Non-Compete and Non-Solicitation — US Drafting Reference

Last verified

Drafting reference for US non-compete and non-solicitation covenants — California per se void, state thresholds, FTC Rule vacatur, IP-protection alternatives.

The non-compete covenant is the most contested clause in American employment-contract drafting. State law on its enforceability runs the full spectrum: from per-se void (California, North Dakota, Oklahoma, Minnesota), to enforceable only above wage thresholds (Washington, Illinois, Oregon, the District of Columbia), to garden-leave-required (Massachusetts), to broadly enforceable under a reasonableness standard (Texas, Florida, Delaware, New York, and most others). Federal regulation briefly entered the picture in April 2024 when the Federal Trade Commission promulgated the Non-Compete Clause Rule (16 CFR § 910) — a nationwide ban on virtually all employment non-competes — only to be vacated nationwide by the Northern District of Texas in Ryan, LLC v. FTC, No. 3:24-CV-986 (N.D. Tex. August 20, 2024) just over two weeks before its scheduled September 4, 2024 effective date. The FTC’s appeal to the Fifth Circuit remains pending as of mid-2026; the vacatur stands. This page is the drafting reference for US restrictive covenants under the post-FTC-Rule status quo. Cross-reference the Employment Agreement page for the surrounding architecture, the Severance Agreement page for restrictive-covenant re-affirmation on separation, and the Independent Contractor Agreement page for the contractor-side analysis.

The Reasonableness Test

In the majority of states that permit non-competes, enforceability turns on a three-part reasonableness test that has its roots in the common law of restraint of trade and is now restated at Restatement (Second) of Contracts § 188: the restriction must be (a) reasonable in duration, (b) reasonable in geographic scope, and (c) no broader than necessary to protect a legitimate business interest. Legitimate business interests recognised across most jurisdictions include the protection of trade secrets and confidential information, the protection of customer goodwill, the protection of substantial investment in specialised training, and the protection against an employee’s misappropriation of company-developed customer relationships. Mere prevention of competition is not a protectable interest in any state — the employer must identify a specific, identifiable interest beyond the bare desire to avoid competition.

BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999) sets out the canonical formulation for New York: a restrictive covenant is enforceable to the extent that (1) it is no greater than required for the protection of the employer’s legitimate interest, (2) it does not impose undue hardship on the employee, and (3) it is not injurious to the public. BDO Seidman applied this test to a customer non-solicit and held that the restriction could be enforced only as to customers with whom the employee had a relationship through BDO — not as to BDO’s entire customer base. The drafting takeaway is that narrow customer-non-solicits — focused on customers the employee actually serviced — are the most defensible form of restrictive covenant in reasonableness-test states. Geographic scope must match the employer’s actual business footprint and the employee’s actual role; nationwide or global restrictions are enforceable only for senior executives with national or global responsibilities. Most-state baseline durations: twelve months for non-compete, twelve to twenty-four months for non-solicit.

The California Spectrum — Section 16600 and Its 2024 Amendments

California stands at the extreme end of the spectrum. Cal. Bus. & Prof. Code § 16600 declares void “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind,” subject to narrow statutory exceptions for sale-of-business and dissolution-of-partnership covenants. The California Supreme Court read § 16600 broadly in Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008), rejecting the federal Ninth Circuit’s “narrow restraint” exception and holding that even modest non-solicit covenants are void in California unless they fall within a specific statutory exception. Edwards was extended to customer non-solicits in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923 (2018), which held that a covenant prohibiting recruiters from soliciting any healthcare-staffing client was void under § 16600 — the same fate as a true non-compete. The narrow surviving California exception is trade-secret protection: an employer may obtain injunctive relief to prevent actual or threatened misappropriation of trade secrets under the California Uniform Trade Secrets Act (Cal. Civ. Code §§ 3426 et seq.) and the federal DTSA, but cannot achieve the same protection through a contractual non-solicit dressed up as trade-secret protection.

The 2024 California amendments to § 16600 — codified at Cal. B&P §§ 16600.1-16600.5 — sharpened the state’s non-compete prohibition in three ways. First, § 16600.5 declares that any non-compete entered or signed by an employee in another state is also void in California as applied to that employee, if the employee becomes a California resident. Second, § 16600.1 required employers to notify by February 14, 2024 any current employee, and any former employee employed after January 1, 2022, whose contract included a void non-compete that the provision is void. Third, the amendments create a civil penalty and a private right of action with attorneys’ fees for violations. Combined with Cal. Lab. Code § 925 — which voids any non-California choice-of-law or forum-selection clause as applied to a California-resident employee unless the employee was individually represented by counsel — California has effectively built a wall against any out-of-state attempt to enforce a non-compete against a California-resident employee.

North Dakota (N.D. Cent. Code § 9-08-06) and Oklahoma (Okla. Stat. tit. 15 § 219A) follow California’s per-se-void approach for employment non-competes. Minnesota joined the group on July 1, 2023 with Minn. Stat. § 181.988, which voids virtually all employment and contractor non-competes entered or modified after the effective date (narrow exceptions for sale-of-business and dissolution-of-partnership covenants).

Massachusetts — Garden Leave Required

The Massachusetts Noncompetition Agreement Act (M.G.L. c. 149 § 24L) is the most detailed state non-compete statute in the country. To be enforceable, a non-compete covering an employee whose primary office and residence are in Massachusetts must satisfy each of the following requirements:

  • Writing and signature. In writing and signed by both employer and employee.
  • Notice. Provided to the employee either with the formal offer or ten business days before commencement of employment, whichever is earlier. For mid-employment non-competes, notice and fair-and-reasonable consideration beyond continued employment are required.
  • Right to consult counsel. Express written advisory that the employee has the right to consult an attorney before signing.
  • Garden leave or other mutually-agreed-upon consideration. The employer must agree to pay the employee, on a pro-rata basis during the restricted period, at least fifty percent of the employee’s highest annualised base salary within the two years preceding termination — or the employer must provide “other mutually-agreed-upon consideration” specified in the agreement. The statute does not define what alternative consideration suffices; conservative practice is to provide garden leave.
  • Duration. No more than twelve months from termination, except in cases of employee breach of a fiduciary duty or unlawful taking of employer property, when the period may extend to two years.
  • Geographic scope. Reasonable in relation to the interests protected and the area in which the employee provided services or had a material presence or influence during the two years preceding termination.
  • Scope of restricted activity. Limited to the specific types of services provided by the employee during the two years preceding termination.
  • Governing law and forum. Must be Massachusetts.
  • Exempt employees. Non-competes are unenforceable against non-exempt employees under the FLSA, undergraduate and graduate student-workers in unrelated industries, employees under age eighteen, and employees terminated without cause or laid off.

The Act expressly excludes non-solicit, non-disclosure, no-hire, garden-leave-pay-itself agreements, and agreements in connection with the sale of a business — none of which are subject to the § 24L requirements. Drafters in Massachusetts therefore often choose to forgo the full non-compete entirely and rely on confidentiality and non-solicit covenants outside § 24L.

Income-Threshold States

Several jurisdictions condition enforceability on the employee’s compensation level — a low-wage worker protection mirroring the policy rationale of the FTC’s vacated rule. As of 2024-2025:

  • Washington (RCW 49.62). Non-competes unenforceable for employees earning below $116,594 per year (2024 indexed) and for independent contractors earning below $291,484. Notice required at time of offer for at-hire non-competes; new consideration required for mid-employment non-competes. Eighteen months presumptively reasonable; longer requires clear-and-convincing evidence.
  • Illinois (820 ILCS 90, Freedom to Work Act). Non-competes unenforceable for employees earning below $75,000 per year (rising to $90,000 by 2037); non-solicits unenforceable below $45,000. Employee must be advised in writing to consult an attorney and given fourteen days to review.
  • Oregon (ORS 653.295). Non-competes unenforceable for employees earning below $108,575 (2024 indexed; rises annually). Written notice required two weeks before commencement of employment, or in the offer letter signed at hire. Maximum duration twelve months. Garden-leave or pay-during-non-compete-period required.
  • District of Columbia (D.C. Code §§ 32-581.01-.05). After August 2022 narrowing, non-competes are unenforceable for employees earning below $150,000 ($250,000 for medical specialists). Employer must give the agreement to the prospective employee at least fourteen days before commencement.
  • Virginia, New Hampshire, Rhode Island, Maryland, Maine — non-competes unenforceable below state-specific wage thresholds, typically targeting low-wage workers.

The income-threshold regime requires drafting attention to dynamic compensation: an employee whose total compensation falls below the threshold mid-engagement may render the non-compete unenforceable retroactively in some states. Build in re-affirmation or supplemental consideration mechanisms for borderline cases.

The Blue-Pencil Question

Where a court finds a non-compete overbroad, three approaches govern remediation: (a) the blue-pencil approach (true blue-pencilling), under which a court strikes overbroad words but cannot rewrite the covenant; (b) the reformation approach, under which a court actively rewrites the covenant to make it reasonable; and (c) the all-or-nothing approach, under which the court refuses any reform and voids the entire covenant. Texas permits reformation by statute (Tex. Bus. & Com. Code § 15.51) and in case law (DeSantis v. Wackenhut Corp., 793 S.W.2d 670 (Tex. 1990)). Florida permits reformation under Fla. Stat. § 542.335(1)(c), which requires courts to construe restrictive covenants in favour of providing reasonable protection to the legitimate business interests of the party seeking enforcement. New York’s approach in BDO Seidman is essentially partial-enforcement — the court enforces the covenant to the extent it is reasonable. Virginia (Modern Environments, Inc. v. Stinnett, 561 S.E.2d 694 (Va. 2002)), Wisconsin, Nebraska, and a handful of other states apply the all-or-nothing approach and void any overbroad covenant in its entirety. The drafting consequence is twofold: (a) in all-or-nothing states, the consequences of overdrafting are severe — modest restraint and conservative scope are the safer path; (b) in reformation states, the blue-pencil clause in the agreement should expressly authorise the court to modify rather than strike.

The Inevitable-Disclosure Doctrine

PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995) articulated the inevitable disclosure doctrine: a court may enjoin a former employee from accepting a competing position even absent an express non-compete, where the employee’s possession of trade-secret knowledge would make use or disclosure inevitable in the new role. The doctrine is recognised in some states (Illinois, Missouri, Indiana, North Carolina) and rejected in others (California’s Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443 (2002) flatly rejected inevitable disclosure; Florida by statute under the Florida UTSA; Maryland in LeJeune v. Coin Acceptors, Inc., 381 Md. 288 (2004); Virginia in Government Technology Services, Inc. v. IntelliSys Technology Corp., 51 Va. Cir. 55 (Va. Cir. Ct. 1999)). Where recognised, the doctrine functions as a de facto non-compete and can be relied on in jurisdictions where express non-competes are limited — but with corresponding burden-of-proof requirements.

The FTC Non-Compete Rule — Brief Life and Vacatur

The Federal Trade Commission promulgated the Non-Compete Clause Rule (16 CFR § 910) on April 23, 2024, with a scheduled effective date of September 4, 2024. The rule would have (a) prohibited employers from entering into or enforcing any new non-compete with any worker; (b) required employers to rescind existing non-competes for non-senior-executive workers; and (c) preserved pre-existing non-competes for senior executives (defined as workers in policy-making positions earning more than $151,164 per year). The FTC asserted authority under Sections 5 and 6(g) of the FTC Act to promulgate substantive competition rules.

Three lawsuits challenged the rule. The Northern District of Texas in Ryan, LLC v. FTC, No. 3:24-CV-986, granted summary judgement to the plaintiffs on August 20, 2024 and vacated the rule nationwide under 5 USC § 706(2), holding that the FTC exceeded its statutory authority and that the rule was arbitrary and capricious. The Eastern District of Pennsylvania in ATS Tree Services, LLC v. FTC, No. 24-1743, denied a preliminary-injunction motion, suggesting that court was less hostile. The Middle District of Florida in Properties of the Villages, Inc. v. FTC, No. 5:24-CV-316, granted a preliminary injunction limited to the plaintiff. Ryan — the broadest ruling — is the controlling order; the FTC’s appeal to the Fifth Circuit was filed in October 2024 and remains pending as of mid-2026. The vacatur stands; the rule has no current force.

The drafting takeaway is that the FTC-Rule-driven changes that many employers made in mid-2024 — narrowing or rescinding existing non-competes, transitioning to garden leave or expanded non-solicit covenants — are now optional rather than mandatory. Many employers have retained the narrowed approach as a hedge against future federal action and as alignment with the growing state-level restrictions.

Drafting Alternatives — The IP-Protection Package

For employers whose underlying protectable interest is intellectual property and customer relationships rather than competition per se, a non-compete alternative package frequently serves better. The package combines: (a) a robust confidentiality covenant with the DTSA whistleblower notice under 18 USC § 1833(b) preserving exemplary damages and attorneys’ fees; (b) an IP-assignment agreement (PIIA) with state-required carve-out notices; (c) a narrowly-drawn customer non-solicit (limited to customers the employee actually serviced during a defined look-back window) and employee non-solicit; (d) post-departure cooperation and return-of-property covenants; (e) trade-secret-misappropriation remedy under the DTSA and state UTSA. For senior executives, garden leave — a paid restricted period during which the employee remains on payroll but does not work — can substitute for or supplement a non-compete, with the advantages of clearer enforceability and acceptable optics. In Massachusetts, garden leave is effectively required for any non-compete; in Delaware, New York, Illinois, and the broader executive-contract market, garden leave has become a routine private-ordering choice.

Sample Drafting Language

Below are short illustrative blocks. Specific drafting must reflect the chosen governing-law jurisdiction.

Non-Compete (Texas / NY / FL / DE reasonable-jurisdiction template). During Employee’s employment with the Company and for a period of twelve (12) months following the termination of Employee’s employment for any reason, Employee shall not, directly or indirectly, anywhere in the United States in which the Company actively conducts business and in which Employee had material responsibilities during the twelve (12) months preceding termination, engage in, own (other than as a less than 1% passive investment in a publicly-traded company), manage, operate, or control any business that competes with the Business of the Company (defined as [specific definition]). The parties acknowledge that this restriction is reasonable in scope, duration, and geographic area; that the Company has legitimate business interests in protecting its trade secrets, confidential information, and customer goodwill; and that Employee has received valuable consideration in exchange for this restriction.

Customer Non-Solicit (BDO-Seidman-compliant template). During Employee’s employment with the Company and for a period of twelve (12) months following the termination of Employee’s employment for any reason, Employee shall not, directly or indirectly, solicit or attempt to solicit, for the purpose of providing products or services competitive with the Business of the Company, any customer of the Company with whom Employee had material contact or about whom Employee obtained confidential information during the twelve (12) months preceding termination.

Employee Non-Solicit / No-Hire. During Employee’s employment with the Company and for a period of twelve (12) months following the termination of Employee’s employment for any reason, Employee shall not, directly or indirectly, solicit, recruit, or hire any employee of the Company who was employed by the Company at any time during the six (6) months preceding such solicitation, recruitment, or hire. General solicitations through public job postings, recruiter listings, or industry forums not specifically directed at Company employees, and the hire of any person who responds to such general solicitations or otherwise applies on an unsolicited basis, are excluded from this restriction.

Garden Leave (Massachusetts-compliant template). As consideration for Employee’s compliance with the non-competition obligation set forth in Section X, during the twelve (12)-month restricted period the Company shall pay Employee, on a pro-rata basis in accordance with the Company’s regular payroll practices, an amount equal to fifty percent (50%) of Employee’s highest annualised base salary during the two (2) years preceding termination. Garden-leave payments shall cease if Employee breaches the non-competition obligation. Payments shall be subject to applicable tax withholding.

Bibliography

Cross-references

Disclaimer: Handbook content is informational, not legal advice. Last verified 2026-05-10. State law on restrictive covenants changes frequently and the FTC rule status remains in litigation; always consult licensed counsel before drafting or enforcing a non-compete in a specific jurisdiction.