An agreement between an employer and an employee limiting an employee's competitive activities for a specified period of time after the employment relationship ends. This Standard Document is drafted in favor of the employer. It is jurisdiction neutral but may be customized to comply with applicable state law using Practical Law state content, as described below. This Standard Document has integrated notes with important explanations and drafting tips.
This employee non-competition agreement (also known as a non-compete agreement or non-compete) is intended for use by an employer to limit certain competitive activities of an employee when the employment relationship ends. Because non-competes act as restrictive covenants that may limit an individual's ability to earn a living, non-compete restrictions are disfavored in most states and generally unenforceable in some jurisdictions. In recent years, non-competes have been under increasing scrutiny by both federal and state legislatures and regulators (see Practice Note, Non-Compete Agreements with Employees: Federal Efforts to Ban Worker Non-Competes). Employers seeking to bind employees to non-competes must consider the possible legal challenges to enforcement when drafting the agreement and the potential risks of entering into an agreement that may face additional scrutiny as the law develops.
A non-compete should be carefully tailored to account for the various issues that may affect enforceability, such as whether the non-compete:
defining prohibited competitive activity to include only activity necessary to protect the legitimate business interests identified (see Drafting Note, Prohibited Activity); and
Despite efforts to limit the enforceability of non-competes at the federal level, the enforceability of non-compete agreements still depends primarily on state law and varies widely by jurisdiction. Employers must assess applicable state legal requirements before creating or entering into non-competes with their current, prospective, or departing employees. Although this Standard Document does not account for all state law variations, it provides a useful template from which to build a non-compete agreement that is consistent with many common state law requirements.
Employers should understand what non-competes can and cannot accomplish. They can help protect against unfair or unlawful competition by former employees, but they cannot eliminate all competitive activity.
Non-compete agreements also are not suitable for all types of employment in all states. States have been increasingly passing or proposing laws restricting employers' use and the scope of enforceable non-competes, for example, by:
Limiting the temporal or geographic restrictions that are enforceable.
Restricting courts from modifying overly broad non-compete provisions.
Several states, such as California, North Dakota, and Oklahoma, and more recently Minnesota, essentially prohibit non-competes in the employment context, with narrow exceptions for the sale or dissolution of a business. Other jurisdictions, such as the District of Columbia, prohibit most employee non-competes except those with certain highly compensated employees. Among states that authorize non-competes, some disfavor non-competes more strongly than others. Most states that enforce non-competes regulate or limit, by statute or judicial interpretation, the geographic and temporal scope of allowable post-employment restrictions.
Counsel should replace bracketed text in ALL CAPS with information specific to the particular circumstances. Bracketed text in sentence case is optional or alternative language that counsel should include, modify, or delete, as appropriate. A forward slash in bracketed text indicates that counsel should choose from among two or more alternative words or phrases.
Employee Non-Compete Agreement
This Employee Non-Compete Agreement ("Agreement") is entered into by and between [EMPLOYER NAME], a [STATE OF INCORPORATION OR LOCATION] [TYPE OF ENTITY], with [a/its principal] place of business located at [ADDRESS] (the "Employer")[, on behalf of itself, its [current, past, and future] [parents,] subsidiaries, and other corporate affiliates, [and its or their successors or assigns] (collectively referred to herein as, the "Employer Group")], and [EMPLOYEE NAME] (the "Employee"), residing at [ADDRESS] (the Employer and the Employee are collectively referred to as the "Parties"), as of [DATE] (the "Effective Date").
Most employers enter into non-compete agreements on behalf of themselves and their affiliates and subsidiaries. The bracketed language in the preamble, "[on behalf of itself, its [current, past, and future] [parents,] subsidiaries, and other corporate affiliates (collectively referred to herein as, the "Employer Group")]," provides optional language to encompass corporate affiliates as third-party beneficiaries (either by name or description). The term affiliate is most often used to mean entities that control, are controlled by, or are under common control with a given entity, including the corporation's parent and subsidiaries, although "subsidiaries" are sometimes referenced separately for clarity.
Whether to include affiliates depends on the nature of the employer, its ownership, and its organizational structure. Unless there is clearly no legitimate business interest in including corporate affiliates, there is little practical downside to being overinclusive. The employer also should define employer, or the employer group, to include both past and future subsidiaries to ensure the business is protected following a merger, acquisition, or corporate name change.
If the employer uses this optional language to include affiliates, certain references to Employer should be changed to Employer Group, as indicated by optional language throughout the Standard Document.
The other optional language defines the employer's "successors or assigns" as part of the Employer Group. This language may be necessary if the employer assigns the non-compete agreement and transfers the employee's employment to another entity, as may occur in an asset purchase, corporate reorganization, or other corporate transaction (see Drafting Note, Assignment by the Employer). The optional language helps ensure that the non-competition or non-solicitation period runs from an employment termination with the successor or assignee entity, and not only from an employment termination with the original employer. However, to get the benefit of this language, the employer should define the Restricted Period for each covenant as running from the termination of employment with the Employer Group, not just the Employer. (See Drafting Notes, Non-Competition, Non-Solicitation of Employees, and Non-Solicitation of Customers.)
Failing to use the broader definition of Employer Group may affect the term of the non-compete. For example, if the non-compete restriction begins after termination of employment with the Employer, and the employee is transferred to another entity within the Employer Group, the non-compete period runs from the date of the transfer and may expire before the employee's termination with the related entity (see, for example, Schnitzer Steel Indus., Inc. v. Dingman, , at *3 (D.R.I. Nov. 8, 2022)).
In consideration of [the Employee's employment by the Employer as [JOB TITLE]] [and] [OTHER CONSIDERATION OFFERED], which the Employee acknowledges to be good and valuable consideration for the Employee's obligations under this Agreement, the Employer [Group] and the Employee agree as follows:
The employer must provide legally adequate consideration to support the employee's agreement not to compete. What constitutes sufficient consideration varies by jurisdiction, but of those states that generally enforce employee non-competes most recognize the inception of employment to be adequate consideration. As a result, best practice is to have the employee sign the non-compete agreement at the beginning of new employment.
Whether an offer of new employment constitutes sufficient consideration has not been decided in all jurisdictions and is subject to statutory limitations in others. For example, Idaho requires consideration beyond an offer of employment or continued employment if the agreement contains a post-employment restriction that is longer than 18 months (Idaho Code Ann. § 44-2704(1)). Illinois law requires at least two years of employment or lesser period of employment plus professional or financial benefits (or professional or financial benefits adequate by themselves (820 ILCS 90/5).
Employers should always review state law to determine whether the state law governing the non-compete recognizes the inception of employment as sufficient consideration to support the non-compete agreement.
In some states, continued at-will employment is not considered adequate consideration to support a non-compete obligation under any circumstances. Some states require consideration in addition to continued at-will employment only when the parties enter into the agreement after the employment relationship begins. (See Practice Note, Non-Compete Agreements with Employees: Mere Continued Employment as Consideration.)
In states that permit non-compete agreements but do not recognize continued at-will employment as sufficient consideration, employers should offer employees additional incentives they are not otherwise entitled to when signing the agreement. These incentives may be recited as consideration in place of "employment by the Employer" in the above clause, for example:
"Promotion to a new position offering supplemental compensation in the amount of [AMOUNT] and other benefits on [DATE]."
"A one-time payment of additional funds in the amount of [AMOUNT] to the Employee on [DATE]."
1.Confidential Information. The Employee understands and acknowledges that during the course of employment by the Employer [Group], the Employee will have access to and learn about Confidential Information, as defined below.
(a)Confidential Information Defined.
For purposes of this Agreement, "Confidential Information" includes, but is not limited to, all information not generally known to the public, in spoken, printed, electronic, or any other form or medium, [relating directly or indirectly to:] [business processes,] [practices,] [methods,] [policies,] [plans,] [publications,] [documents,] [research,] [operations,] [services,] [strategies,] [techniques,] [agreements,] [contracts,] [terms of agreements,] [transactions,] [potential transactions,] [negotiations,] [pending negotiations,] [know-how,] [trade secrets,] [computer programs,] [computer software,] [applications,] [operating systems,] [software design,] [web design,] [work-in-process,] [technologies,] [databases,] [compilations,] [device configurations,] [embedded data,] [metadata,] [manuals,] [records,] [articles,] [systems,] [material,] [sources of material,] [supplier information,] [vendor information,] [financial information,] [results,] [accounting information,] [accounting records,] [legal information,] [marketing information,] [advertising information,] [pricing information,] [credit information,] [design information,] [payroll information,] [staffing information,] [personnel information,] [employee lists,] [supplier lists,] [vendor lists,] [developments,] [reports,] [internal controls,] [security procedures,] [graphics,] [drawings,] [sketches,] [market studies,] [sales information,] [revenue,] [costs,] [formulae,] [notes,] [communications,] [algorithms,] [product plans,] [designs,] [styles,] [models,] [ideas,] [audiovisual programs,] [inventions,] [unpublished patent applications,] [original works of authorship,] [discoveries,] [experimental processes,] [experimental results,] [specifications,] [customer information,] [customer lists,] [client information,] [client lists,] [manufacturing information,] [factory lists,] [distributor lists,] [and] [buyer lists] of the Employer [Group] or its businesses [or any existing or prospective customer, supplier, investor, or other associated third party], or of any other person or entity that has entrusted information to the Employer in confidence.
The Employee understands that the above list is not exhaustive, and that Confidential Information also includes other information that is marked or otherwise identified or treated as confidential or proprietary, or that would otherwise appear to a reasonable person to be confidential or proprietary in the context and circumstances in which the information is known or used.
The Employee understands and agrees that Confidential Information includes information developed by the Employee in the course of the Employee's employment by the Employer [Group] as if the Employer [Group] furnished the same Confidential Information to the Employee in the first instance. Confidential Information shall not include information that is generally available to and known by the public at the time of disclosure to the Employee, provided that the disclosure is through no direct or indirect fault of the Employee or person(s) acting on the Employee's behalf.
(b)Employer [Group] Creation and Use of Confidential Information.
The Employee understands and acknowledges that the Employer [Group] has invested, and continues to invest, substantial time, money, and specialized knowledge into developing its resources, creating a customer base, generating customer and potential customer lists, training its employees, and improving its offerings in the field of [DESCRIPTION OF INDUSTRY]. The Employee understands and acknowledges that as a result of these efforts, Employer [Group] has created and continues to use and create Confidential Information. This Confidential Information provides Employer [Group] with a competitive advantage over others in the marketplace.
Describing confidential information in an employee non-compete helps an employer identify its legitimate business interest, which strengthens its argument that it needs the protection of a non-compete agreement.
Non-compete agreements should define confidential information consistently with the definition in the employer's confidentiality and proprietary rights agreements, if it uses a separate agreement (see Standard Document, Employee Confidentiality and Proprietary Rights Agreement: Drafting Note: Confidential Information). As with the confidentiality agreement, employers should carefully modify the paragraph identifying the confidential information according to the nature of the employer's business and industry. Employers can further define the information subject to protection by identifying a subset of this information, such as information specific to a corporate department, research project, or product offered by the company.
If the employer values a certain category of information and intends to protect it from unauthorized competitive use, it should be listed in this paragraph. Although agreements of this type regularly refer to a long list of protected information (and the agreement typically provides that the list is not exhaustive), the more narrowly tailored the list of information is to the employer's legitimate business interests the more likely it is to be regarded as a reasonable and enforceable restriction. When assessing which information should be designated as confidential, employers should consider:
What information gives the employer a competitive advantage.
What information, if disclosed, is likely to harm the employer.
What information makes the employer's business model, products, or services distinctive or unique.
Whether there is additional information specific to the employer's industry that should be included (for example, architectural plans for engineers, flavorings for food processors, and fabric dyes for clothing manufacturers).
Likewise, the lists of the employer's relevant third-party associates (whose confidential information may be entrusted to the employee and therefore subject to the agreement) should be modified to fit the employer's business and industry. For example, the terms "clients," "patients," or "subscribers" might be substituted for the term "customers."
Section 7 of the National Labor Relations Act (NLRA) gives both unionized and non-unionized employees the right to discuss the terms and conditions of their employment (such as wages) with co-workers and union representatives (29 U.S.C. § 157). Employers should draft any confidentiality provision so employees would reasonably understand that the provision does not infringe on their Section 7 rights, for example, by excluding information regarding terms and conditions of employment from the definition of confidential information.
Employers also should consider including a Section 7 disclaimer (also known as a savings clause) clarifying that the confidentiality provision is not intended to limit employees' Section 7 rights or otherwise restrict disclosures permitted by applicable law (see Drafting Note, NLRA Compliance).
The precise boundaries of permissible confidentiality provisions have been in flux given changes at the National Labor Relations Board (NLRB). For the latest developments, see:
[Nothing in this Agreement voids, alters, or modifies the Employee's obligations under the [NAME OF CONFIDENTIALITY AGREEMENT] entered into on [DATE].
OR
The Employee agrees and covenants:
(i)to treat all Confidential Information as strictly confidential;
(ii)not to directly or indirectly disclose, publish, communicate, or make available Confidential Information, or allow it to be disclosed, published, communicated, or made available, in whole or part, to any entity or person whatsoever (including other employees of the Employer [Group]) not having a need to know and authority to know and use the Confidential Information in connection with the business of the Employer [Group] and, in any event, not to anyone outside of the direct employ of the Employer [Group] except as required in the performance of the Employee's authorized employment duties to the Employer [Group] or with the prior consent of [POSITION NAME] acting on behalf of the Employer [Group] in each instance (and then, such disclosure shall be made only within the limits and to the extent of such duties or consent); and
(iii)not to access or use any Confidential Information, and not to copy any documents, records, files, media, or other resources containing any Confidential Information, or remove any such documents, records, files, media, or other resources from the premises or control of the Employer [Group], except as required in the performance of the Employee's authorized employment duties to the Employer [Group] or with the prior consent of [POSITION NAME] acting on behalf of the Employer [Group] in each instance (and then, such disclosure shall be made only within the limits and to the extent of such duties or consent).
The Employee understands and acknowledges that the Employee's obligations under this Agreement regarding any particular Confidential Information begin immediately when the Employee first has access to the Confidential Information (whether before or after beginning employment with the Employer [Group]) and shall continue during and after the Employee's employment by the Employer [Group] until the time that the Confidential Information has become public knowledge other than as a result of the Employee's breach of this Agreement or breach by those acting in concert with the Employee or on the Employee's behalf.]
(d)Notice of Immunity Under the Defend Trade Secrets Act of 2016 ("DTSA"). [Notwithstanding any other provision of this Agreement:
(i)The Employee will not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that:
(A)is made: (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or
(B)is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.
(ii)If the Employee files a lawsuit for retaliation by the Employer for reporting a suspected violation of law, the Employee may disclose the Employer's trade secrets to the Employee's attorney and use the trade secret information in the court proceeding if the Employee:
(A)files any document containing the trade secret under seal; and
(B)does not disclose the trade secret, except pursuant to court order.]
OR
[The Employee acknowledges receipt of the Employer's [NAME OF REPORTING POLICY FOR A SUSPECTED VIOLATION] setting forth: (i) the Employer's reporting policy for a suspected violation of law; and (ii) notice of immunity from criminal and civil liability for certain disclosures of trade secrets under the Defend Trade Secrets Act (18 U.S.C. § 1833(b)).]
(e)Other Permitted Disclosures. Nothing in this Agreement shall be construed to prevent disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid order of a court of competent jurisdiction or an authorized government agency, provided that the disclosure does not exceed the extent of disclosure required by such law, regulation, or order. [The Employee shall promptly provide written notice of any such order to [an authorized officer/[POSITION NAME]] of the Employer [Group].]
[Nothing in this Agreement prevents the Employee from disclosing or discussing any sexual assault or sexual harassment dispute arising after the execution of this Agreement.]
[Nothing in this Agreement prohibits or restricts the Employee (or Employee's attorney) from initiating communications directly with, responding to an inquiry from, or providing testimony before the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), any other self-regulatory organization, or any other federal or state regulatory authority regarding [this Agreement or its underlying facts or circumstances/Employee's employment] [or a possible securities law violation].
OR
Nothing in this Agreement prohibits or restricts the Employee (or Employee's attorney) from filing a charge or complaint with the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), [or any other securities regulatory agency or authority/the Occupational Safety and Health Administration (OSHA), any other self-regulatory organization, or any other federal or state regulatory authority ("Government Agencies")]. The Employee further understands that this Agreement does not limit the Employee's ability to communicate with any [securities regulatory agency or authority/Government Agencies] or otherwise participate in any investigation or proceeding that may be conducted by any [securities regulatory agency or authority/Government Agency] [in connection with reporting a possible securities law violation] without notice to the Employer. [This Agreement does not limit the Employee’s right to receive an award for information provided [to any Government Agencies/to the SEC staff [or any other securities regulatory agency or authority]].]
Nothing in this Agreement in any way prohibits or is intended to restrict or impede, and shall not be interpreted or understood as restricting or impeding, the Employee from [[discussing the terms and conditions of Employee's employment with co-workers or union representatives/exercising Employee's rights under Section 7 of the National Labor Relations Act (NLRA)/exercising protected rights to the extent that such rights cannot be waived by agreement][, or otherwise]] disclosing information as permitted by law.
This Standard Document assumes that the employer maintains a separate confidentiality and proprietary rights agreement with employees. It is a good practice to maintain a separate agreement to protect those rights because if a court declines to enforce a non-compete clause, it may decline to enforce all other subsections of the same agreement. Employers can seek to enforce the remainder of an unenforceable non-compete clause by including a severability clause (see Drafting Note, Severability). However, courts in some states do not honor severability clauses and may decline to modify (or blue pencil) a non-compete agreement (for more information on state law requirements, see Non-Compete Laws: State Q&A Tool: Question 6; see also Practice Note, Non-Compete Agreements with Employees: Reformation of Overbroad Non-Competes (Blue-Penciling)). As a result, the odds of enforcing a confidentiality and proprietary rights covenant are greater if the employer maintains a separate agreement on the issue.
Notice of Immunity Under the Defend Trade Secrets Act
If the employer includes a confidentiality provision in this agreement, it should also include Section 1(d), which is drafted to comply with the whistleblower notice requirements under the Defend Trade Secrets Act (DTSA). Employers must provide a notice to their employees of DTSA's immunity provisions in any contract that governs the use or disclosure of trade secrets or other confidential information. Failure to do so may deprive the employer of the ability to recover from an employee who did not receive notice:
Exemplary damages, which are up to two times the amount of actual damages.
Attorneys' fees.
An employer alternatively may provide the required notice by reference to a policy document that:
Sets forth the employer's reporting policy for a suspected violation of the law.
Although there is an affirmative obligation under the statute to provide the notice, the only stated consequence for failure to provide the notice is the employer's inability to recover exemplary damages and attorneys' fees under DTSA. However, similar remedies may be available to the employer under state law. For more information on state law remedies, see Trade Secret Laws: State Q&A Tool, Question 14.
In addition, Rule 21F-17 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) prohibits impeding an individual from communicating directly with SEC staff about a possible securities law violation, including enforcing or threatening to enforce a confidentiality agreement or provision that prohibits whistleblowers from communicating with the SEC (17 C.F.R. § 240.21F-17). To comply with this rule, the agreement should not impede employees from reporting suspected wrongdoing to the SEC or prevent them from receiving whistleblower awards. The SEC also has challenged provisions that require an employee to notify the employer before disclosing information pursuant to a court order or related proceeding, and therefore the notice provisions in this agreement are treated as optional language.
The optional language regarding interference with employee rights under the NLRA is recommended and intended to address various decisions and guidance by the NLRB suggesting that confidentiality clauses may be viewed as interfering with an employee's Section 7 rights. While a full discussion of this issue is beyond the scope of this drafting note, counsel drafting any agreements with confidentiality provisions should be aware of the types of clauses and language the NLRB has found invalid. For more on NLRA compliance, see Practice Note, Employee Electronic Communications Under the National Labor Relations Act.
Speak Out Act Restricts Predispute Confidentiality Provisions
Effective December 7, 2022, the federal Speak Out Act renders unenforceable predispute confidentiality and non-disparagement provisions regarding sexual assault and sexual harassment disputes for claims filed on or after the effective date (42 U.S.C. §§ 19401 to 19404). This agreement includes optional language carving out those disputes from the scope of the confidentiality restrictions.
2.Restrictive Covenants.
(a)Acknowledgment of Legitimate Business Interests. The Employee understands and acknowledges that:
(i)the nature of Employee's position gives the Employee access to and knowledge of Confidential Information and places the Employee in a position of trust and confidence with the Employer [Group];
(ii)the Employee will obtain knowledge and skill relevant to the Employer[ Group]'s industry, methods of doing business, and marketing strategies by virtue of the Employee's employment;
(iii) [the intellectual or artistic [or [OTHER]] services the Employee provides to the Employer [Group] are unique, special, or extraordinary [because [DESCRIPTION OF UNIQUE, SPECIAL, OR EXTRAORDINARY SERVICES]]]; and
(iv)the Employer[ Group]'s ability to reserve these for the exclusive knowledge and use of the Employer [Group] is of great competitive importance and commercial value to the Employer [Group], and that improper use or disclosure by the Employee is likely to result in unfair or unlawful competitive activity.
States that allow non-competes generally do not enforce them if they are more restrictive than necessary to protect the legitimate business interests of the employer. As a result, it is important for employers to describe their legitimate business interests and their intent to protect them using the restrictive covenants articulated in the non-compete agreement. Employers should conform the description of legitimate business interests to include those interests protectable under applicable state law. For more on state law requirements, see Non-Compete Laws: State Q&A Tool: Enforcement Considerations.
Confidential Information Acknowledgment
The lengthy definition of confidential information and the requirement that the employee acknowledge its value help define the employer's legitimate business interest. For more information on confidential information, see Drafting Note, Confidential Information.
Unique, Special, or Extraordinary Services
It is good practice to include the unique, special, or extraordinary services provision because employees who provide these services may be bound to a non-compete obligation even if they have limited or no access to confidential information. Using this clause gives employers another means to demonstrate the legitimate business purpose the non-compete protects. Although not all employees provide "unique, special, or extraordinary" services, it is nearly impossible to determine to a legal certainty what kinds of services qualify and what kind do not without judicial review. Examples of employees providing unique, special, or extraordinary services include:
Employees who serve as the public face of a company.
Employees who provide intellectual expertise.
A company's primary rainmaker.
An especially talented or marketable athlete, artist, or musician.
If it is possible to identify the unique, special, or extraordinary services offered by the employee, employers should use the optional language above to do so.
(b)Non-Competition.
Because of Employer[ Group]'s legitimate business interest as described in this Agreement and the good and valuable consideration offered to the Employee, [the [receipt and] sufficiency of which is acknowledged,] during the Restricted Period, the Employee agrees and covenants not to engage in Prohibited Activity within the Restricted Territory.
"Restricted Period" means the period of [Employee's employment with the Employer [Group] and] [NUMBER] [months/year[s]] immediately following the termination of Employee's employment with the Employer [Group][, regardless of the reason for the termination, whether voluntary or involuntary].
"Restricted Territory" means [DESCRIPTION OF SCOPE OF GEOGRAPHIC RESTRICTION AND/OR SUBSECTION OF INDUSTRY OR CUSTOMER LIST].
"Prohibited Activity" is activity in which the Employee contributes the Employee's knowledge, directly or indirectly, in whole or in part, as an employee, employer, owner, operator, manager, advisor, consultant, contractor, agent, partner, director, stockholder, officer, volunteer, intern, or any other similar capacity to an entity [in competition with the Employer [Group]/engaged in the same or similar business as the Employer [Group], including those engaged in the business of [DESCRIPTION OF BUSINESS]]. Prohibited Activity also includes activity that may require or inevitably require the use or disclosure of trade secrets, proprietary information, or Confidential Information.
[The Employer [Group] regards as its primary, but not exclusive, competitors the following businesses, entities, or individuals: [LIST OF PRIMARY COMPETITORS].]
Nothing in this Agreement shall prohibit Employee from purchasing or owning less than five percent (5%) of the publicly traded securities of any corporation, provided that such ownership represents a passive investment and that the Employee is not a controlling person of, or a member of a group that controls, such corporation.
This Section does not, in any way, restrict or impede the Employee from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation, or order. [The Employee shall promptly provide written notice of any such order to [AUTHORIZED OFFICER].]
A crucial element in drafting any non-compete is defining what types of post-employment activities are prohibited. Because enforcement often hinges on whether the restriction is reasonably necessary to protect the employer's legitimate business interest, employers should not define prohibited activity more broadly than necessary to accomplish that purpose.
Most non-competes prohibit competitive activity within a defined geographic scope, commonly defined as the "Restricted Territory." Geographic scope may be restricted, for example, to a state, several states, or a square mile radius from the employee's worksite. The geographic limitation should always be tailored to the legitimate needs of the company to maximize the potential for enforceability. For example, employers conducting business in only one state should limit the geographic scope of the non-compete to no broader than that single state. Employers conducting business in a larger geographic area may create correspondingly broader geographic restrictions if necessary to protect a legitimate business interest. Some states have specific requirements regarding the limits of an enforceable geographic restriction (see Non-Compete Laws: State Q&A Tool: Questions 10, 11, and 12; see also Practice Note, Non-Compete Agreements with Employees: Reasonableness of Geographic Scope).
Some employers, particularly those engaged in e-commerce, operate without physical geographic limits and may therefore have difficulty identifying an appropriate geographic restriction (see Practice Note, Non-Compete Agreements with Employees: Impact of E-Commerce). An alternative to a geographic restriction is to identify a limited set of business activities or customers that are off-limits to a departing employee. This kind of restriction might be used in conjunction with a nationwide US (or even global) restriction because it makes the broad geographic restriction narrower and more reasonable.
Duration of Restriction
Challenges to the reasonableness of non-competes regularly include claims that the restricted is too long. Although it is impossible to create a bright-line rule for all jurisdictions, generally, restrictions of less than two years are more likely to be considered reasonable than restrictions of two years or more. Some states find that restrictions for less than two years are presumptively valid, or conversely, that restrictions for more than two years are presumptively invalid.
For more information on state law requirements, see:
Employers imposing the same restriction for each of the non-competition, non-solicitation of employees, and non-solicitation of customers provisions may use the "Restricted Period" definition for each restrictive covenants without redefining it. Alternatively, employers may use Restricted Period for the non-competition provision and separately define time restrictions for the other restrictive covenants.
Most non-competes are drafted with an eye toward competition following termination of employment, but some may be drafted to prevent unlawful competition during the employee's employment as well. This Standard Document includes optional language defining the Restricted Period to include the employment term, though the enforceability of this provision may vary depending on applicable state law.
It also includes optional language specifying that the non-competition provision applies regardless of the reason for the employment termination, whether voluntary or involuntary (though courts in some jurisdictions may not enforce restrictive covenants following an involuntary termination or layoff) (see Drafting Note, Voluntary Versus Involuntary Termination).
If the employer enters into a corporate transaction resulting in the employee's transfer or assignment of employment to a successor or assignee entity and does not want the Restricted Period to begin at the time of that transfer, counsel should define:
The Restricted Period as running from the termination of employment by any entity within the Employer Group, not just a termination of employment with the Employer.
If an employer rehires an employee after a layoff, the employer should have the employee sign a new non-compete at the time of rehire. Otherwise the restricted period may be deemed to run from the time of the initial layoff and therefore may expire by the time of the employee's final employment termination (see, for example, Russomano v. Novo Nordisk, Inc., 960 F.3d 48, 54-55 (1st Cir. 2020) (employee's rehire for new position effective three days after effective date of job elimination was not continuous employment and non-compete began running on initial termination date)).
Payment During the Restricted Period
Employers concerned about the enforceability of non-compete restrictions should consider paying the employee during the restricted period. In some jurisdictions, such as Massachusetts, pay or other mutually agreed compensation is required during the restricted period for non-competes (see, for example, M.G.L. ch. 149, § 24L(b)(7)).
Depending on the specific terms of the payments, including the amount and duration of the payments and whether an employer has the right to terminate the non-compete restriction and its payment obligations at any time, the payments may be subject to the restrictions of Section 409A of the Internal Revenue Code (IRC). The applicable payment provisions should be structured and drafted to ensure that the payments either comply with or are exempt from IRC Section 409A. For more information on IRC Section 409A, see Practice Note, Section 409A: Deferred Compensation Tax Rules: Overview.
Voluntary Versus Involuntary Termination
The optional phrase "regardless of the reason for the employment termination, whether voluntary or involuntary" describes the effect of termination on the non-compete restriction. Whether this phrase should be used depends on state law. Most states enforce non-competes binding the employee even after involuntary termination, if the termination was fair and lawful. However, some states may decline to enforce non-competes following any involuntary termination of the employee.
Other states may decline to enforce a non-compete following an involuntary termination only in some situations. These states may decline to enforce a non-compete if the employee was terminated, for example:
The Employee understands and acknowledges that the Employer has expended and continues to expend significant time and expense in recruiting and training its employees and that the loss of employees would cause significant and irreparable harm to the Employer. The Employee agrees and covenants not to directly or indirectly solicit, hire, recruit, or attempt to solicit, hire, or recruit, any employee of the Employer [Group][ or any employee who has been employed by the Employer [Group] in the [NUMBER] months preceding the last [active] day of Employee's employment] ([collectively,] "Covered Employee"), or induce the termination of employment of any Covered Employee, [for a period of [NUMBER] [year[s]/months] immediately following the termination of the Employee's employment with the Employer [Group][, regardless of the reason for the termination, whether voluntary or involuntary]/during the Restricted Period].
This non-solicitation provision explicitly covers all forms of oral, written, or electronic communication, including, but not limited to, communications by email, regular mail, express mail, telephone, fax, instant message[, and social media, including, but not limited to, Facebook, LinkedIn, Instagram, X (formerly Twitter), TikTok, and any other social media platform, whether or not in existence at the time of entering into this Agreement]. [However, it will not be deemed a violation of this Agreement if the Employee merely updates the Employee's LinkedIn profile [or connects with a Covered Employee on Facebook, LinkedIn, or other social media platform] without engaging in any other substantive communication, by social media or otherwise, that is prohibited by this non-solicitation provision.] [This Section does not restrict or impede, in any way, and shall not be interpreted or understood as restricting or impeding, the Employee from [discussing the terms and conditions of Employee's employment with co-workers or union representatives/exercising Employee's rights under Section 7 of the National Labor Relations Act (NLRA)/exercising protected rights that cannot be waived by agreement.]]
Enforcement of non-solicitation of employee obligations, like non-competition obligations, depends largely on state law. Courts generally are more willing to enforce restrictions on solicitation of employees than restrictions on engaging in competitive activity more broadly. However, courts generally assess non-competes and non-solicitation covenants by considering the same factors. For more information on these factors, see Practice Note, Non-Compete Agreements with Employees: Creating a Non-Compete and Drafting Note, Non-Competition.
Those courts that have addressed the issue generally hold that merely friending an individual on Facebook or updating a LinkedIn profile, without more, does not violate a non-solicitation clause because there are many reasons other than solicitation why individuals connect on social media. To address this, employers may want to clearly define what conduct is and is not prohibited by the agreement, for example, by expressly allowing an employee to update the employee's LinkedIn profile. This clause includes optional language clarifying the reach of the non-solicitation provision. For more information about social media and restrictive covenants, see Practice Note, Social Media and Restrictive Covenant Litigation and Social Media Conduct and Restrictive Covenant Checklist.
This clause also contains optional language clarifying that any restrictions on communication are not intended to restrict or interfere with the employee's (or former employee's) Section 7 rights under the NLRA (see Drafting Note, National Labor Relations Act).
In October 2016, the Federal Trade Commission (FTC) and Department of Justice (DOJ) issued a joint guidance for human resource (HR) professionals that prohibits no-poaching agreements. In January 2021, the DOJ announced the first criminal indictment against a health care company for agreeing with competitors not to solicit their senior employees in violation of the 2016 guidance. Employers should ensure that the non-solicitation of employees provision is supported by a legitimate business interest and does not constitute an impermissible no-poaching agreement. For more information on the HR guidance and the DOJ's enforcement efforts, see Practice Notes, Human Resources and Antitrust: Non-Solicitation Agreements and Non-Solicitation and No-Poach Agreements.
(d)Non-Solicitation of Customers.
The Employee understands and acknowledges that because of the Employee's experience with and relationship to the Employer [Group], the Employee [will have/has had and will continue to have] access to and [will learn/has learned and will continue to learn] about much or all of the Employer[ Group]'s Customer Information, including, but not limited to, Confidential Information. "Customer Information" includes, but is not limited to, names, phone numbers, addresses, email addresses, order history, order preferences, chain of command, pricing information, and other information identifying facts and circumstances specific to the customer and relevant to [sales/services].
The Employee understands and acknowledges that: (i) the Employer[ Group]'s relationships with its customers is of great competitive value; (ii) the Employer [Group] has invested and continues to invest substantial resources in developing and preserving its customer relationships and goodwill; and (iii) the loss of any such customer relationship or goodwill will cause significant and irreparable harm to the Employer[ Group].
The Employee agrees and covenants, [for a period of [NUMBER] [year[s]/months] immediately following the termination of the Employee's employment with the Employer [Group][, regardless of the reason for the termination, whether voluntary or involuntary]/during the Restricted Period], not to directly or indirectly solicit, contact, or attempt to solicit or contact, using any other form of oral, written, or electronic communication, including, but not limited to, email, regular mail, express mail, telephone, fax, [or] instant message[, or social media, including but not limited to Facebook, LinkedIn, Instagram, X (formerly Twitter), TikTok, or any other social media platform, whether or not in existence at the time of entering into this agreement], or meet with the Employer[ Group]'s current[, former, or prospective] customers for purposes of offering or accepting goods or services similar to or competitive with those offered by the Employer [Group]. [However, it will not be deemed a violation of this Agreement if the Employee merely updates the Employee's LinkedIn profile[, or connects with a covered customer or former customer on Facebook or LinkedIn,] without engaging in any other substantive communication, by social media or otherwise, that is prohibited by this non-solicitation provision.]
[This restriction shall only apply to:
Customers or prospective customers the Employee [serviced or solicited/contacted in any way] during the last [NUMBER] months of the Employee's employment.
Customers about whom the Employee has trade secret or confidential information.
Customers who became customers during the Employee's employment with the Employer [Group].
Customers about whom the Employee has information that is not available publicly.]
Enforcement of non-solicitation of customers restrictions also is dependent on state law. Many courts regard solicitation of customers as a kind of competitive activity. Courts generally assess whether to enforce non-solicitation restrictive covenants by considering the same factors relevant to whether to enforce a non-compete. For more information on the factors relevant to non-compete enforcement, see Practice Note, Non-Compete Agreements with Employees: Creating a Non-Compete and Drafting Note, Non-Competition.
The additional bracketed language in the customer non-solicitation section allows employers to create a more or less restrictive non-solicitation obligation. Employers can prohibit solicitation of only current customers or broaden the restriction to encompass former and prospective customers. However, if the agreement covers prospective customers, without limitation or definition, the agreement may be challenged as overbroad, as in most businesses the universe of prospective customers is potentially limitless.
One option is to define prospective customers as those individuals or entities that the employer actively pitched or solicited for business during a certain time period. Another option is to restrict solicitation with only those customers the employee has contacted recently or about whom the employee has personal information. These additional limitations promote enforcement of the restrictive covenant by reducing the burden on the departing employee and weakening any argument that the covenant is overbroad. This optional language also helps promote enforcement in jurisdictions that are particularly unfriendly to post-employment restrictive covenants.
If needed for specific industries or companies, substitute the word "customer" for a more appropriate term, such as "client," "patient," "subscriber," or other term of art.
3.[Non-Disparagement. The Employee agrees and covenants that the Employee will not at any time make, publish, or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements concerning the Employer [Group] or its businesses, or any of its employees[,/or] officers[, or existing and prospective customers, suppliers, investors, and other associated third parties].
This Section does not, in any way, restrict or impede the Employee from exercising protected rights to the extent that such rights cannot be waived by agreement, including but not limited to the Employee's Section 7 rights under the NLRA[ or rights to communicate with [securities regulators/any other administrative or regulatory agency] to report suspected unlawful conduct] [or rights to discuss or disclose information regarding a sexual assault or sexual harassment dispute arising after the date of this Agreement]. This Section also does not prevent the Employee from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation, or order. [The Employee shall promptly provide written notice of any such order to [AUTHORIZED OFFICER].]]
The employer may wish to include a provision in the agreement barring the employee from making negative remarks about the employer, noting that the prohibition does not interfere with existing legal rights such as Section 7 rights under the NLRA or rights to communicate with securities regulators. Note that the NLRB has taken the position that many non-disparagement provisions violate employees' Section 7 rights under the NLRA. For more information, see Standard Document, Separation and Release of Claims Agreement (Long-Form): Drafting Note: NLRB Scrutiny of Non-Disparagement Provisions.
Effective December 7, 2022, the Speak Out Act renders unenforceable any predispute non-disparagement clause regarding sexual assault and sexual harassment disputes (42 U.S.C. §§ 19401 to 19404). This agreement includes optional language specifically carving out the right to discuss or disclose information regarding those disputes from the scope of the non-disparagement clause. The Act does not preempt state laws that may have broader prohibitions.
Employers should therefore also review applicable state law that may prohibit or restrict the enforceability of any employment agreement that limits an employee's right to disclose sexual harassment claims. For example, California prohibits employers from requiring employees to sign a non-disparagement agreement or other document that denies an employee the right to disclose information about unlawful acts in the workplace, including sexual harassment (Cal. Gov't Code § 12964.5).
4.Reasonableness and Other Employee Acknowledgments. The Employee further acknowledges and agrees that:
(a)the restrictive covenants and other terms and conditions of this Agreement are reasonable and reasonably necessary to protect the legitimate business interests of the Employer [Group] [including but not limited to those described in Section 2(a) above)];
(b)the Employee will be reasonably able to earn a living without violating the terms of this Agreement;
(c)the Employee will not be subject to undue hardship by reason of the Employee's full compliance with the terms and conditions of this Agreement or the Employer[ Group]'s enforcement of it;
(d)the amount of the Employee's compensation reflects, in part, the Employee's obligations and the Employer[ Group]'s rights under this Agreement[./;and]
(e)the Employee has no expectation of any additional compensation, royalties, or other payment of any kind not otherwise referenced herein in connection with this Agreement[./; and]
(f)[this Agreement is not a contract of employment and shall not be construed as a commitment by either Party to continue an employment relationship for any certain time period][./;and]
(g)[the Employee has been given [NUMBER] days to review and consider this Agreement before [signing it/commencing employment][./; and]]
(h)[by this writing, the Employee has been advised of the right to consult with counsel] before signing it.]
[Nothing in this Agreement shall be construed to in any way terminate, supersede, undermine, or otherwise modify the "at-will" status of the employment relationship between the Employer [Group] and the Employee, pursuant to which either the Employer [Group] or the Employee may terminate the employment relationship at any time, with or without cause, and with or without notice.]
Most jurisdictions that enforce restrictive covenants do so only to the extent they are reasonably necessary to protect the employer's legitimate business interests. While contractual language is not dispositive of the issue, an employee's acknowledgment that the covenants are reasonable and reasonably necessary to protect those interests may help tip the scales in favor of enforcement.
"At-Will" Employment Status
Most employees in the US are not employed for a specific term and are presumed to be at-will employees. If entering into a non-compete with an at-will employee, the employer should affirm the employee's at-will status and confirm that nothing in the non-compete agreement should be construed as an agreement to employ the employee for any specific time period.
Employers entering into this agreement with employees working under a written employment contract may either use this stand-alone agreement or incorporate the desired non-compete provisions into the primary employment agreement. In either case, employers should not include the optional language confirming the employee's "at-will" status. If this non-compete language is being incorporated into an employment agreement, the employer also should not include the optional language stating that it is not a contract of employment.
Advance Notice and Right to Consult Counsel
Some state non-compete laws require that employers must either or both:
Provide employees with a copy of the non-compete a minimum period before beginning employment or the agreement's effective date (see, for example, 820 ILCS 90/20 (requiring employers to give employees 14 days advance notice of a non-compete)).
Notify employees of their right to consult with counsel in connection with the agreement (see, for example, M.G.L. ch. 149, § 24L(b)(i)).
To avoid litigating about these issues at the enforcement stage, employers in jurisdictions with these requirements may want to include specific employee representations that they have received the minimum notice required, and tailor the language as necessary to comply with any jurisdictional requirements (see, for example, Cynosure LLC v. Reveal Lasers LLC, , at *9 (D. Mass. Nov. 9, 2022) (holding non-compete unenforceable against former employee under Massachusetts Non-Competition Agreement Act because agreement did not state that employee was advised to consult with counsel)). Even if not required, these representations may increase the likelihood of enforceability if the employee challenges the equities of the agreement. Those kinds of challenges may be more common in a legal climate that is increasingly hostile to non-compete restrictions.
5.Remedies. In the event of a breach or threatened breach by the Employee of any of the provisions of this Agreement, the Employee hereby consents and agrees that money damages would not afford an adequate remedy and that Employer [Group] shall be entitled to seek a temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction, without the necessity of showing any actual damages [, and without the necessity of posting any bond or other security]. Any equitable relief shall be in addition to, not in lieu of, legal remedies, monetary damages, or other available relief.]
Although this clause includes optional language stating that the employer is entitled to injunctive relief for any breach or threatened breach of any provision of the Agreement, the parties' agreement on this issue is not dispositive. The courts ultimately decide the propriety of granting an injunction and apply varying tests to this analysis (see Non-Compete Laws: State Q&A Tool: Question 15). Similarly, while this clause also includes optional language stating that no bond or security is required for the issuance of an injunction, the bond requirement generally is left to the discretion of the court. Some courts, by local rules or otherwise, require the posting of a bond, or may specify a minimum bond amount. This language may still be helpful in preventing employees from arguing that an injunction is not warranted or that a bond is necessary to protect against any harm resulting from issuing an injunction.
To the extent permitted by state law, Employee consents that the Employer [Group] may assign this Agreement to any subsidiary or corporate affiliate [in the Employer Group or otherwise], or to any successor or assign (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Employer [Group]. This Agreement shall inure to the benefit of the Employer [Group] and permitted successors and assigns.
Non-compete agreements generally may be assigned by the employer if the contract creating the agreement specifically provides for assignment. However, some states impose restrictions on assignment. For example, employee consent may be required to assign the agreement if the agreement is being transferred as part of a sale of a business as an asset sale. Indiana requires employee consent for assignment even where it is specifically permitted by the contract (SDL Enters. v. DeReamer, 683 N.E.2d 1347, 1349-50 (Ind. Ct. App. 1997)). Some courts have held that an employee consents to assignment where an agreement expressly binds successors and assigns (see, for example, Campbell v. Millennium Ventures, LLC, 55 P.3d 429, 433 (N.M. Ct. App. 2002)).
To avoid any dispute about whether employee consent is necessary or has been provided, this Agreement includes an express consent of assignability.
(b)No Assignment by the Employee.
The Employee may not assign this Agreement or any part hereof. Any purported assignment by the Employee shall be null and void from the initial date of purported assignment.
(c)Survival.
The Parties' rights and obligations under this Agreement survive the termination of employee's employment with the Employer [Group] [and any employment contract entered into in connection with that employment].
Employers should include a survival clause and specify that the non-compete restriction and other rights and obligations in the agreement survive both the termination of employment and the termination of any employment agreement entered into in connection with the employee's employment. In a cautionary tale to employers, the Eighth Circuit recently held that a non-compete, as drafted, only "survived the termination of employment," but did not survive the termination of the employment agreement, which was terminable on written notice by either party (Miller v. Honkamp Krueger Fin. Servs., Inc., 9 F.4th 1011, 1014-15 (8th Cir. 2021)).
7.[Arbitration. Any dispute, controversy, or claim arising out of or related to this Agreement or any breach or threatened breach of this Agreement shall be submitted to and decided by binding arbitration[ and governed by the Federal Arbitration Act (FAA)]. Arbitration shall be administered exclusively by [SELECTED ARBITRATION ORGANIZATION] in [LOCATION] and shall be conducted consistent with the rules, regulations, and requirements thereof as well as any requirements imposed by state law. Any arbitral award determination shall be final and binding on the Parties.]
An arbitration clause should only be included in the agreement if the employer wishes to resolve disputes in an arbitral forum. Employers should also assess whether they are solely responsible for all arbitration costs under state law. Some states impose restrictions on an employer's ability to contractually hold the employee responsible for arbitration fees.
Employers requiring arbitration of any disputes under this agreement should conform the Forum selection clause to reflect that the arbitral forum is the exclusive forum and not any specific court.
For more information on arbitration clauses, examples of arbitration organizations, and relevant language suggested by those organizations, see Employment Arbitration Toolkit (US).
8.[Warranty. Employee represents and warrants that the Employee is not a party to any non-compete restrictive covenant or related contractual limitation that would interfere with or hinder the Employee's ability to undertake the obligations and expectations of employment with the Employer [Group].]
This optional clause does not require that the employee attest that they are free from any non-compete or related obligations, but only that they are free from non-compete or related obligations that would interfere with or hinder their new employment. Including this clause gives the employer some protection against litigation from former employers of the employee. It also prompts new employees to inform the new employer about any agreements that may create a litigation risk.
9.Choice of Law [and Forum Selection]. This Agreement [and all related documents] [including all exhibits attached hereto][, and all matters arising out of or relating to this Agreement, whether sounding in contract, tort, or statute,] are governed by, and construed in accordance with, the laws of the State of [STATE] [(including [its statutes of limitations] [and] [APPLICABLE STATE CHOICE OF LAW STATUTE(S)])], without giving effect to any conflict of laws provision that would require or permit the laws of any jurisdiction other than the State of [STATE] to apply. [Any action or proceeding by either Party to enforce this Agreement shall be brought only in any state or federal court located in the state of [STATE][, county of [COUNTY]]. The Parties hereby irrevocably submit to the [non-]exclusive jurisdiction of such courts and waive the defense of inconvenient forum to the maintenance of any such action or proceeding in such venue.]
Choice of law and forum selection clauses in non-competes are powerful tools that may dictate the outcome of a non-compete dispute. The choice of law clause permits the parties to select the law of a specific jurisdiction to govern the agreement. When choosing which state's law should govern, employers should generally choose the law of a state that bears some relationship to the employment relationship. At a minimum, there should be some reasonable basis for the choice of law. For example, the state where the employer is located or where the job duties are performed is a reasonable basis for choosing the law of that state. If there is no reasonable basis for the choice, the governing law provision may not be enforceable.
Other considerations for the employer when selecting among various governing state law choices include:
Employer-friendly law in one state over another.
The convenience to the employer of litigating disputes in a particular state.
Courts also generally enforce forum selection clauses absent a compelling showing of prejudice to the objecting party. For example, in Down-Lite Int'l, Inc. v. Altbaier, the court enforced an Ohio forum selection provision in a shareholder agreement by a Ohio-based company against an employee who worked primarily in California, where the defendant was the only out-of-state witness ( (S.D. Ohio Aug. 6, 2019) (denying motion to transfer venue and rejecting argument that California Labor Code § 925 invalidated provision because shareholder agreement was not entered into as a condition of employment and employment agreement had no forum selection clause)).
Some states have restricted choice of law and forum selection clauses by statute. For example, California law generally prohibits choice of law and forum selection clauses that apply another state's law or forum as a condition of employment for an individual who primarily resides or works in California, except when the employee is represented by counsel during the negotiations (Cal. Labor Code § 925). Massachusetts law similarly prohibits choice of law provisions in non-compete agreements entered into on or after October 1, 2018 that have the effect of avoiding the requirements of the Massachusetts non-compete law for employees who live or work in the state (M.G.L. ch. 149, § 24L(e)).
When adapting this agreement, employers should determine whether they prefer to seek enforcement in one jurisdiction exclusively or allow for some flexibility in enforcement jurisdictions (in which case, they should include the optional "non-" in the bracketed language above). Likewise, if the employer prefers enforcement in the courts of a specific county within a state, they should include the bracketed language with reference to the county of choice. Otherwise, they can omit the optional county language.
10.Entire Agreement. Unless specifically provided herein, this Agreement contains all the understandings and representations between the Employee and the Employer [Group] pertaining to the subject matter hereof and supersedes all prior and contemporaneous understandings, agreements, representations, and warranties, both written and oral, with respect to such subject matter.
[In the event of any inconsistency between the statements in the body of this Agreement and [NAME OF OTHER AGREEMENTS WITH EMPLOYEE], the provisions of this Agreement shall control.
OR
Nothing herein modifies, supersedes, voids, or otherwise alters the following pre-existing contractual obligation: [TEXT OF OBLIGATION TO PRESERVE WITH REFERENCE TO AGREEMENT NAME, EXECUTION DATE, AND SECTION NUMBER.]]
The employer should review any and all existing agreements between the employee and the employer to ensure that no other contractual obligations govern the subject matter of this agreement. To the extent that an existing agreement addresses topics covered by this non-compete agreement (such as an employment agreement or a confidentiality agreement), this section of the agreement should be modified to:
Make specific reference to potentially inconsistent provisions in other agreements.
Clarify which agreement controls if provisions conflict.
If the employer wants the provisions of this agreement to take precedence, the employer should use the first bracketed alternative language. If the employer wants the provisions of a different agreement to take precedence, it should use the second bracketed alternative. If there are no other agreements that potentially conflict, the employer can eliminate the bracketed language.
11.Modification and Waiver. No provision of this Agreement may be amended or modified unless the amendment or modification is agreed to in writing and signed by the Employee and by the Employer's [POSITION NAME]. No waiver by either Party of any breach of any condition or provision of this Agreement to be performed by the other Party shall be deemed a waiver of any other provision or condition at the same or any prior or subsequent time, nor shall the failure of or delay by either Party in exercising any right, power, or privilege under this Agreement operate as a waiver to preclude any other or further exercise of any right, power, or privilege.
12.[Severability. Should any provision of this Agreement be held by a court [or arbitral authority] of competent jurisdiction to be enforceable only if modified, or if any portion of this Agreement shall be held as unenforceable and thus stricken, that holding shall not affect the validity of the remainder of this Agreement, the balance of which shall continue to be binding on the Parties with any modification to become a part of and treated as though originally set forth in this Agreement.
The Parties further agree that any such court [or arbitral authority] is expressly authorized to modify any unenforceable provision of this Agreement instead of severing the unenforceable provision from this Agreement in its entirety, whether by rewriting the offending provision, deleting any or all of the offending provision, adding additional language to this Agreement, or by making any other modifications it deems warranted to carry out the intent and agreement of the Parties as embodied in this Agreement to the maximum extent permitted by law.
The Parties expressly agree that this Agreement as so modified by the court shall be binding on and enforceable against each of them. Should one or more of the provisions of this Agreement be held to be invalid, illegal, or unenforceable in any respect, that invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and if such provision or provisions are not modified as provided above, this Agreement shall be construed as if such invalid, illegal, or unenforceable provisions had not been set forth in this Agreement.]
Some states may impose limitations on modification or reformation (often referred to as blue penciling) of agreements that restrict the activities of employees. Employers should exercise particular care in drafting non-compete agreements in jurisdictions that do not authorize blue penciling because the agreement can be voided in its entirety rather than modified and enforced if it contains unlawful provisions. Other states may allow or require blue penciling by statute under certain circumstances (see, for example, N.R.S. § 613.195(5)). For more information on state laws regarding blue penciling, see Practice Note, Non-Compete Agreements with Employees: Reformation of Overbroad Non-Competes (Blue-Penciling) and Non-Compete Laws: State Q&A Tool: Question 6.
Employers opting for mandatory arbitration of any disputes should ensure the arbitrator has the authority to sever any unenforceable provisions and enforce the remaining provisions.
13.Captions. Captions and headings of the sections and paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the caption or heading of any section or paragraph.
14.Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. [Delivery of an executed counterpart['s signature page] of this Agreement[, by facsimile, electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document,] has the same effect as delivery of an executed original of this Agreement.]
15.[Tolling. If the Employee violates any of the terms of the restrictive covenant obligations in this Agreement, [the obligation at issue will begin to run from the first date on which the Employee ceases to be in violation of the obligation/the [restriction period/Restricted Period] for all such restrictions shall automatically be extended by the period the Employee was in violation of them.]
A tolling provision adds an extra layer of protection to an employer if an employee breaches a non-compete obligation. It does so by suspending the start date for the restrictive period or other obligation until after the employee has stopped violating the contract or during pendency of the litigation and extends the end of the restrictive period by a corresponding amount of time (see, for example, Delta Enter. Corp. v. Cohen, 940 N.Y.S.2d 43, 44 (1st Dep't 2012)).
In most jurisdictions, an employer benefits (or at least is not harmed) by including a tolling provision. A court may refuse to toll a former employee's non-compete period where the agreement does not include a tolling provision (EMC Corp. v. Arturi, 655 F.3d 75, 77 (1st Cir. 2011)). However, because a tolling provision extends the length of the non-compete obligation, courts may view them harshly when evaluating the reasonableness of restriction (see, for example, McKie Ford Lincoln, Inc. v. Hanna, 907 N.W.2d 795, 799-800 (S.D. 2018) (prior litigation must be successful to toll non-compete period)). Some states also may refuse to toll non-compete periods during the time of an employee's breach, even if the agreement contains a tolling provision (see, for example, H&R Block Enters., Inc. v. Swenson, 745 N.W.2d 421, 427-28 (Wis. Ct. App. 2007)).
16.[Attorneys' Fees. If the Employee breaches any of the terms of the restrictive covenant obligations in this Agreement, to the extent authorized by state law, the Employee will be responsible for payment of all reasonable attorneys' fees and costs the Employer [Group] incurred in the course of enforcing the terms of the Agreement, including demonstrating the existence of a breach and any other contract enforcement efforts.]
An attorneys' fees provision gives an employer the option to defray the cost of enforcement and may signal to an employee that the cost of violation is too steep to be worthwhile. In most states, the default rule is that parties pay for their own attorneys' fees regardless of the outcome of the case. However, employers can attempt to modify the default rule by contractually requiring payment of attorneys' fees (see Kelly Servs. v. De Steno, 760 F. App'x 379, 383-84 (6th Cir. 2019) (court awarded employer attorneys' fees incurred enforcing agreement even without reaching final award)).
17.[No Preparation for Competition. During the term of the Employee's employment, Employee agrees not to undertake preparations for competitive activity prohibited by this Agreement.]
Despite common law or statutory prohibitions against unfair competition, many jurisdictions do not prohibit employees from engaging in preparations for competitive activity during the tenure of their employment if they continue to fulfill the obligations of their existing employment. However, employers sometimes may include a contractual provision that prohibits employees from preparing to compete. This is not a common clause in non-compete agreements and may be difficult to enforce in practice, so employers should only include this option if it is likely to be enforced (see, for example, Innovative Manpower Sol., LLC v. Ironman Staffing, LLC, 929 F. Supp. 2d 597, 618 (W.D. La. 2013) (finding restriction unenforceable)).
18.[Notice. If and when Employee's employment with Employer [Group] terminates, [whether voluntarily or involuntarily,] Employee agrees to provide to any subsequent employer a copy of this Agreement. In addition, Employee authorizes Employer [Group] to provide a copy of this Agreement to third parties, including but not limited to, Employee's subsequent, anticipated, or possible future employer.]
This optional clause creates an additional disincentive for an employee to engage in competitive activity, but may create evidence of the employer's imposing an unreasonable or unduly burdensome requirement on the former employee.
The employer must ensure that the employee signs the non-compete agreement either in hard-copy or electronically. Employers wishing to rely on electronic signatures should follow procedures under applicable state law (see Practice Note, Signature Requirements for an Enforceable Contract: The Uniform Electronic Transactions Act). They also should ensure they can establish that the employee signed the agreement and minimize the employee's ability to deny having signed it, such as by using multi-factor authentication or having the employee sign from their home computer (see, for example, Barrows v. Brinker Rest. Corp., 36 F.4th 45, 52 (2d Cir. 2022) (employee's affidavit denying signature on arbitration agreement warranted reversal of order compelling arbitration)).
Some state laws now require that employers provide advance notice of the non-compete before employment begins. However, in some states, a non-compete agreement is not enforceable against a prospective employee (see, for example, Rouses Enters., L.L.C. v. Clapp, (5th Cir. Mar. 8, 2022) (interpreting Louisiana law)). Employers therefore generally should instruct the employee not to sign the agreement before they have entered into an employment relationship.
Employer's Signature
It is equally important that an employer sign the non-compete, especially in jurisdictions with statutory requirements that the agreement be in writing and signed by the parties. For example, the Alabama Supreme Court recently refused to enforce a non-competition agreement where the employer had signed related employment agreements, but not the non-compete agreement (Amanda Howard Real Estate, LLC v. Lee, , at *3-5 (Ala. June 30, 2023)).