How to Write a Non-Compete Agreement (2026)

A non-compete agreement — or non-compete clause inside a broader contract — is a restriction that prevents someone from working for competitors, starting a rival business, or soliciting your clients or employees after leaving. They're a common tool for protecting trade secrets, customer relationships, and specialized training.

The problem is that non-competes are under more legal pressure than ever. Multiple states have banned them outright. The FTC tried to ban them federally. Courts that still enforce them require them to be narrowly tailored and proportionate to a real business need.

This guide covers what goes into a non-compete, how courts decide whether to enforce them, and what the rules look like state by state in 2026.

What Is a Non-Compete Agreement?

A non-compete agreement is a contract where one party (usually an employee or contractor) agrees not to engage in certain competitive activities for a defined period after leaving the relationship.

"Competitive activities" typically means:

• Working for a named competitor or class of competitors
• Starting a business that competes with the employer's core offering
• Soliciting the employer's clients or customers (sometimes a separate "non-solicitation" clause)
• Poaching current employees (sometimes called a "non-recruit" or "no-hire" clause)

Non-competes appear most often in:

• Employment contracts — especially for senior employees, salespeople with deep client relationships, or roles involving trade secrets
• Contractor and consulting agreements — usually focused on non-solicitation rather than broad market restrictions
• Business sale agreements — where the seller agrees not to compete in the same market for a set period after the transaction closes
• Partnership dissolution agreements — where departing partners agree not to take clients to a competing firm

What Makes a Non-Compete Enforceable?

Courts in states that still enforce non-competes typically apply a three-part reasonableness test:

1. A Legitimate Business Interest

The restriction must protect something real — not just prevent competition generally. Recognized interests include:

• Trade secrets and confidential information — proprietary technology, customer data, pricing models, formulas
• Specialized training — if you've invested significantly in developing the person's skills and they'd immediately apply those to a competitor
• Customer relationships — especially for salespeople or account managers with deep, exclusive client access

Courts will not enforce a non-compete designed purely to reduce labor market competition or to depress wages. The business need must be specific.

2. Reasonable Scope

The restriction must be no broader than necessary to protect the identified interest. Courts examine three dimensions:

Dimension	Guidance
Duration	Six months to two years is generally defensible. Longer periods face serious scrutiny, especially for lower-level employees.
Geographic area	Should match where the business actually competes — not "worldwide" for a regional plumber, but potentially global for a senior exec at a tech company selling internationally.
Scope of activity	Should be tied to the work the person actually did — not a blanket ban on working in an entire industry.

3. Adequate Consideration

The employee or contractor must receive something of value in exchange. For a new employee, starting a job is sufficient. For an existing employee asked to sign mid-employment, some states require additional compensation (a raise, a bonus, continued employment, access to a new benefit). Simply asking a 10-year employee to sign a new non-compete on a random Tuesday, without additional consideration, may not hold up.

Key Clauses to Include

A standalone non-compete agreement or a non-compete clause embedded in a broader contract should cover:

Parties and Recitals

Identify the company, the individual, and the reason the restriction is justified — what specific role, what specific confidential information, what specific client relationships are being protected. Courts read recitals. Vague boilerplate weakens enforceability.

Definition of Competing Business

Be specific. Name the type of business, the market segment, or the technology area — not just "any company similar to ours." Courts will narrow an overly broad definition anyway; it's better to write a precise one that stands.

Restricted Activities

Specify exactly what is restricted:

• Employment with a named list of competitors or a defined category of businesses
• Founding or holding an ownership stake above a certain threshold in a competing venture
• Soliciting named clients or categories of clients
• Recruiting your current employees

Separate clauses for each activity are cleaner and more enforceable than a single omnibus restriction.

Duration

State a specific end date or a time period that starts on the last day of employment or the end of the contract. "Two years after the date of termination" is clear. "As long as necessary to protect company interests" is not.

Geographic Territory

Define it precisely. A list of named states or countries is cleaner than "the market area where the company does business." If the restriction is intended to be global, say so — and make sure you can justify it.

Carve-Outs

Non-competes that have no exceptions are easier to challenge. Standard carve-outs include:

• Holding publicly traded stock as a passive investor (typically under 1–3% ownership)
• Working in a business unit or division that clearly doesn't compete with the company's core products
• Activities explicitly approved in writing by the company in advance

Remedies

Include language stating that a breach would cause irreparable harm and that the company is entitled to seek injunctive relief without posting a bond. This matters because by the time you can quantify financial damages, the competitive harm has already occurred.

Severability / Blue-Penciling

Many states allow courts to modify an overly broad non-compete rather than void it entirely (called "blue-penciling"). A severability clause instructs the court to reform the agreement to be enforceable rather than striking it down entirely. However, courts in some states — like California — refuse to reform non-competes and will void them outright.

State-by-State Overview

Non-compete law varies dramatically across the US and internationally. Here's a snapshot of the current landscape:

Jurisdiction	Enforceability	Notable Rules
California	Void (nearly all)	Cal. Bus. & Prof. Code § 16600; SB 699 voids non-competes regardless of where signed
Minnesota	Void (post-employment)	Minn. Stat. § 181.988, effective Jan 1, 2023
North Dakota	Void	N.D. Cent. Code § 9-08-06
Oklahoma	Void	15 Okla. Stat. § 219A
Florida	Strongly enforced	Fla. Stat. § 542.335; courts must enforce if reasonably necessary
Texas	Enforced if ancillary to otherwise enforceable agreement	Tex. Bus. & Com. Code § 15.50
New York	Enforced if narrow	Courts apply strict reasonableness review; SB S3100A adding income threshold under consideration
Illinois	Income threshold	820 ILCS 90/1; non-competes void for workers earning under $75,000/year
Colorado	Restricted	C.R.S. § 8-2-113; only for workers earning over $123,750 (2026 threshold)
UK (England & Wales)	Enforced if reasonable	Post-termination restrictive covenants enforceable under common law if protecting a legitimate interest; typical cap 6–12 months for senior roles
EU	Varies by member state	Many countries require compensation during the restricted period (e.g., Germany: at least 50% of last contractual compensation)

Note: Several US states have raised income thresholds for non-compete enforcement since 2023. A non-compete that was valid when signed may no longer be enforceable if the worker's compensation has dropped below the applicable threshold.

Non-Competes vs. Non-Solicitation Clauses

If you're trying to protect customer relationships and don't want to restrict where someone can work entirely, a non-solicitation clause is often a better tool.

Feature	Non-Compete	Non-Solicitation
Prevents working for competitors	Yes	No
Prevents poaching clients	Depends	Yes
Prevents poaching employees	Depends	Yes (if includes no-recruit)
Easier to enforce	Harder	Easier
Accepted in California	No	Limited (client non-solicitation still scrutinized post-Sheppard, Mullin)
Typical duration	6–24 months	12–24 months

For most contractor and freelancer relationships, an NDA covering trade secrets plus a narrowly drafted non-solicitation clause is more defensible than a broad non-compete — and achieves most of the same practical protection.

Create your contractor agreement with Pactlio

Common Non-Compete Drafting Mistakes

Copying a template without checking your state. A non-compete valid in Florida is void on arrival in California. Jurisdiction matters more here than in almost any other contract area.

Overreaching on geography. "The entire world" for a regional sales rep is unenforceable. Match the territory to where the worker actually had competitive impact.

No new consideration for existing employees. Asking a current employee to sign a new non-compete without a raise, bonus, or meaningful benefit is risky in states that require independent consideration.

Using non-competes for low-wage or low-access workers. Courts — and increasingly statutes — are hostile to non-competes for workers who don't have meaningful access to trade secrets. Several states now void them entirely below specific income thresholds.

Forgetting that "reasonable" is judged at enforcement, not signing. A court evaluates reasonableness based on the facts at the time it's asked to enforce the restriction — which may be years after signing. What seemed reasonable when the person was a senior VP may look overreaching when they're leaving for a completely different industry.

When a Non-Compete Isn't the Right Tool

Non-competes restrict someone's ability to earn a living. That makes them legally fragile and — in a tight labor market — practically damaging to recruitment and morale.

Before reaching for a non-compete, consider whether you can protect your business interests with:

• A well-drafted NDA — covering trade secrets, client data, and proprietary processes without restricting where someone can work
• A non-solicitation clause — protecting specific client and employee relationships without the broad market restriction
• IP assignment provisions — ensuring that anything built during the relationship belongs to your company
• Garden leave provisions — paying the departing employee during the restricted period (common in UK and increasingly considered in US)

For most businesses, a combination of a strong NDA, a clear IP assignment, and a targeted non-solicitation clause does more practical work than an aggressive non-compete — and is far more likely to hold up in court.

Create your NDA with Pactlio

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This article is for informational purposes. Pactlio generates professional drafts for review — not legal advice.