Career Planning Succeeding at Work What Is a Non-Compete Agreement? By Susan M. Heathfield Susan M. Heathfield Susan Heathfield is an HR and management consultant with an MS degree. She has decades of experience writing about human resources. learn about our editorial policies Updated on September 13, 2022 Fact checked by Yasmin Ghahremani In This Article View All In This Article Example of a Non-Compete Agreement Advantages for Employers Pros and Cons for Employees What Can a Non-Compete Cover? Are They Enforceable? What If I Ignore an Agreement? Frequently Asked Questions (FAQs) Photo: Robert Daly / Getty Images Definition A non-compete agreement is a contract or a clause in an employment contract that forbids you from working for competitor organizations for a specific period of time, usually after you leave your current employment. Key Takeaways A non-compete agreement is a signed contract between an employer and employee that limits how and where an employee can work after their employment is terminated. In many cases, you must sign one to be hired. Non-compete agreements are enforceable in most states, but they must be reasonable, not overly restrictive, and often must serve a legitimate purpose for the employer.If you ignore a non-compete agreement, you risk being sued by your former employer. It’s best to stick to the terms of the agreement or see a lawyer if you think the agreement is unenforceable. How Does a Non-Compete Agreement Work? A non-compete agreement is a written legal contract between an employer and an employee. The non-compete agreement lays out binding terms and conditions about your ability to work in the same industry with competing organizations after leaving your current job. A non-compete agreement can also restrict you from taking clients (or bringing skills and/or proprietary information you got from your current job) with you if you leave your position. The legal idea behind it is that you should not be able to use resources from your current job to benefit a future employer—or yourself, if opening a competing business. Example of a Non-Compete Agreement Let’s say a florist hires a new floral designer and asks the designer to sign a non-compete agreement. It states that should the designer leave their position, they cannot poach existing clients, take client lists with them, or work as a floral designer within a five-mile radius for a period of two years. Employer Advantages of a Non-Compete Agreement Employers benefit from non-compete agreements because the agreements keep former employees from sharing with competitors industry experience, knowledge, trade secrets, client lists, potential clients, strategic plans, and other information that is confidential and proprietary to the employer. This benefits an employer by protecting the viability of their business, their products, and their processes. It also may help reduce employee turnover and give the employer greater bargaining power in negotiations with workers. Employee Advantages and Disadvantages of a Non-Compete Agreement On the one hand, employees receive a perceived benefit in exchange for signing a non-compete agreement as part of their employment contract: their job. A promotion (or pay-raise) in return for their signature also qualifies as something of value. Note In some states it is legal for an employer to require an employee to sign a non-compete agreement after an employee has already started work, but such circumstances may face more scrutiny if challenged in court. Additionally, a non-compete agreement may reduce the likelihood that your colleagues will quit on a whim, which may lead your employer to invest more into their workforce by way of increased benefits, fringe benefits, training, and employee education. The downsides of non-compete agreements may seem a little more obvious: Employees lose bargaining power, can be forced to leave their industry or work further from home then they’d prefer, and can have a hard time finding new work. In many cases, these agreements seem to benefit the employer at the expense of the worker. What Else Can a Non-Compete Agreement Cover? A non-compete agreement may also: limit a former employee's ability to recruit the employer's staff to a competing enterprise, prohibit the former employee from contacting customers and former customers of the employer, prevent the use of sales leads obtained while employed, prohibit employment in the same field within a specific geographic radius, and prohibit the former employee from developing similar products and services or starting a competing business without express permission from the former employer. Are Non-Compete Agreements Legally Enforceable? While each state views the enforceability of non-compete agreements differently, the legal system generally favors employees in non-compete litigation. The courts tend to find that the individual employee's right to make a living is more important than enforcing the terms of a non-compete agreement that only benefits the employer. However, that is not to say that non-competes are pointless. Non-compete agreements are generally allowed in most states. (Though in some states, including California, Oregon and Colorado, the courts will not enforce a non-compete agreement.) Other states limit the use of non-compete agreements. Note Generally speaking, a non-compete agreement that is reasonable in terms of how restrictive it is with respect to duration and geographic location is more likely to be enforceable; additionally, the company must have a legitimate purpose for enforcing a non-compete agreement. For example, a court may view the florist example given above as enforceable. However, if the agreement instead stated that the designer could never work as a florist within the United States again, it would probably not be enforceable for being too restrictive of the floral designer’s necessity to earn a living. A non-compete agreement that covers integral components of the actual job description and responsibilities is more likely to be enforceable. A non-compete agreement that is tied directly to the possession of confidential and proprietary information, which if revealed, could seriously damage the former employer's business interests, is also more likely to be enforceable. What Happens If I Ignore a Non-Compete Agreement I Signed? Your employer may do nothing, but they also could file a lawsuit against you, or get a court injunction ordering you to stop the competitive action immediately. That could forbid you from working for a competitor longer than your original non-compete with your former employer. You may want to stick to the non-compete terms until the agreement expires. If you feel you can’t do that or that the agreement was unfair, you should consult an attorney with employment law experience in your state. Frequently Asked Questions (FAQs) How can I get out of a non-compete? You may be able to get out of a non-compete if you live in a state where such agreements are not enforceable, if the non-compete is unnecessarily restrictive, or if it is not worth it to the company to litigate over the breach of the non-compete agreement. See a lawyer if you think one of those situations applies to you. Can I work for a competitor if I signed a non-compete? If the specific language of the non-compete agreement states that you cannot work for a competitor, then your former employer may be able to successfully sue you (so long as the non-compete agreement is not overly restrictive). However, litigation is costly and it may not be worth it to the employer to sue you. Updated by Vanessa Bellucci Markos Vanessa Bellucci Markos As an attorney, Vanessa spends her time assisting her clients with estate planning, Medicaid planning, probate, and general business counseling matters. Her estate planning work includes critically thinking through the specifics of each client's estate plan (and the potential tax implications thereof) and the drafting of wills, trusts, health care directives, and powers of attorney. learn about our editorial policies Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Cornell Law School Legal Information Institute. "Covenant Not To Compete." U.S. Department of the Treasury Office of Economic Policy. "Non-Compete Contracts: Economic Effects and Policy Implications. Page 3. New York State Attorney General. "Non-Compete Agreements in New York State Frequently Asked Questions." Page 1. Bouchillon, Crossan & Colburn, L.C. “How Do I Get Around a Non-Compete Agreement?”