What Is a Non-Compete Agreement?

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on March 29, 2023

Non-Compete Agreement Definition

Non-compete agreements are agreements between departing employees and companies in which the employee promises not to engage in competitive business or disclose confidential company information.

Such agreements generally have a defined period of time for enforcement. Non-compete agreements are also referred to as a "covenant not to compete" or "restrictive covenants".

Non-compete agreements help companies protect their business practices and competitive advantages by preventing employees from using this knowledge to start their own venture.

But such agreements are harmful for competition because they can create monopolies or make talent mobility difficult in an industry.

Define X

Typical non-compete agreements generally address some or all of the following topics:

  • Non-competition: The employee cannot engage in a business that competes with their former company.
  • Non-solicitation: The employee cannot contact his former employer's customers, suppliers, or other employees for business opportunities.
  • Non-disparagement: The employee cannot make negative comments about the company.
  • Confidentiality: The employee cannot disclose confidential information pertaining to the company.

Depending on the company's industry of operations, one or more of the clauses defined earlier can be included in the non-compete agreement.

For example, a Silicon valley start-up may be more interested in maintaining confidentiality about its cutting-edge technology. But an insurance company will be more concerned about solicitation of their best salespeople.

Non-Compete Agreement Template

Non-compete agreements are geography-specific and are not recognized uniformly across states in America.

California does not consider non-compete agreements or clauses valid except in situations where equity stakeholders in a business agree not to compete against each other.

Massachusetts, on the other hand, has a different approach and admits non-compete clauses in court under "reasonable" circumstances.

How to Get Out of a Non-compete Agreement

Non-compete agreements are different from non-disclosure agreements.

Non-disclosure agreements are made to protect a company's confidential information and trade secrets.

They do not prevent former employees from starting their own ventures or soliciting business from their employer's customers.

Courts also recognize non-disclosure agreements as a valid defense covenant employed by companies, regardless of geography.

Clauses relating to non-disclosure can also become part of an overall non-compete agreement.

Non-Compete Agreement FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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