Employee Non-Compete Agreement

EMPLOYEE NON-COMPETE AGREEMENT

THIS EMPLOYEE NON-COMPETE AGREEMENT (this "Agreement") is entered into as of [__/__/____] (the "Effective Date"),

by and between:

EMPLOYER:
Name: [________________________________]
Address: [________________________________]
City/State/ZIP: [________________________________]
State of Organization: [____]
(hereinafter referred to as the "Company")

and

EMPLOYEE:
Name: [________________________________]
Address: [________________________________]
City/State/ZIP: [________________________________]
(hereinafter referred to as "Employee")

Company and Employee are each referred to individually as a "Party" and collectively as the "Parties."

RECITALS

WHEREAS, the Company is engaged in the business of [________________________________] (the "Business");

WHEREAS, Employee is employed by the Company in the position of [________________________________], with access to the Company's Confidential Information, trade secrets, customer relationships, specialized training, and/or goodwill;

WHEREAS, the Company has a legitimate business interest in protecting its Confidential Information, customer and vendor relationships, employee workforce stability, specialized training investments, and goodwill from unfair competitive use;

WHEREAS, Employee acknowledges that Employee's duties provide access to information and relationships that, if used competitively, would cause the Company substantial and irreparable harm;

WHEREAS, as consideration for this Agreement, the Company is providing Employee with the consideration described in Section 3 below; and

WHEREAS, Employee has had the opportunity to consult with independent legal counsel before signing this Agreement.

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE 1 — DEFINITIONS

1.1 "Competing Business" means any person, entity, or enterprise that is engaged in, or is preparing to engage in, any business that is substantially similar to, or competitive with, the Business of the Company as conducted or actively planned as of the date of Employee's termination or separation. The term includes, without limitation:

(a) [________________________________] [describe specific competitors or competitive activities]; and

(b) Any business providing [________________________________] [describe products/services] to the same or similar customer markets as the Company.

1.2 "Confidential Information" means any non-public, proprietary, or trade secret information of the Company, including but not limited to: customer lists, pricing strategies, business plans, financial data, product development plans, marketing strategies, vendor terms, software, algorithms, technical data, and employee information. This definition is intended to be consistent with the Defend Trade Secrets Act (18 U.S.C. § 1836) and applicable state trade secret law.

1.3 "Customer" means any person or entity that: (a) was a customer or client of the Company at any time during the [____]-month period preceding Employee's termination; or (b) was a prospective customer with whom Employee had material contact on behalf of the Company during the [____]-month period preceding Employee's termination.

1.4 "Geographic Area" means:

☐ Option A — Named Territory: [________________________________] [specify states, counties, metropolitan areas, or specific radius]

☐ Option B — Radius: A [____]-mile radius from the Company's principal place of business located at [________________________________]

☐ Option C — Customer-Based (no fixed geography): Any geographic area in which the Company conducts business or has active Customers, limited to areas where Employee provided services, had customer contact, or had supervisory responsibilities during the [____]-month period preceding termination

☐ Option D — Nationwide: The United States of America

DRAFTER'S NOTE: Geographic scope must be reasonable and tailored to the Company's actual business footprint and the Employee's role. Overbroad geographic restrictions are a leading cause of non-compete invalidation. Customer-based restrictions (Option C) are generally more enforceable than broad geographic definitions. In states with reformation authority, courts may narrow overbroad provisions; in "red pencil" states, the entire restriction may be voided.

1.5 "Restricted Period" means the period commencing on the date of Employee's termination of employment (for any reason, whether voluntary or involuntary, with or without cause) and continuing for a period of:

☐ Six (6) months
☐ Twelve (12) months
☐ Eighteen (18) months
☐ Twenty-four (24) months
☐ Other: [____] months

DRAFTER'S NOTE: Select the shortest period reasonably necessary to protect legitimate business interests. Many states impose statutory caps. Massachusetts limits non-competes to 12 months (MA Gen. Laws ch. 149, § 24L). Oregon limits to 12 months (OR Rev. Stat. § 653.295). Washington limits to 18 months. Courts routinely strike restrictions exceeding 2 years and view 12-month periods most favorably. The period should correspond to the time needed for the Company's Confidential Information to become stale or for customer relationships to naturally transition.

1.6 "Restricted Activities" means:

(a) Being employed by, consulting for, or providing services to a Competing Business in a capacity similar to or related to the work Employee performed for the Company;

(b) Owning, managing, operating, controlling, or having a financial interest in a Competing Business (excluding passive ownership of less than 2% of publicly traded securities);

(c) Assisting any person or entity in establishing or operating a Competing Business; or

(d) [________________________________] [describe any additional specific restricted activities].

1.7 "Termination" means the cessation of Employee's employment with the Company for any reason, including voluntary resignation, involuntary termination with or without cause, layoff, constructive termination, retirement, or expiration of an employment term.

ARTICLE 2 — NON-COMPETE COVENANT

2.1 Covenant Not to Compete. During Employee's employment with the Company and during the Restricted Period following Termination, Employee shall not, directly or indirectly, engage in any Restricted Activities within the Geographic Area, except with the prior written consent of the Company.

2.2 Scope Limitation. The restrictions in this Article 2 are intended to apply only to the extent necessary to protect the Company's legitimate business interests and shall not be construed to prevent Employee from:

(a) Using general skills, knowledge, and experience acquired before or during employment that do not constitute Confidential Information;

(b) Working in a non-competitive role for an entity that has a division or subsidiary that competes with the Company, provided Employee does not work in or provide services to the competing division or subsidiary;

(c) Engaging in civic, charitable, educational, or religious activities; or

(d) Passive ownership of less than 2% of the outstanding securities of any publicly traded company.

2.3 Tolling. If Employee violates the non-compete covenant, the Restricted Period shall be tolled during the period of violation and shall resume running upon cessation of the violation, such that the Company receives the full benefit of the agreed-upon Restricted Period. Employee shall be given notice of any tolling assertion by the Company.

DRAFTER'S NOTE: Tolling provisions are enforceable in many states (e.g., FL, TX, GA) but may be disfavored or unenforceable in others. Verify enforceability under the governing law.

ARTICLE 3 — CONSIDERATION

3.1 Consideration. In exchange for Employee's obligations under this Agreement, the Company provides the following consideration:

☐ Option A — New Employment: The Company's offer of initial employment to Employee, which Employee acknowledges is sufficient and valuable consideration.

☐ Option B — Continued Employment plus Additional Consideration (recommended for existing employees): (i) Employee's continued employment with the Company; and (ii) the following additional consideration: [________________________________] [specify: e.g., lump-sum payment of $[____], salary increase, bonus, stock options, promotion, access to specialized training, severance commitment, other].

☐ Option C — Signing Bonus / Lump-Sum Payment: A one-time payment of $[________________________________], payable within [____] days of execution of this Agreement.

☐ Option D — Garden Leave Payment (required in Massachusetts; recommended elsewhere): During the Restricted Period, the Company shall pay Employee garden leave compensation equal to [____]% of Employee's highest annual base salary during the last two (2) years of employment (minimum 50% required under MA Gen. Laws ch. 149, § 24L), payable in regular installments on the Company's normal payroll schedule, subject to applicable tax withholdings. The Company may not cease garden leave payments unless Employee materially breaches this Agreement.

☐ Option E — Other Consideration: [________________________________]

IMPORTANT STATE-SPECIFIC CONSIDERATION REQUIREMENTS:

• Illinois: For non-competes, Employee must earn at least $75,000/year (adjusted annually). For non-solicitation, Employee must earn at least $45,000/year. (820 ILCS 90/10)
• Massachusetts: Requires garden leave (50% of highest salary over prior 2 years) or "other mutually agreed upon consideration" for post-employment non-competes. (MA Gen. Laws ch. 149, § 24L)
• Oregon: Non-compete is voidable unless Employee is informed of the restriction in a written offer received at least 2 weeks before employment, OR the non-compete is entered into upon a subsequent bona fide advancement. Employee must earn the greater of $113,241/year (2024) or the median family income for a four-person family. (OR Rev. Stat. § 653.295)
• Washington: Employee must earn more than $120,560/year (2024, adjusted annually). (RCW 49.62.020)
• Colorado: Non-competes void unless Employee earns at least $123,750/year (2024, adjusted annually) and satisfies additional notice and disclosure requirements. (C.R.S. § 8-2-113)
• Texas: Non-compete must be ancillary to an otherwise enforceable agreement (e.g., stock options, proprietary information access, specialized training). (TX Bus. & Com. Code § 15.50)
• Pennsylvania, North Carolina, Kentucky, Wyoming: Continued employment alone may not constitute sufficient consideration for an existing employee; additional consideration is recommended.
• Virginia: Non-compete unenforceable for "low-wage employees" earning less than $73,320/year (2024, adjusted annually) or the average weekly wage. (VA Code § 40.1-28.7:8)

3.2 Acknowledgment of Adequacy. Employee acknowledges that the consideration provided in Section 3.1 is fair, reasonable, and adequate, and that Employee has had the opportunity to negotiate the terms of this Agreement.

ARTICLE 4 — COMPANY'S LEGITIMATE BUSINESS INTERESTS

4.1 Protectable Interests. Employee acknowledges and agrees that the Company has the following legitimate business interests justifying the restrictions in this Agreement:

(a) Trade Secrets and Confidential Information: Employee has had or will have access to the Company's trade secrets and Confidential Information, the protection of which is a recognized legitimate business interest in all jurisdictions;

(b) Customer Relationships and Goodwill: Employee has developed or will develop relationships with the Company's Customers and has access to Customer preferences, pricing, and contact information that the Company has invested substantial resources in developing;

(c) Specialized Training: The Company has invested or will invest in specialized training for Employee, including [________________________________];

(d) Workforce Stability: Employee has knowledge of the Company's employees' skills, compensation, and responsibilities, the disclosure of which to a competitor could harm the Company's ability to retain its workforce; and

(e) Goodwill: Employee's role involves substantial contact with Customers, vendors, or business partners, and Employee's departure to a competitor could divert goodwill built through the Company's investments.

4.2 Reasonableness. Employee acknowledges that the restrictions in this Agreement are reasonable in scope, duration, and geographic area in light of the protectable interests identified above and that the restrictions will not impose an undue hardship on Employee's ability to earn a livelihood.

ARTICLE 5 — BLUE PENCIL / REFORMATION PROVISION

5.1 Severability and Modification. If any provision of this Agreement, or any part thereof, is found by a court of competent jurisdiction to be unreasonable, overly broad, or otherwise unenforceable, the Parties agree and intend that:

(a) In jurisdictions that permit judicial reformation (including but not limited to Texas, Florida, Michigan, and others): the court shall reform, modify, or limit such provision to the minimum extent necessary to make it valid and enforceable, rather than declaring it void;

(b) In jurisdictions that apply the "blue pencil" doctrine (including but not limited to Indiana, North Carolina, Wisconsin, and others): the court shall strike only the unenforceable portion of the provision while enforcing the remainder;

(c) In jurisdictions that apply the "red pencil" or "all-or-nothing" doctrine (including but not limited to Virginia, Nebraska, and others): each restrictive provision is intended to be a separate and independent covenant, and the invalidity of one provision shall not affect the enforceability of the remaining provisions.

5.2 Independent Covenants. Each restriction in this Agreement (including geographic area, duration, and scope of restricted activities) is intended to be independent and severable. If any single restriction is found unenforceable, the remaining restrictions shall continue in full force and effect.

5.3 Narrow Construction Preferred. In the event of ambiguity, the restrictions in this Agreement shall be construed narrowly in favor of enforceability and Employee's right to earn a livelihood.

DRAFTER'S NOTE — BLUE PENCIL / REFORMATION OVERVIEW:

States generally fall into three categories when a non-compete is overbroad:

Approach	Effect	Representative States
Reformation ("purple pencil")	Court rewrites the provision to make it reasonable	TX, FL, MI, CT, AR, ID, TN
Blue Pencil (strict)	Court strikes unenforceable language but cannot add or rewrite	IN, NC, WI, SC, GA, PA
Red Pencil (all-or-nothing)	Court voids the entire provision if any part is overbroad	VA, NE, AL (varies by panel)

Best practice: Draft provisions narrowly so that blue-penciling works as intended. Include step-down provisions (e.g., "if 24 months is unenforceable, then 12 months") to facilitate enforcement across jurisdictions.

ARTICLE 6 — GARDEN LEAVE OPTION

6.1 Garden Leave Election. At the Company's sole discretion, the Company may elect to place Employee on "garden leave" during all or part of the Restricted Period by providing written notice no later than Employee's last day of active employment. During the garden leave period:

(a) Employee shall remain employed by the Company (or receive equivalent compensation) and shall be available for consultation and transition assistance as reasonably requested;

(b) The Company shall continue to pay Employee's base salary at the rate in effect immediately prior to the commencement of garden leave, payable on the Company's regular payroll schedule;

(c) Employee shall continue to receive benefits on the same terms as active employees, to the extent permitted by the applicable benefit plans; and

(d) Employee shall comply with all obligations under this Agreement, including confidentiality and non-compete restrictions.

6.2 Massachusetts Garden Leave Compliance. If Employee is subject to Massachusetts law (MA Gen. Laws ch. 149, § 24L), the Company shall provide garden leave compensation of no less than 50% of Employee's highest annual base salary during the last two (2) years of employment, payable during the Restricted Period. The Company may not unilaterally discontinue such payments unless Employee breaches this Agreement or a fiduciary duty owed to the Company.

6.3 Early Release. The Company may, at any time during the Restricted Period, release Employee from the non-compete obligations by providing written notice. Upon release, the Company's obligation to make garden leave payments shall terminate prospectively.

ARTICLE 7 — REMEDIES

7.1 Injunctive Relief. Employee acknowledges and agrees that:

(a) The Company's Confidential Information, customer relationships, and goodwill are valuable assets;

(b) A breach of this Agreement would cause the Company immediate, irreparable harm that cannot be adequately compensated by monetary damages alone; and

(c) The Company shall be entitled to seek temporary, preliminary, and permanent injunctive relief to enforce this Agreement, without the necessity of proving actual damages or posting a bond (to the extent permitted by applicable law).

7.2 Monetary Damages. In addition to injunctive relief, the Company shall be entitled to recover all actual damages caused by Employee's breach, including lost profits, costs of customer retention, and any other compensable losses.

7.3 Liquidated Damages (Optional).

☐ If selected: In lieu of or in addition to actual damages, Employee shall pay the Company liquidated damages in the amount of $[________________________________] upon breach. The Parties agree that actual damages from a breach would be difficult to calculate and that this amount represents a reasonable pre-estimate of the Company's likely damages and is not a penalty.

7.4 Attorneys' Fees. The prevailing Party in any action to enforce this Agreement shall be entitled to recover its reasonable attorneys' fees and costs from the non-prevailing Party.

7.5 No Waiver of Other Remedies. The remedies set forth in this Article 7 are cumulative and are in addition to any other remedies available at law or in equity. The Company's pursuit of one remedy shall not constitute an election of remedies or a waiver of any other remedy.

ARTICLE 8 — EMPLOYEE REPRESENTATIONS AND ACKNOWLEDGMENTS

8.1 Employee represents and acknowledges that:

(a) Employee has read this Agreement in its entirety and understands its terms;

(b) Employee has had the opportunity to consult with independent legal counsel before signing this Agreement;

(c) The restrictions in this Agreement are reasonable and necessary to protect the Company's legitimate business interests;

(d) Employee possesses sufficient skills, education, and experience to obtain alternative employment that does not violate this Agreement;

(e) Employee is not subject to any existing non-compete, non-solicitation, or other restrictive covenant with a prior employer that would prevent Employee from performing Employee's duties for the Company or complying with this Agreement;

(f) Employee's compliance with this Agreement will not impose an undue hardship; and

(g) Employee voluntarily enters into this Agreement.

ARTICLE 9 — GENERAL PROVISIONS

9.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of [________________________________], without regard to its conflict-of-laws principles.

DRAFTER'S NOTE: Choice-of-law provisions in non-competes are frequently challenged and may not be enforced if: (a) the chosen state has no substantial relationship to the parties or the transaction; (b) the employee resides and works primarily in another state; or (c) enforcement of the chosen law would violate a fundamental public policy of the state where the employee works. California courts, for example, will generally apply California law (and its total ban on non-competes) regardless of a choice-of-law clause selecting another state.

9.2 Forum Selection. Any action arising under this Agreement shall be brought in the state or federal courts located in [________________________________], and each Party consents to the personal jurisdiction of such courts.

9.3 Entire Agreement. This Agreement, together with any exhibits and schedules attached hereto, constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior negotiations, agreements, representations, and understandings, whether written or oral, relating to such subject matter.

9.4 Amendment. This Agreement may not be modified or amended except by a written instrument signed by both Parties.

9.5 Waiver. The failure of either Party to enforce any provision of this Agreement shall not be construed as a waiver of such provision or the right to enforce it at a later time.

9.6 Assignment. The Company may assign this Agreement to any successor or affiliate without Employee's consent. Employee may not assign this Agreement.

9.7 Notices. All notices under this Agreement shall be in writing and delivered by hand, overnight courier, or certified mail, return receipt requested, to the addresses set forth above or to such other address as either Party may designate in writing.

9.8 Survival. The obligations under this Agreement shall survive the termination of Employee's employment, regardless of the reason for termination, and shall be binding upon Employee's heirs, executors, and legal representatives.

9.9 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Electronic signatures shall be deemed valid and binding.

9.10 Construction. The headings in this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. The word "including" means "including without limitation."

ARTICLE 10 — STATE-SPECIFIC ENFORCEABILITY MATRIX

IMPORTANT: Non-compete enforceability varies dramatically by state. The following matrix provides a high-level overview for practitioner guidance. State law changes frequently. Always verify current law in the applicable jurisdiction.

ARTICLE 11 — FTC NON-COMPETE RULE STATUS

PRACTITIONER ADVISORY (Current as of February 2026):

On April 23, 2024, the Federal Trade Commission issued a final rule purporting to ban virtually all non-compete agreements nationwide, with an effective date of September 4, 2024. On August 20, 2024, the U.S. District Court for the Northern District of Texas in Ryan LLC v. Federal Trade Commission, No. 3:24-cv-00986 (N.D. Tex. Aug. 20, 2024), held the FTC Non-Compete Rule unlawful and set it aside nationwide, finding that the FTC lacked authority to promulgate the rule and that it was arbitrary and capricious.

On September 5, 2025, the FTC voted 3-1 to abandon its appeal and accede to the vacatur. The Fifth Circuit dismissed the appeal on September 8, 2025.

The FTC Non-Compete Rule is NOT in effect. Employers are not subject to the federal ban. However, the FTC retains authority to challenge individual non-compete provisions under Section 5 of the FTC Act on a case-by-case basis. State law remains the primary regulatory framework for non-compete enforceability.

ARTICLE 12 — KEY CASE LAW REFERENCE

Edwards v. Arthur Andersen LLP, 44 Cal.4th 937 (2008): California Supreme Court held that non-competes are invalid under Section 16600 even if narrowly drawn. No "narrow restraint" exception exists under California law.

Reliable Fire Equipment Co. v. Arredondo, 2011 IL 111871 (2011): Illinois Supreme Court adopted a three-factor balancing test for non-compete enforceability: (1) whether the restriction is necessary to protect a legitimate business interest; (2) whether the restriction imposes an undue hardship on the employee; and (3) whether the restriction is injurious to the public.

Varsity Gold, Inc. v. Porzio, 2002 OK 79: Oklahoma Supreme Court confirmed that non-competes are void under Oklahoma's prohibition on restraints of trade, with only narrow statutory exceptions.

Cypress Semiconductor Corp. v. Superior Court, 163 Cal.App.4th 575 (2008): California appellate court held that choice-of-law provisions selecting non-California law in non-competes are unenforceable when the employee works primarily in California.

SIGNATURES

IN WITNESS WHEREOF, the Parties have executed this Employee Non-Compete Agreement as of the Effective Date.

COMPANY:

EMPLOYEE:

EMPLOYEE ACKNOWLEDGMENT:

☐ I have read this Agreement in its entirety.
☐ I have had the opportunity to consult with independent legal counsel.
☐ I understand the restrictions this Agreement imposes on my future employment.
☐ I enter into this Agreement voluntarily and without coercion.
☐ I have received a copy of this Agreement for my records.

EXHIBIT A — PRIOR NON-COMPETE / RESTRICTIVE COVENANT DISCLOSURE

Employee discloses the following existing non-compete, non-solicitation, confidentiality, or other restrictive covenant obligations with prior employers:

☐ Employee represents that Employee has no existing restrictive covenant obligations with any prior employer.

Employee Initials: [____]
Date: [__/__/____]

EXHIBIT B — STEP-DOWN PROVISIONS (OPTIONAL)

DRAFTER'S NOTE: Step-down provisions provide fallback restrictions if the primary terms are found unenforceable. This improves enforceability in blue-pencil and reformation states.

If any court of competent jurisdiction determines that the Restricted Period, Geographic Area, or scope of Restricted Activities set forth in this Agreement is unenforceable, the Parties agree that the following reduced restrictions shall apply in descending order of preference:

Duration Step-Down:

• Primary: [____] months
• First Step-Down: [____] months
• Second Step-Down: [____] months

Geographic Step-Down:

• Primary: [________________________________]
• First Step-Down: [________________________________]
• Second Step-Down: [________________________________]

Activity Scope Step-Down:

• Primary: [________________________________]
• First Step-Down: [________________________________]
• Second Step-Down: [________________________________]

Sources and References

• FTC Non-Compete Rule (2024), vacated by Ryan LLC v. FTC, No. 3:24-cv-00986 (N.D. Tex. Aug. 20, 2024); appeal abandoned Sept. 2025 — FTC Press Release
• California Business & Professions Code § 16600 — CA Legislative Information
• Edwards v. Arthur Andersen LLP, 44 Cal.4th 937 (2008) — Justia
• Colorado Revised Statutes § 8-2-113 — CO Legislature
• Illinois Freedom to Work Act (820 ILCS 90/) — IL General Assembly
• Massachusetts Noncompetition Agreement Act (Gen. Laws ch. 149, § 24L) — MA Legislature
• Washington Revised Code § 49.62.020 — WA Legislature
• Oregon Revised Statutes § 653.295 — OR Legislature
• Minnesota Statutes § 181.988 — MN Legislature
• Beck Reed Riden LLP, 50-State Noncompete Survey Chart (2024) — beckreedriden.com
• Foley & Lardner, Noncompete Agreements Updated Income Thresholds (2025) — foley.com

This template is provided for informational purposes only and does not constitute legal advice. Non-compete enforceability is one of the most state-specific and rapidly changing areas of employment law. This document must be reviewed and customized by a qualified attorney licensed in the relevant jurisdiction before use. Laws, thresholds, and judicial interpretations change frequently. Do not rely on this template without current professional legal review.

Prepared for use on ezel.ai — a legal template platform for solo and small-firm practitioners.