Noncompete Agreement

What is a noncompete agreement?

A noncompete agreement is a contract that prevents employees (and sometimes contractors) from competing in any way with an employer once they’re no longer working for the organization.

The prohibited actions may include:

• Working multiple jobs
• Taking another contract
• Starting a business in the same field
• Working within a certain distance of a particular location
• Working with certain competitors

Note that a seller of a business may also sign this type of agreement with the purchaser.

Noncompete agreements are often designed to help businesses maintain their market share. This is because they prevent employees and contractors from revealing trade secrets to competitors or using their former employers’ business relationships and skills to gain an advantage over them.

What is a noncompete clause?

A noncompete clause has the same terms and serves the same purpose as a noncompete agreement. The only difference is that noncompete clauses usually appear as one section within a larger business sale or employment contract instead of being signed as a separate legal document solely for that purpose.

Are noncompetes enforceable?

In August 2024, the Federal Trade Commission (FTC) announced a rule banning noncompete clauses on the basis that they hurt the US economy and stifle innovation.

How the noncompete ban could impact existing agreements

The FTC’s proposed noncompete ban would apply to current and former employees and render all noncompete contracts void. Additionally, employers would be required to notify all current and former employees that their contracts have been rescinded, provided they have up-to-date contact information for those former employees.