ClauseryNon-compete agreement
A clause or standalone agreement limiting what someone can do after a job or business sale ends — who they can work for, what they can start, and where. These are heavily restricted in many jurisdictions; check local rules before using.
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A non-compete (or covenant not to compete) restricts a person from working for a competitor or starting a competing business for a set time in a set area after leaving. Because they limit someone's ability to earn a living, courts in many places — most notably California, North Dakota, Oklahoma, and (for most US workers starting 2024) the FTC rule (stayed pending litigation) — refuse to enforce them unless they are very narrow or tied to a business sale.
Use this template only after checking the law that applies. In employment, non-competes are hard to enforce in many US states and in most of the EU except in narrow circumstances; they are more commonly enforced when selling a business, where the seller is paid for the goodwill the clause protects.
What to include#
- Parties and context. Who is restricted (employee, contractor, seller) and why the restriction is needed — employment, business sale, partnership exit, or sale of goodwill.
- Restricted activities. Be specific about what counts as competing — a broad "any similar business" clause is usually unenforceable. Name the actual business activities.
- Geographic area. The territory where the restriction applies. Must match where the business actually operates — a nationwide clause for a local business is usually struck down.
- Time period. How long the restriction lasts. 6–12 months is common; more than 2 years is rarely enforced except in business sales.
- Consideration (what they get). The person must receive something in exchange — continued employment is enough in some places; a payment, severance or equity is safer. Without consideration the clause is worthless.
How to fill it in#
Step 1: Check local enforceability first
Confirm non-competes are enforceable at all for your situation (employment vs sale of business, state/country).
Step 2: Keep it narrow
Define the restricted business specifically, keep territory to where you actually operate, and keep duration short.
Step 3: Name consideration
State what the person receives for agreeing — a bonus, severance, equity, or the sale price of the business.
Step 4: Add a blue-pencil clause
A severance/blue-pencil clause asks the court to narrow rather than void the clause if it is found too broad.
Step 5: Get legal review
Non-competes are one of the most-litigated contract clauses. Have a local employment lawyer review before asking someone to sign.
Related templates and guides
Questions
Are non-competes enforceable in California?
Generally no — California Business & Professions Code §16600 voids most non-competes, with narrow exceptions for sale of a business.
Can I make an employee sign one?
In most US states you can ask, but enforceability varies. Many states require consideration beyond continued employment. Since 2024 the FTC has proposed a ban on most employee non-competes (rule currently stayed).
What happens if it is too broad?
Most courts either "blue pencil" it (narrow it) or throw the whole clause out. Some states will not rewrite — an over-broad clause is simply void.
Do I need one as a freelancer?
Almost never. Non-competes that stop a freelancer from serving other clients are usually unenforceable; a non-solicit or NDA is more appropriate.
Does it survive termination?
Yes — it only starts to apply after termination. It does not apply during employment because the employee already owes a duty of loyalty.
These are general templates, not legal or tax advice. Have anything unusual reviewed for your jurisdiction.