Non-Compete Agreement Form

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A non-compete agreement is a contract in which the party signing it agrees to not take certain actions that could be considered competition with the business by which they are employed or contracted with. Non-compete agreements are state-specific. This means that while non-compete agreements may all have some of the same conditions, the actual details may be controlled by state law. Because this document may be legally binding, you must read it before you sign it.

What is a Non-Compete Agreement? 

A non-compete agreement (NCA) (or a non-compete clause) prevents another party from starting or working for a similar business or new employer that could compete with yours or threaten its market share. In some cases, restrictive covenants may only apply to a certain geographic radius or region (referred to as geographic scope) and may only last a certain amount of time. These documents may be referred to as non-competition agreements or non-compete contracts and are often used along with a nondisclosure agreement.

Recent data suggests that around 20% of the United States workforce are bound by non-competes, including 14% of those earning less than $40,000 per year.

Download a blank, printable non compete agreement template at the top or bottom of this page.

Creating a State Specific Non-Compete 

A non-compete agreement is an important document business can use with both employees and contractors to protect their competitive edge. The purpose of the document is to take away the employee’s or contractor’s ability to perform a certain type of work for themselves or a competitor within a certain geographical location. 

Non-compete agreements also include a period that limits what the employee or contractor cannot do. Non-competes must comply with the laws in the state where the business is located. Here are the six steps used to create a non-compete.

Step 1: Learn the State Laws

Non-compete agreements are governed by trade secret laws in the state where the business is located. Before writing one, it’s important to read the laws so that you know what is legal and what is not legal. Some states do not recognize these agreements. Most states provide a specific amount of time as well as define the geographical location that may be used by the employer. 

Writing a document that is outside the scope of the laws in your state could mean that the document is not enforceable even if the document includes a severability clause to protect the parts that comply.

Step 2: Do Your Research to Decide What Limits to Set

Most states will not uphold overly broad non-compete agreements. You must do your research on competitors to determine whether you should include working for them in the agreement. However, if you’re contracting or hiring someone who is considered a remote worker, there may be some limitations on whether you can prohibit them from doing certain types of work.

Step 3: Choose the Right Geographical Limit

As stated earlier, the geographical limit you choose is likely regulated by the trade secret laws in your state. Also, be reasonable. If your business is located in Texas and it only does business in the midwest, it might not be seen by the court as reasonable if you attempt to stop the employee or contractor from doing the same or similar work in California, Washington, or Florida.

Step 4: Choose the Amount of Time the Agreement Will Be in Effect

Review the trade secret law in your state so that you don’t set an excessive time limit for the agreement. Many states have a limit of one or two years that a non-compete may be in effect.

Step 5: Include a Clause for No Solicitation

In a non-compete agreement, a no-solicitation clause is used to prevent employees and contractors from trying to entice your other employees or contractors and your clients from working for or with them for the duration of the agreement.

Step 6: Executing the Non-Compete Agreement

The agreement should be signed and dated by the employee or the contractor. In most states, there is no requirement to have a notary witness the signature. However, involving a notary can help prove the authenticity of the document.

Non-Compete Agreements FAQs

These questions cover everything you need to know about non-compete agreements (NCAs) or clauses. We explain what they are when you need one as an employer, the legal guidelines for NCAs, whether an employee or contractor should sign one, the pros and cons of NCAs on the economy as a whole, and more. After reading this guide, you’ll have all the knowledge to confidently move forward.

What is a CNC? 

CNCs typically refer to three different types of NCAs. Those are:

  1. Traditional non-compete: An employee cannot work for a direct competitor within a specific geographic area identified in the agreement for a set time and/or in a particular division.

  2. Non-solicitation agreements: Prohibits employees from contacting the customers, employees, or suppliers of the former employer.

  3. Confidentiality agreements or non-disclosures: Prohibits employees from utilizing and divulging sensitive information, intellectual property, and client lists of their former employer.

What to keep in mind

Before you expose an employee or contractor to the intricate workings of your business, it’s a good idea to have them sign an NCA or to include one in the work contract. It's much easier to do this before the employment relationship begins because they do not apply to past actions or exposure to information; they take effect on the present date or future date and continue for a specific amount of time into the future. For maximum protection, you should make executing this document a priority.

  • Don’t Be Shy About Using Templates

    • There are plenty of reputable websites that offer simple non-compete agreements that you can download and fill out. This method simplifies several steps for you because the organization and formalization of the document are already taken care of. All you need to do is prepare and enter the information required by the template before the employee signs.

  • Include All Details

    • Vague language doesn’t protect anything. Unless you outline the details of what your employee or contractor needs to do or not do, your non-compete agreement or clause is useless. Be sure to provide details on limitations, such as the duration of the agreement, identifying direct competition, and the geographical area to which it applies (you can’t say the agreement is for the entire world, forever).

  • Compensation

    • Compensation is usually called “consideration” in the agreement. This is whatever you pay your employee or contractor to adhere to the agreement. In the case of a new employee, the compensation could be a job offer. In others, it can mean money. Be sure that you evaluate how much your captive market is worth to you and structure your agreement accordingly.

Who Needs a Full Non-Compete or Clause?

Here’s a simple question to help you determine whether a business should offer a full non-compete or clause:

Will the employee or contractor have access to proprietary information?

If so, it's advisable to consider completing a non-compete. If not, non-competes may not be necessary. To know for sure, you can always consult with a lawyer who specializes in business.

If you own a business in Texas, you should know that most NCAs (also referred to as a covenant not to compete) is illegal. Utah restricts the time limit to one year. North Dakota enforces them only in very limited circumstances. California law states that NCAs are void.

What are the Components of a Non-Compete Agreement? 

If you’re starting a business in food, apps, publishing, or any other competitive industry, it is particularly important to have a non-compete agreement or clause in place. Non-compete agreements, enforceable against employees and contractors in most states, may protect your business from people who cheat.

By that, we mean employees or contractors who leave your company and immediately start a competitive business of their own using your hard-won trade secrets. A non-compete clause protects your business, but it’s not a stand-alone agreement. It is a single clause that is placed inside of a service or employment contract.

The main components of a stand-alone NCA include:

The Naming of Parties Involved

This is pretty straightforward. Include the full legal name and address of your business entity (the “Protected Party”) and the full legal name and address of the employee signing the agreement (the “Non-Competing Party”). In a non-compete clause, you’ll likely just reference the parties by name as through the rest of the contract the clause is placed within.

Duration and Geographic Range of Agreement

Most non-compete agreements have limited lifespans. The lifespan is based on local law. You’ll also need to list the date that the document becomes effective. You must also specify the area across which the agreement applies, such as “the State of Oregon” or “within 40 miles of Boston city limits.” The restrictions are only enforceable if they are reasonable in the eyes of the law.

Details of the NCA

This is a sticky subject, legally speaking. If you get stuck, you should speak with an employment lawyer for help. Since most courts rule in favor of an employee’s or contractor’s right to make a living, you can only really protect legitimate business secrets. Something else to keep in mind is that the court will not enforce something it considers to be against public policy, either. 

Compensation

For the agreement to be legally enforceable, the non-competing party must receive compensation. If the party is a new employee or contractor, the job itself is usually enough. However, if it’s an existing employee or contractor, compensation may take the form of a promotion, pay raise, or one-time cash payment or installments. Installments may be paid in any interval you choose, whether it is by the hour, by the month, or by the year.

Consequences

You must explain the consequences of violating the agreement. If you're not sure about the legalities, talk with an employment attorney. It details what the employer is entitled to receive should the other party break the rules of the non-compete agreements or clause. Often, these will take the form of a financial settlement or undesirable legal consequences.

Signatures

Like any legal document, a non-compete agreement is not legal without the signatures of all involved parties.

 

A Sample Non-Compete Agreement with Examples for Each Step

Step 1: Company Information

In this first portion of the Non-Compete Agreement, provide the company information that the individual is agreeing not to compete with. This should include the following information:

  • Company Name

  • Company Address (including city, state, and zip code)

Besides, include the individual's name and information who will refrain from competition with the company. This should include:

  • Individual's Full Name

  • Individual’s Home Address (including city, state, and zip code)

Step 2 - Limitations:

Specify the limitations that the individual must adhere to once his or her relationship with the company ends. This information should be a specific amount of time and geographic radius. It is important to remember that these limitations must be fair in both time and geographic radius to prevent causing unnecessary hardship on the individual. Include the following information:

  • Length of time individual is restricted from engaging in competitive behavior

  • Geographic radius individual is restricted from working for a competing company or engaging in competitive behavior.

Step 3 - Governing Law:

Laws concerning Non-Compete Agreements vary from state to state and sometimes from county to county. In this step, declare the county and state where the agreement will be effective.

Step 4 - Signatures:

List the names and addresses of both parties. This includes:

  • Company Name

  • Company Address (including city, state and zip code)

  • Individual's Full Name

  • Individual’s Address (including city, state and zip code)

Ensure both parties sign and date the agreement.

Legal Forms Related to a Non-Compete Agreement

  • Cease and Desist Letter: A cease and desist letter is a formal notice to a party to immediately stop an act that is seen as a violation of another party’s intellectual or physical property rights.

  • End-User License Agreement: An end-user license agreement defines user rights for a party concerning a piece of software being utilized.

  • Non-Disclosure Agreement: A non-disclosure agreement is a form that establishes information two parties have agreed to not divulge, often during a business relationship.

  • Waiver Agreement: A waiver form releases a company or individual from liability for an act knowingly agreed upon and participated in by the signer of the waiver release.

Download a PDF or Word Template

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Sample Non-Compete Agreement

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Sample Non-Compete Agreement

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