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Non-Compete Clause

A contractual provision that restricts a party from competing with the other for a defined time, area, and scope of activity.

Reviewed by GC AI Solutions Team•Updated August 2026

Definition

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.

What It Does

A non-compete clause limits where and how a person or company can compete after a relationship ends. For in-house counsel, it sits at the intersection of protecting legitimate interests, trade secrets, customer relationships, and goodwill, and a growing body of law that disfavors restraints on competition. The clause defines the restricted activity, the geography, and the duration, and its enforceability rises or falls on whether those three are reasonable under the governing state’s law.

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 AgreementTime-limited (18 mo), worldwideOne-Sided2024
“...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...”
Source

Performance Food Group, Inc.

Patrick T. Hagerty, Letter AgreementActivity-scope, nationwideOne-Sided2024
“‘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...”
Source

Ingevity Corporation

Steven Hulme, Employment Offer LetterActivity-scope (2-yr look-back)One-Sided2022
“...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...”
Source

ACI Worldwide, Inc.

Executive, Severance AgreementGeographic (Restricted Territory)One-Sided2022
“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...”
Source

Zimmer GmbH (Zimmer Biomet)

Jehanzeb Noor, Confidentiality, Non-Competition, and Non-Solicitation AgreementGarden leave (paid non-compete)One-Sided2025
“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...”
Source

Negotiate

If you want to enforce the restriction:

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.

If you are the restricted party

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

Non-Compete Clause FAQs

What is a non-compete clause?
A non-compete clause is a contractual provision that restricts a party from competing with the other for a defined time, within a defined area, and across a defined scope of activity.
Are non-compete clauses enforceable?
It depends heavily on jurisdiction. Many states enforce reasonable non-competes that protect a legitimate business interest, while others, including California, void most employee non-competes. Courts generally require the restriction to be reasonable in time, geography, and scope.
What is the difference between a non-compete and a non-solicitation clause?
A non-compete restricts working for or starting a competing business. A non-solicitation clause restricts soliciting the company's customers or employees. Non-solicitation is narrower and is enforced more readily in many jurisdictions.
How long can a non-compete last?
Enforceable durations are usually short, commonly 6 to 24 months in jurisdictions that permit them. Longer restrictions face greater scrutiny, and a non-compete tied to the sale of a business may be enforced for a longer period.
Does a non-compete need separate consideration?
In many states, yes. Some jurisdictions require new consideration, such as a signing bonus or promotion, to enforce a non-compete entered into after employment begins, while others treat continued employment as sufficient.
Can a company enforce a non-compete after firing an employee?
It depends on the jurisdiction and the circumstances. Some courts decline to enforce a non-compete when the employer terminated the employee without cause, while others enforce it regardless, so the governing state's law controls.

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This content is for informational purposes only and does not constitute legal advice.