the company" is a different promise from "providing services similar to those you provided to us." Florida's CHOICE Act uses the narrower shape, defining a covered non-compete by reference to services similar to those provided in the three preceding years, or to the likely use of confidential information or customer relationships [6].

Consideration and timing. What the restrained party receives, and when they were asked. Washington requires disclosure no later than acceptance of the offer, and independent consideration for a covenant signed after employment begins [5]. Florida requires that a covered employee get at least seven days before the offer expires, plus written notice of the right to seek counsel [6]. Texas requires the covenant to be ancillary to an otherwise enforceable agreement when it is made [7].

Buyout and paid restraint. Some states let the restrained person buy their way out, or require payment during the restriction. Texas caps a physician's buyout at total annual salary and wages [7]. Washington requires layoff compensation [5]. Florida's garden leave keeps salary and benefits running [6].

Choice of law and venue. A clause naming a friendly state's law is the single most common piece of wishful drafting. California's statute applies regardless of where and when the contract was signed [3]. Minnesota lets an employee void a provision requiring out-of-state adjudication or stripping Minnesota protections [4]. Florida's CHOICE Act applies to a covered employee whose primary place of work is in Florida regardless of any choice of law provision [6].

Reformation. What happens when a term is too broad. Florida courts must modify an overbroad restraint and grant the relief reasonably necessary [6]. California does the opposite: the restraint is void to that extent, no matter how narrowly it was drafted [3]. The same over-long clause is therefore a negotiation in one state and a liability in the other.

Carve-outs and definitions. Read what is excluded as carefully as what is restricted. Washington's 2027 definition exempts non-solicitation agreements, confidentiality agreements, trade secret and invention covenants, covenants signed by someone buying or selling an ownership interest of one percent or more, compliant franchise covenants, and narrow educational repayment agreements that expire within 18 months [5].

Dates and lifecycle events

A non-compete is mostly dormant and then suddenly urgent, which is what makes it easy to mismanage. These are the dates worth holding.

• The signature date. It decides which version of the law applies. Minnesota's ban reaches contracts entered into on or after July 1, 2023 [4]. The Texas health care limits reach covenants entered into or renewed on or after September 1, 2025, and the former law continues to govern everything older [7]. Renewing or re-signing an agreement can move it under a newer rule.
• The separation date. The restricted period almost always starts here, not at signature.
• The notice period. Where garden leave applies, the clock starts at written notice of intent to terminate and runs to the termination date [6].
• The end of the restricted period. The one date nobody records, and the one a former employee and a hiring manager both need.
• Statutory deadlines. These are real calendar events. California employers faced a February 14, 2024 notice deadline [3]. Washington employers face an October 1, 2027 deadline to notify current and former workers that their covenants are void [5].
• The annual threshold reset. Washington's earnings threshold is recalculated every year, so a covenant that is unenforceable against a worker this year can become enforceable after a raise, and the employer has to have flagged that possibility at the outset [5].
• Relocation. Not a date, but an event that changes the answer, because enforceability is judged where the person works.

Risks and common mistakes

Using one national template. A clause drafted for Florida is void in California, unenforceable in Minnesota if signed after July 2023, and non-compliant in Washington unless it was disclosed by the time the offer was accepted [3] [4] [5]. There is no wording that satisfies all four.

Treating a signature as enforceability. The most expensive version of this is building a retention plan, or a hiring decision, on a clause that a court will not enforce. In California, attempting to enforce a void clause is itself a violation and exposes the employer to damages and attorney fees [3].

Missing the procedural steps. Several states make the process part of the rule. Late disclosure, no independent consideration, or a missing seven-day window can be fatal even when the substance is modest [5] [6].

Not knowing where the worker actually works. Governing law in the contract and the law that decides the case are different things, and remote hiring makes the gap wider. California, Minnesota, and Florida all apply their own rules over a contrary choice of law clause in defined circumstances [3] [4] [6].

Blanket coverage of lower-paid staff. Applying the same covenant to every role is what drew federal enforcement in the pest-control matter, and warning letters went to 13 more companies in that industry [2].

Ignoring forfeiture and repayment language. Equity clawbacks and training repayment provisions do the work of a non-compete without the name, and Washington will treat them as non-competes from June 30, 2027 [5].

Losing the executed version. If nobody can produce the signed document, with its exhibits and any amendment, there is nothing to enforce and nothing to reason about. Multiple versions of a template circulating through a company is the same problem in a different shape.

Letting the restricted period run untracked. Obligations that outlive employment need an owner and an end date. Nobody notices an expired restriction, and nobody notices a live one either, until someone is already in a new job.

Judging a deal covenant by employment standards. Sale-of-business restraints are measured differently and are given far more room, which is exactly why they should not be drafted, or reviewed, from the employment template [3] [6].

Contract-management checklist

When an agreement with a non-compete is signed

1. Save the fully executed version, with all exhibits and signature pages, in the system of record, and mark drafts so they cannot be mistaken for it.
2. Record the exact contracting entity from the signature block, not the trading name.
3. Record the state where the person actually works, separately from the governing law named in the contract. If they differ, flag it now rather than at exit.
4. Capture the four operative terms as fields you can filter on: duration, geographic area, restricted activity, and consideration given.
5. Record whether the agreement is an employment covenant or a sale-of-business covenant. They are reviewed against different standards [6].
6. Confirm any procedural step the relevant state requires was completed and evidenced, such as disclosure at offer acceptance or a review window before the offer expired [5] [6].
7. Note any buyout, garden leave, or payment obligation that falls on your side [6] [7].
8. Name a person, not a department, who owns the record, with a backup.

On a schedule

9. Calculate the restricted period end date at separation and set a reminder before it, not on it.
10. Diarise notice-period start and end dates for anyone on garden leave [6].
11. Re-check covenants whenever someone relocates or changes state, because enforceability is decided where they work.
12. Re-check covenants against income thresholds annually where the state uses one, and after any raise [5].
13. Review the population when a state law changes, and act on statutory notice deadlines as calendar events [3] [5].
14. Re-paper rather than amend informally when a role changes materially, and record the new signature date, since it can move the agreement under a newer rule [7].
15. Audit once a year: every covenant on file should have a known state, a known end date, a named owner, and a findable signed document.
16. At exit, record the last day, the restricted period end date, any payment obligations, and where the signed record is archived.

Contracko is AI contract management software built for exactly this kind of work. AI contract analysis reads an uploaded agreement and surfaces the important dates and terms that are easy to miss, the contract repository keeps the signed document, its files, and its metadata searchable in one place, and expiration reminders can be set more than once per contract, assigned to whoever owns the record, and repeated when a contract renews. If you only want to read one document, the free employment contract review tool analyzes an uploaded contract and reports on its restrictive covenants, key dates, and termination terms.

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Sources

[1] Federal Trade Commission, Noncompete Rule status page and the final rule removing 16 CFR part 910 from the Code of Federal Regulations, 91 FR 6507 (Feb. 12, 2026), which recounts the rule's terms, the vacatur in Ryan, LLC v. FTC, and the September 5, 2025 decision to accede to it. ftc.gov/legal-library/browse/rules/noncompete-rule and govinfo.gov/content/pkg/FR-2026-02-12/pdf/2026-02866.pdf

[2] Federal Trade Commission press releases of April 15, 2026 and June 22, 2026 in the Rollins, Inc. matter (the noncompete terms alleged, the 13 warning letters, and the final consent order). ftc.gov/news-events/news/press-releases/2026/04 and ftc.gov/news-events/news/press-releases/2026/06

[3] California Business and Professions Code sections 16600, 16600.1, 16600.5, and 16601 (noncompetes void in employment, the unlawful-inclusion and notice rules, the private right of action, and the sale-of-goodwill exception). leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC

[4] Minnesota Statutes section 181.988 and 2023 Minnesota Laws chapter 53, article 6 (covenants not to compete void, the sale and dissolution exceptions, the choice-of-law protection, and the July 1, 2023 effective date). revisor.mn.gov/statutes/cite/181.988

[5] Washington, chapter 49.62 RCW including the 2026 amendments effective June 30, 2027, and the Department of Labor and Industries noncompetition thresholds for 2026 published at WSR 25-20-099. app.leg.wa.gov/rcw/default.aspx?cite=49.62 and lawfilesext.leg.wa.gov/law/wsr/2025/20/25-20-099.htm

[6] Florida Statutes chapter 542, sections 542.335 and 542.41 to 542.45 (the reasonableness standard and its duration presumptions, and the CHOICE Act definitions, notice rules, and injunction provisions, chapter 2025-213, effective July 1, 2025). leg.state.fl.us/statutes chapter 0542

[7] Texas Business and Commerce Code sections 15.50, 15.501, and 15.52 as amended by Senate Bill 1318, 89th Legislature (2025), effective September 1, 2025. capitol.texas.gov/tlodocs/89R/billtext/html/SB01318F.htm

[8] Evan Starr, J.J. Prescott, and Norman Bishara, Noncompete Agreements in the US Labor Force, Journal of Law and Economics 64, no. 1 (2021) (prevalence, negotiation rates, and timing of presentation). repository.law.umich.edu/facarticles/2263

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