What Is A Non-Compete Agreement? (2026)

Understanding Non-Compete Agreements and How They Work

What is a non-compete agreement? This contract restricts the commercial activities of a person or business so they do not infringe on another’s line of commerce.

In some cases, these agreements address legitimate concerns, but they can also be misused to restrict workers’ mobility or engage in anticompetitive practices. For example, a business might use non-compete agreements to dissuade employees from quitting since they cannot move to a similar position with a competitor.

Similarly, a software company might use non-compete agreements in its vendor agreements to prevent customers from installing competitors’ software.

On the other hand, a properly tailored non-compete agreement might protect a company’s proprietary information and trade secrets. A non-competition contract, for instance, might protect business relationships by blocking employees, contractors and business partners from poaching clients and parts suppliers.

This type of agreement can also be used to preserve proprietary information and trade secrets. A company could use these agreements to prevent a former worker from using the unique processes and workflows they learned during their employment to compete against it.

Key Components That Make a Non-Compete Enforceable

What is a non-compete agreement drafting process that increases the likelihood of enforceability? If you need to negotiate or draft a non-compete agreement, consider using templates customized for your state. Each state has unique rules for enforcing these agreements, and many states restrict or ban them.

Non-compete agreements incorporate different terms depending on their use. Some examples of non-compete templates include the following:

• For employees, create an employee non-compete agreement.
• For independent contractors, create a contractor non-compete agreement.
• For business sales, create a sale of business non-compete agreement.

Some common components shared by all of these agreements include the names and signatures of all the parties, the limitations imposed and the duration of those limitations.

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States That Ban or Restrict Non-Compete Clauses

Several states restrict when and how courts will enforce non-compete agreements. Most states require these agreements to have reasonable limits in scope.

However, some states go even further. For example, Oklahoma bans all non-compete agreements, except those that block former employees from soliciting sales from a prior employer’s established customers. California, North Dakota and Minnesota have also banned them.

Non-Compete vs. Non-Solicitation vs. NDA

Non-compete agreements often overlap with non-solicitation agreements and non-disclosure agreements (NDAs). What is a non-compete agreement’s key difference compared to these agreements?

A non-compete agreement focuses on the work you perform. You are usually limited in the roles and industries in which you can work or run a business.

On the other hand, a non-solicitation agreement focuses on the people or businesses you can contact. You might be restricted from contacting customers, vendors or sales prospects of a former employer.

An NDA focuses on the information you can disclose. What is confidential information in an NDA? A company can generally protect any information that has value because it is not publicly known. For example, an NDA might restrict you from telling your new employer about your former employer’s product launch plans.

If you only want to enter into an NDA rather than a non-compete, consider using an NDA template. The right template can help you avoid inadvertently creating a more restrictive and less enforceable non-compete agreement.

How to Get Out of a Non-Compete Agreement

If you need to get out of a non-compete agreement, consider contacting a lawyer in your state to file a lawsuit blocking its enforcement. Judges in many states can invalidate a non-compete agreement if it is unreasonable in duration, geography or industry.

If the agreement’s restrictions are too long, cover too much area or overly restrict which industries you can seek work in, you may be able to get out of it.

Consequences of Breaching a Non-Compete Agreement

Breaching a non-compete agreement can come with serious consequences. If you violate a valid non-compete, a judge can issue an injunction blocking you from the prohibited activity. This means you might be prevented from engaging in your business line or profession.

Additionally, a court can award economic damages to the other party for the losses your breach caused.

Using the Right Form Is Essential

Courts view these agreements skeptically because of the high burdens imposed. Using the right form, customized for your state, can increase your likelihood of creating a valid and enforceable agreement.