Non-Compete Agreement: State Rules and What to Include

Written and reviewed by the iRunDocs Editorial Team. Last updated: October 22, 2026.

This article is general educational information about non-compete agreements. It is not legal advice, and iRunDocs is not a law firm. Non-compete law is set mostly by individual states, it has changed quickly in the last few years, and the outcome of any dispute depends on the exact wording and the facts. Check the current statute in your state, or talk with an employment attorney, before you rely on a restrictive covenant.

A non-compete agreement is a contract in which one person promises not to work for a competitor, or not to start a competing business, for a limited time and within a limited area after a working relationship ends. Employers use them to protect customer relationships, confidential information, and the goodwill they pay for when they buy a business. Workers sign them, often without much thought, as part of a stack of onboarding paperwork.

People who search for a non compete agreement generator usually want two things at once. They want a clean, professional document quickly, and they want some confidence that the document will actually hold up if it is ever tested. The second part is harder, because a non-compete that is perfectly enforceable in one state can be void in the state next door. This guide explains what a non-compete is for, which states ban or limit them, what a well-drafted agreement contains, and how to decide whether a narrower tool, such as a non-solicitation or confidentiality clause, would do the job better.

If you already know what you need, you can create a non-compete agreement on iRunDocs, preview it free, and adjust the terms before you download. If you are still deciding, read on.

In this guide

• What a non-compete agreement is and what it is not
• The federal picture after the FTC rule was set aside
• States that ban or sharply limit non-competes
• Pennsylvania, Texas, and Illinois in more detail
• What to include in a non-compete agreement
• Choosing reasonable time, geography, and activity limits
• Consideration: what the worker gets in return
• Alternatives that are easier to enforce
• Sample clause wording
• Step-by-step: drafting and signing
• Common mistakes
• When to get professional help
• Frequently asked questions

What a non-compete agreement is and what it is not

A non-compete is a restrictive covenant. That phrase covers any promise that limits what someone can do after a relationship ends. The non-compete is the broadest version, because it restricts the work itself rather than a specific behavior. A worker who signs one agrees not to perform similar work for a competitor, or not to open a competing business, for a period of time and in a defined territory.

How it differs from related clauses

It helps to separate the non-compete from the clauses that often travel with it:

• Non-solicitation of customers. The worker may take any job, but may not reach out to the former employer's clients to pull their business away.
• Non-solicitation of employees. The worker may not recruit former colleagues to leave.
• Confidentiality or non-disclosure. The worker may not use or reveal trade secrets and confidential business information. This is usually the least controversial restriction, and you can handle it on its own with a non-disclosure agreement.
• Garden leave. The worker stays on the payroll for a notice period but does not work, which keeps them out of the market while they are still paid.

Courts treat these very differently. A confidentiality promise protects information the employer genuinely owns, so it is enforced routinely. A non-compete restricts a person's ability to earn a living, so courts look at it skeptically and ask whether it is broader than necessary.

Who signs them

Non-competes show up in three main settings:

1. 1Employment. An employer asks an employee to sign at hiring, at a promotion, or in exchange for a bonus or equity grant.
2. 2Independent contracting and consulting. A business asks a contractor not to serve its direct competitors during the engagement and for a period afterward. These are often written into an independent contractor agreement or a consulting agreement rather than signed as a separate document.
3. 3Sale of a business. The seller promises not to open a competing business nearby, so the buyer actually gets the goodwill it paid for. Courts are far more willing to enforce this type, because the seller was paid directly for the promise.

Why the document matters even if enforcement is uncertain

Some people assume that because many non-competes are hard to enforce, the paperwork does not matter. That is the wrong lesson. A vague or overbroad agreement invites a dispute, wastes money on both sides, and in some states now exposes the employer to penalties or the worker's legal fees. A clear, narrow, state-appropriate agreement is easier to follow, easier to defend, and less likely to end up in court in the first place.

The federal picture after the FTC rule was set aside

In April 2024 the Federal Trade Commission issued a rule that would have banned most new non-competes nationwide and made most existing ones unenforceable. It never took effect. In August 2024 a federal district court in Texas, in Ryan LLC v. Federal Trade Commission, set the rule aside nationwide before its effective date. In September 2025 the FTC voted to dismiss its appeals and accept that the rule is vacated. The agency has said it will instead pursue individual non-competes it considers unfair on a case-by-case basis under Section 5 of the FTC Act. You can follow the agency's own statements on the FTC non-compete page.

What this means in practice:

• There is no general federal ban on non-competes today.
• State law controls whether a particular non-compete is enforceable.
• The FTC can still challenge specific agreements, particularly ones imposed on lower-paid workers or used in ways it views as anticompetitive.
• Federal labor law can still matter in narrow cases, and the National Labor Relations Board's position has shifted with changes in its general counsel, so it is worth checking current guidance on nlrb.gov if a non-compete covers non-supervisory employees.

The practical takeaway is that the first question for any non-compete is always: which state's law applies?

States that ban or sharply limit non-competes

A handful of states refuse to enforce most employee non-competes at all, and a larger group allows them only above an earnings threshold or with specific procedures. The list changes almost every legislative session, so treat the summary below as a starting point and confirm the current statute.

States with broad bans

• California. Business and Professions Code section 16600 voids contracts that restrain anyone from engaging in a lawful profession, trade, or business, with narrow exceptions for the sale of a business or dissolution of a partnership or LLC. Laws effective in 2024 added section 16600.5, which makes it unlawful to enter into or try to enforce a void non-compete regardless of where it was signed, and required employers to notify affected current and former employees that such clauses were void.
• Minnesota. Minnesota Statutes section 181.988 bans non-competes with employees and independent contractors entered into on or after July 1, 2023, with exceptions tied to the sale or dissolution of a business.
• North Dakota. State law has long voided contracts restraining lawful profession, trade, or business, with sale-of-business and partnership exceptions. See N.D. Century Code chapter 9-08.
• Oklahoma. Title 15, section 219A allows an employer to bar a former employee from directly soliciting its established customers, but not from simply working for a competitor.
• Wyoming. A 2025 law voids most non-competes entered into on or after July 1, 2025, with exceptions including the sale of a business, trade secret protection, executive and management personnel and their key staff, and recovery of certain relocation and training expenses. Check the Wyoming Legislature for the current text.

States with earnings thresholds or procedural rules

A growing number of states allow non-competes only for workers who earn more than a set amount, and many adjust that amount every year. Examples include Colorado, Illinois, Maine, Maryland, New Hampshire, Oregon, Rhode Island, Virginia, Washington, and the District of Columbia. Several of these states also require advance notice, a separate signed document, or a waiting period before the agreement can be signed. Washington, for instance, publishes its annually adjusted thresholds through the Department of Labor and Industries, and Colorado's requirements are in C.R.S. 8-2-113.

Industry-specific limits

Many states that otherwise allow non-competes restrict them for particular professions, most often physicians and other health care practitioners, broadcasters, and some technology workers. If your business is in health care, assume there is a specific rule and look for it before you draft.

Pennsylvania, Texas, and Illinois in more detail

Search interest around non-competes clusters around a few states. Here is what to know about three of them.

Pennsylvania

Pennsylvania has no general non-compete statute for most workers. Courts apply common-law rules developed over many decades. In broad terms, a Pennsylvania court will enforce a non-compete only if it is:

• ancillary to an employment relationship or the sale of a business,
• supported by adequate consideration,
• reasonably necessary to protect a legitimate business interest, such as trade secrets, confidential information, customer goodwill, or specialized training, and
• reasonably limited in duration and geography.

Consideration is a frequent battleground. In Socko v. Mid-Atlantic Systems of CPA, Inc. (2015), the Pennsylvania Supreme Court held that a non-compete signed after employment has already begun needs new consideration, something beyond continued employment, to be enforceable. A raise, a promotion, a bonus, or a meaningful change in benefits can serve that role. Merely keeping the job does not.

Pennsylvania also has a health care exception. The Fair Contracting for Health Care Practitioners Act, effective January 1, 2025, limits non-competes for many licensed health care practitioners, including making covenants longer than one year unenforceable for covered practitioners. Text and history are on the Pennsylvania General Assembly site.

Pennsylvania courts can "blue pencil" an overbroad covenant, meaning they may narrow it to a reasonable scope rather than strike it entirely. That is a safety net, not a drafting strategy. A court can also decline to fix an agreement that looks deliberately overreaching.

Texas

Texas regulates non-competes by statute in the Texas Business and Commerce Code, sections 15.50 to 15.52. Under section 15.50, a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time it is made, and contains limitations as to time, geographic area, and scope of activity that are reasonable and do not impose a greater restraint than necessary to protect the goodwill or other business interest of the promisee.

Texas courts have interpreted "ancillary to an otherwise enforceable agreement" to mean the employer must give something that creates the interest the covenant protects, such as confidential information, specialized training, or goodwill. An employer that promises to provide confidential information and then actually provides it generally satisfies this requirement.

Texas also sets special rules for physicians. The statute requires a buyout option and continued patient access, and legislation effective September 1, 2025 tightened physician and certain other health care non-competes further, including limits on duration and radius and a cap on the buyout price. If a Texas agreement involves a licensed health care provider, read the current version of section 15.50 carefully.

If a Texas covenant is overbroad, section 15.51 directs the court to reform it to a reasonable scope, but it also limits the damages the employer can recover for breaches that occurred before reformation. In other words, sloppy drafting costs the employer money even when the covenant survives.

Illinois

Illinois has one of the most detailed statutes in the country: the Illinois Freedom to Work Act, 820 ILCS 90, as amended effective January 1, 2022. Key features include:

• Earnings thresholds. A non-compete is void for an employee whose actual or expected annualized earnings are at or below the statutory threshold, and a non-solicitation covenant is void below a lower threshold. Both thresholds step up on a schedule written into the statute, so check the current figures in the Act.
• Adequate consideration. The statute defines it as either at least two years of continued employment after signing, or other professional or financial benefits, or a combination.
• Legitimate business interest. Courts weigh the totality of the circumstances.
• Notice and review period. The employer must advise the employee in writing to consult an attorney and give the employee at least 14 calendar days to review the covenant before signing. The employee may sign sooner by choice.
• Pandemic-related layoffs. Non-competes are generally unenforceable against employees terminated, furloughed, or laid off because of COVID-19 or similar circumstances, unless the employer pays compensation during the restricted period as the statute describes.
• Attorney's fees. An employee who prevails against an employer trying to enforce a covenant can recover costs and reasonable attorney's fees.
• Attorney General enforcement. The Illinois Attorney General can investigate employers with a pattern of using unlawful covenants.

The 14-day review rule is easy to overlook. If you hand an Illinois employee a non-compete on their first morning and ask for a signature before lunch without the required written advice, you have handed them a strong argument that the covenant is unenforceable.

What to include in a non-compete agreement

Whatever the state, a well-drafted non-compete covers the same core elements. Missing any of them is an invitation to argue later.

Parties and relationship

Name the employer or business with its full legal name and entity type, and the worker with their full legal name. State the relationship: employee, independent contractor, consultant, partner, or seller of a business. The legal analysis depends on the relationship, so this is not a formality.

Effective date and trigger

State when the agreement takes effect and what ends the relationship for purposes of starting the restricted period. Most agreements run the restriction from the date employment or the engagement ends "for any reason," but some states treat terminations without cause differently, so consider whether that matters for you.

The legitimate business interest

Explain, in plain words, what the agreement protects. Examples: confidential pricing and customer lists, proprietary processes, specialized training paid for by the employer, or customer relationships the worker developed using company resources. A court asked to enforce the agreement will look for this interest, and spelling it out helps show that the restriction is tied to something real.

Restricted activity

Describe what the worker may not do, as narrowly as you can while still protecting the interest. "Any business" is almost always too broad. "Providing payroll consulting services to dental practices" is the kind of specific description courts are more comfortable with.

Duration

State the length of the restricted period. Shorter is easier to defend. Many enforceable employee covenants run between six months and a year; longer periods are more common, and more defensible, in the sale of a business.

Geographic scope

Define the territory. Options include a radius from a specific office, a list of counties or metropolitan areas, the territory the worker actually covered, or, for some roles, a list of named competitors instead of a map. Nationwide or worldwide restrictions need a strong justification tied to the worker's actual responsibilities.

Consideration

State what the worker receives in exchange for the promise. At hiring, the job itself often suffices, depending on the state. Mid-employment, many states require something new. Write the consideration into the document so no one has to reconstruct it later.

Related protections

Most agreements include, or cross-reference, confidentiality, non-solicitation of customers, and non-solicitation of employees. Keep each one in its own clause so a court can enforce the reasonable ones even if it rejects another.

Remedies, severability, and reformation

Include a severability clause so the rest of the agreement survives if one part is struck, and a reformation clause asking a court to narrow rather than void an overbroad term where the law allows. Many agreements also state that the employer may seek an injunction; be cautious with clauses that automatically extend the restricted period or shift all legal fees, because some states limit them.

Governing law and venue

State which state's law governs and where disputes will be heard. Be aware that several states, including California and Minnesota, restrict choice-of-law and venue clauses that would take a local worker's dispute somewhere else.

Required notices

Add any notices your state requires, such as Illinois's written advice to consult an attorney or Colorado's separate notice. Keep a dated copy showing when the worker received the agreement.

Signatures and dates

Both parties should sign and date. Give the worker a fully signed copy and keep one in the personnel file.

Choosing reasonable time, geography, and activity limits

Reasonableness is the heart of non-compete law, and the three limits work together. A broad activity restriction may survive if the time and geography are tight, and a long time period may survive in a sale of business where the territory is local. The table below shows how the same core promise looks in different situations.

Time

Ask how long your confidential information stays valuable and how long it takes a replacement to build relationships with the departing worker's customers. If your pricing changes every quarter, a two-year restriction is hard to justify.

Geography

Tie the territory to where the worker actually worked or where the business actually competes. For remote and online businesses, a list of named competitors or a customer-based restriction often makes more sense than a radius.

Activity

Restrict the specific work that threatens your interest, not the worker's entire field. A software engineer who built your billing system might reasonably be restricted from building billing systems for a direct competitor for a short period, but not from working as an engineer anywhere.

Consideration: what the worker gets in return

A contract needs consideration, meaning something of value exchanged on each side. For non-competes, states disagree about what counts.

At the start of employment

In most states that allow non-competes, the job offer itself is adequate consideration if the agreement is presented before or at the start of employment. The cleanest practice is to include the non-compete with the job offer letter or employment contract so the worker sees it before accepting.

During employment

Pennsylvania, as noted above, requires new consideration. Other states vary: some accept continued employment, some require it to last for a meaningful time, and Illinois defines adequate consideration in its statute. To be safe, pair a mid-employment covenant with something concrete, such as a raise, a bonus, a promotion, or an equity grant, and write that exchange into the document.

In a sale of business

The purchase price is the consideration. Allocating a portion of the price to the covenant in the purchase agreement can help show the seller was paid for the promise. Tax treatment of that allocation can matter too; the IRS treats covenant payments differently from payments for goodwill in some cases, so involve your tax adviser.

Alternatives that are easier to enforce

Before you reach for a full non-compete, ask whether a narrower tool protects the same interest.

Confidentiality and trade secret protection

If the real worry is that a departing worker will take your customer list or pricing model, a strong confidentiality agreement does the job directly. Trade secrets are also protected by the federal Defend Trade Secrets Act and by state trade secret laws, regardless of whether there is a non-compete.

Customer non-solicitation

A clause that bars the worker from soliciting customers they personally served is narrower and enforceable in many places where a non-compete is not. Oklahoma's statute is built around exactly this distinction.

Employee non-solicitation

If you are worried about a departing manager recruiting the whole team, an employee non-solicitation clause addresses that risk directly.

Garden leave and notice periods

Paying the worker during a notice period, while relieving them of duties, keeps them out of the market without a post-employment restriction. It costs more, but it is far easier to defend.

Retention incentives

Deferred bonuses, vesting schedules, and retention payments give people a reason to stay without restricting what they do after they leave.

Sample clause wording

The examples below are illustrations of structure and tone, not finished language for your situation. Adjust names, periods, territories, and activities, and check them against your state's law.

Core non-compete clause

"During Employee's employment with the Company and for a period of twelve (12) months after that employment ends for any reason, Employee will not, within the Restricted Territory, perform services of the type Employee performed for the Company during the last twelve (12) months of employment for any business that provides payroll consulting services to dental practices. The Restricted Territory means the counties in which Employee had responsibility for customers during the last twelve (12) months of employment."

Customer non-solicitation

"For twelve (12) months after employment ends, Employee will not solicit or accept business, for the purpose of providing competing services, from any customer of the Company with whom Employee had material contact during the last twelve (12) months of employment."

Employee non-solicitation

"For twelve (12) months after employment ends, Employee will not, directly or indirectly, solicit any employee of the Company with whom Employee worked during the last twelve (12) months of employment to leave the Company."

Consideration clause

"In exchange for Employee's promises in this Agreement, the Company will pay Employee a one-time signing payment in the amount stated in Schedule A and will provide Employee access to the Company's confidential customer and pricing information, which Employee did not have before signing."

Illinois-style notice

"The Company advises Employee to consult with an attorney before signing this Agreement. Employee has at least fourteen (14) calendar days to review this Agreement before signing and may choose to sign sooner."

Severability and reformation

"If any restriction in this Agreement is found unenforceable as written, the parties ask the court to modify the restriction to the extent necessary to make it enforceable, and the remaining provisions remain in effect."

Step-by-step: drafting and signing

Step 1: Identify the interest

Write one sentence describing what you are protecting. If you cannot, reconsider whether you need a non-compete at all.

Step 2: Confirm the governing state

Use the state where the worker lives and works. If those differ, or the worker is remote, check both. Look up the current statute and any earnings thresholds.

Step 3: Pick the narrowest tool that works

Decide between a full non-compete, a customer non-solicitation, an employee non-solicitation, and confidentiality alone. Many businesses find that confidentiality plus customer non-solicitation covers the real risk.

Step 4: Set the limits

Choose the duration, territory, and activity description, tied to the worker's actual role.

Step 5: Decide the consideration

Document what the worker receives. For mid-employment agreements, make it something new.

Step 6: Draft the document

Create the non-compete agreement with the parties, restrictions, consideration, severability, governing law, and any required notices. Preview it free and read it as the worker would.

Step 7: Deliver it with enough time

Give the worker the agreement in advance, include any required notices, and record the delivery date. For new hires, send it with the offer.

Step 8: Sign and store

Both parties sign and date. Give the worker a copy. Store the signed original with the personnel or deal file, and calendar a review if your state's thresholds change annually.

Step 9: Revisit at role changes

When someone is promoted, moves states, or changes responsibilities, check whether the agreement still fits. A covenant written for a junior salesperson in one state may be wrong for a regional director in another.

Worked example

Consider a small regional insurance agency in Texas that hires an experienced account manager. The agency plans to give her its book of commercial clients in three counties, its internal rating worksheets, and paid licensing training.

The agency starts by naming the interest: client goodwill in the three counties and confidential rating worksheets. It confirms that Texas law applies because she lives and works in Texas. Rather than barring her from the insurance industry, it drafts a one-year restriction on servicing commercial property and casualty accounts within those three counties, plus a one-year non-solicitation of clients she personally handled, plus a confidentiality clause with no end date for genuine trade secrets.

For consideration, the agreement states that the agency will provide her the confidential worksheets and specialized training, and it actually does so in her first week. The agency includes severability and reformation language, names Texas law and the county where its office sits, and gives her the agreement with the offer letter so she can review it before she starts.

If she later leaves for a competitor across the state, the agreement does not stop her. If she leaves for a competitor down the street and starts calling the clients she managed, the agency has a narrow, documented covenant that a Texas court is far more likely to enforce than an industry-wide ban.

Common mistakes

Using a one-size-fits-all template across states

The single most common problem. A form that works in Texas may be void in California, missing required notices in Illinois, and below the earnings threshold in Washington.

Restricting everything

Barring someone from "any business that competes with the Company anywhere" invites a court to strike or rewrite the clause.

Forgetting consideration for current employees

Handing an existing employee a non-compete with nothing new in return is a classic enforceability problem in Pennsylvania and elsewhere.

Skipping required notices and review periods

Illinois's 14-day review period and written attorney advice, and similar rules in other states, are simple to satisfy and costly to miss.

Using a non-compete when confidentiality would do

If the risk is information, protect the information. A narrow agreement that is followed is worth more than a broad one that is ignored.

Never updating the agreement

Laws change. Thresholds rise. Roles change. An agreement signed years ago may no longer fit the person or the law.

Ignoring the worker's side

Workers should read the agreement, ask what it restricts, request a copy, and get advice before signing anything that would keep them out of their field. An agreement that the worker understands is less likely to be breached by accident.

When to get professional help

You should involve an employment attorney when:

• the worker is in California, Minnesota, North Dakota, Oklahoma, Wyoming, or another state with a ban or threshold,
• the worker is a physician, nurse, or other licensed health care practitioner,
• the agreement is part of the sale of a business or a significant equity grant,
• the worker lives in one state and works for a company based in another,
• you are trying to enforce an existing agreement against a departing worker, or
• you are a worker who has received a cease-and-desist letter from a former employer.

For enforcement disputes in particular, the cost of advice is small compared with the cost of an injunction hearing.

Frequently asked questions

Are non-competes legal?

In most states, yes, if they are reasonable and properly supported. Several states ban most employee non-competes, and many more limit them by earnings or profession. There is no current federal ban, because the FTC's 2024 rule was set aside.

Is a non-compete enforceable in Pennsylvania?

It can be, if it protects a legitimate business interest, is reasonable in time and place, and is supported by consideration. Mid-employment agreements need new consideration beyond continued employment, and many health care practitioners are now covered by a separate statute.

Is a non-compete enforceable in Texas?

It can be, under Texas Business and Commerce Code section 15.50, if it is ancillary to an otherwise enforceable agreement and reasonably limited in time, area, and scope. Physicians and certain other health care providers have additional statutory protections.

What does Illinois require?

Illinois's Freedom to Work Act voids non-competes below an earnings threshold, requires adequate consideration, and requires the employer to advise the employee in writing to consult an attorney and to allow at least 14 calendar days for review.

Can a non-compete apply to an independent contractor?

Sometimes. Many states that allow employee non-competes also allow contractor non-competes, but some bans, such as Minnesota's, cover contractors too. Contractor restrictions are often written into the contractor or consulting agreement itself.

How long can a non-compete last?

There is no universal limit. Shorter is easier to defend for employees; longer periods are more common in a sale of business. Some states set statutory limits for specific professions.

What happens if a non-compete is too broad?

Depending on the state, a court may strike it entirely, narrow it to a reasonable scope, or narrow it while limiting the damages the employer can recover. Do not rely on a court to fix an overbroad draft.

Do I need a non-compete if I already have an NDA?

Often not. If the main risk is the misuse of confidential information, a non-disclosure agreement combined with a customer non-solicitation clause may provide enough protection with far less enforcement risk.

Can I use a non compete agreement generator?

Yes, as a starting point. A generator gives you a complete structure with every standard clause. You still need to choose limits that fit your role and state, and to check your state's current rules before signing.

Next step

Write down the interest you need to protect, confirm the state whose law applies, and choose the narrowest restriction that covers the risk. Then create your non-compete agreement on iRunDocs, preview it free, and adjust the time, territory, and activity limits until they match the real role. If confidentiality is the core concern, pair it with a non-disclosure agreement.

Not legal advice: this article provides general information only and does not create an attorney-client relationship. Non-compete laws change frequently and vary by state and profession, so consult a licensed attorney about your situation.