Non-compete clause
A non-compete clause restricts a person or business from competing with the other party, or working for a competitor, for a set time and area.
What it means
A non-compete limits what someone can do after, and sometimes during, a working relationship. It usually names the restricted activity, a time period and a geographic area, such as not providing similar services within 50 miles for one year. Non-competes show up in employment contracts, contractor agreements, franchise deals and sales of a business.
Enforceability varies widely and keeps changing. California and a few other states largely ban non-competes for workers, many states allow them only if they are reasonable in time, area and scope and protect a legitimate business interest, and some limit them by pay level or type of worker. At the federal level, a rule that would have banned most non-competes was blocked in court, and federal policy has been in flux. Non-competes tied to selling a business are generally treated more favorably than those imposed on ordinary workers.
For freelancers and small agencies, the risk is often a client contract that bars working for the client’s competitors, which can quietly cut off a whole industry of future clients. Some courts will narrow an overbroad non-compete, while others strike it entirely. Because the answer depends on where you live and work and which state’s law the contract picks, the current law that applies is the thing to check. “Restrictive covenant” is the broader term that also covers non-solicitation and similar promises.
What to watch for
- Check exactly what activity is restricted, and whether “competitor” is defined narrowly or could cover most of your market.
- Look at the length of the restriction and the geographic area, and whether they fit the actual business.
- Note which state’s law governs the contract and where you live and work, since that often decides whether the clause is enforceable at all.
- See whether the restriction still applies if the other side ends the relationship early without cause.
- Check what you receive in exchange for the restriction, since some states require specific consideration such as payment or more than continued work.
Example clause
For twelve months after this Agreement ends, Contractor will not provide marketing services to any business that sells dental products in the state of Ohio. If a court finds this restriction too broad, the parties intend it to be enforced to the maximum extent the law allows.
For a year after the work ends, you cannot do marketing for dental product companies in Ohio, and a court is asked to shrink the restriction rather than drop it.