What Is a Non-Compete Clause?
A non-compete clause, also called a covenant not to compete, is a term in an employment contract or separate agreement that restricts an employee from working for competitors, or starting a competing business, for a specified time and area after leaving the employer. Employers use these clauses to protect trade secrets, client relationships and investment in training.
Typical elements
- Duration: how long the restriction lasts, such as six months or a year.
- Geography: the area where the restriction applies.
- Scope of activity: the kinds of work or industries covered.
- Consideration: what you receive in return, such as a job, payment or extra pay during the restriction.
- Remedies: possible damages or an order to stop.
Related terms include non-solicitation clauses, which restrict contacting clients or colleagues, and non-disclosure agreements, which protect confidential information.
Enforceability
Laws differ widely. Some jurisdictions restrict or ban non-competes, especially for lower-paid workers. Others enforce them only if they are reasonable and protect a legitimate business interest. In recent years, regulators and legislatures in several places, including the US, have debated or enacted limits, and the legal position has been changing. Because rules differ and move quickly, check current local law or seek legal advice.
Why students and graduates should care
Early-career workers in industries such as technology, sales, consulting and finance may be asked to sign non-competes. If your first job's contract includes one, it can limit your options when you move to another employer, and may affect your plans to start a business.
What to check
- How broad is it? Does it cover your role, industry or location?
- How long does it last?
- Are you paid during the restriction?
- What happens if you are laid off?
- Is it a condition of the job or introduced later?
- Can you negotiate narrower terms or exceptions?
- Which law applies to the agreement?
What to do if you are bound
Do not ignore it. Get legal advice before taking a new job in a similar field. Some employers will agree to waive or narrow the restriction.
Alternatives for employers
Employers can protect confidential information through NDAs, intellectual property assignments, garden leave arrangements and fair compensation, which may be less restrictive.
Related terms
See employment contract, job offer letter, probation period at work, freelancer and networking.
Frequently asked questions
Are non-compete clauses enforceable?
It depends on the country, state and terms. Some places restrict or ban them, and others enforce those that are reasonable in time, area and scope. Rules have been changing.
What is the difference between a non-compete and a non-disclosure agreement?
A non-compete restricts who you can work for. An NDA restricts sharing confidential information. They are often in the same contract but are different obligations.
Should I sign a non-compete?
Read it carefully, ask about its scope, and consider advice from a lawyer or a university careers service. You can sometimes negotiate narrower terms.