A non-compete agreement is a contract that restricts an employee from working for competitors or starting a competing business for a set period after leaving their job.
Imagine your top engineer leaving your company and going straight to your biggest competitor. Sounds like a nightmare, right? Non-compete agreements can help avoid this.
These agreements typically specify a geographic area and time frame, like preventing someone from joining a rival company within 50 miles for one year. You may use non-competes to protect your organization's trade secrets, client relationships, confidential information, and other competitive advantages. Enforceability of these agreements varies widely depending on local laws.
A note on non-compete agreements in the U.S.: As of October 2025, they remain legal after a district court blocked the enforcement of the Non-Compete Clause Rule issued in August 2024 by the Federal Trade Commission (FTC). The rule had outlawed non-compete agreements across the country. Its purpose was "to promote competition by banning noncompetes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation."
How non-compete agreements work
Here's how it goes: Employees sign a legal contract that prevents them from taking a job with your direct competitors or from starting competing businesses during or after their employment.
The scope of the restriction is outlined in the agreement, including:
- Duration. This refers to how long the non-compete agreement lasts after an leaves your organization (e.g., six months, one year).
- Geographic range. This specifies where the non-compete restriction applies. It might apply just to a city or state or may be global.
- Type of work/scope. This spells out what "competing" means in practical terms, like accepting a job in a similar industry or from starting a company that sells similar products.
Enforceability varies by jurisdiction, and the laws surrounding them can be complex or require interpretation. As an example, non-compete agreements are generally unenforceable in Mexico, but there is no law that outright prevents them. Meanwhile, non-competes are illegal in the U.S. state of California and the Canadian province Ontario, but are legal at the national level.
Tip: Because each region's laws (and their histories of enforcement) are nuanced, speak with local legal counsel if you would like your employee to sign a non-compete.
Why do employers use non-compete agreements?
Employers ask employees to sign non-compete agreements to ensure their organization keeps its competitive edge, even if valuable employees leave. Here are the primary reasons you may consider asking an employee to agree to a non-compete.
To protect trade secrets and maintain a competitive advantage
Non-compete agreements seek to protect what makes your business unique: trade secrets and insider knowledge. While your trade secrets may not be as tantalizing as the recipe for Coca-Cola, they're what give you the competitive advantage against others in your field. Non-competes prevent former employees from walking straight to a competitor with your proprietary processes, product formulas, or strategic plans in hand. In short, a non-compete helps you guard the innovation that powers your business.
That said, non-compete agreements are only one tool in your toolbelt to protect confidential information, and some experts in the field deem them outmoded. In a 2024 article in the University of Chicago Business Law Review, Cynthia Dahl argued that instead of using non-competes, businesses should "build out a system of corporate policies, technological solutions, and other more enforceable contractual provisions to protect their trade secrets going forward."
To safeguard client relationships
You can use non-compete agreements to protect the relationships you've built with your clients or customers, often the cornerstone of your business. These agreements help ensure that when someone leaves your team, they can't immediately take those customers or accounts to a competing company.
To protect investments in training
When you fund specialized programs or hands-on learning for your talent, you're building skills that directly strengthen your business. But it's also true that those same skills can make your people attractive to competitors.
"Non-compete agreements give businesses some assurance that they will not become a free training program for their competitors," attorney Josh Robbins wrote for the Pacific Legal Foundation. A non-compete can give you confidence that your investment in talent development will deliver value within your organization, not outside of it.
Note: Whether non-competes truly help the organization is a point of debate amongst businesspeople and scholars, although the balance is tipping toward the consensus that overall they do more harm than good.
Employer considerations
Enforceability
When you create a non-compete agreement, it's essential to consider how enforceable it will be in each country where you operate. Rules vary widely-some jurisdictions, like Germany or Denmark, allow non-competes but require employers to pay compensation during the restriction period, while others broadly prohibit them. Courts in many regions, including the U.K. and parts of the EU, will enforce these agreements only if they're narrowly tailored to protect a legitimate business interest and don't place an unreasonable burden on employees.
In other words, overly broad or lengthy restrictions are often reduced or thrown out entirely, so it's crucial to craft terms that comply with local laws and are reasonable.
Reasonability
When you draft a non-compete agreement, it must be reasonable in scope, duration, and geography to be legally valid. In terms of scope, many countries, such as the U.K. and New Zealand, only uphold restrictions that are no broader than necessary to protect a legitimate business interest, like confidential information or client relationships. Courts across jurisdictions generally view six to twelve months as a standard duration, with longer periods requiring stronger justification. Similarly, geographic limits must reflect where your business actually competes, rather than covering excessive or unrelated regions.
Compliance risks
When you draft a non-compete agreement, carefully consider compliance to avoid costly legal challenges that can invalidate the contract or trigger penalties. Misusing these agreements (imposing overly broad restrictions, for example) can result in fines, court orders, reputational damage, and other problems. Since 2011, Sam Adams's brewer, Boston Beer Company, has faced public criticism due to non-competes so "draconian" and restrictive that former employees reportedly couldn't work elsewhere, demonstrating how overreach can backfire. The key is working with local legal experts to ensure your agreements protect legitimate business interests without crossing the line into unfair restraint.
Alternatives to non-compete agreements
If you're looking for ways to protect your business without restricting where employees can work, consider alternatives to non-competes like non-disclosure agreements (NDA) and non-solicitation agreements:
- NDAs. These prevent former employees from sharing trade secrets, proprietary data, or confidential client information. This provides you targeted protection without limiting your former employees' career opportunities.
- Non-solicitation agreements. These stop departing employees from poaching your clients, customers, or current staff for a specific period, focusing on relationships rather than employment restrictions.
Both options are generally easier to enforce globally than non-competes, as they're seen as less restrictive and more reasonable across diverse legal frameworks.
You might also explore garden leave. Per Thompson-Retuers, "Employers often use garden leave during an employee's notice period to prevent the employee from having further access to customers, clients and staff and to prevent the employee from working for a competitor."
Are non-compete agreements right for your business?
Non-competes can be complex. What works in Ohio probably won't in Osaka, and you can't afford to make mistakes.
Partner with Pebl to make it easy.
With our Employer of Record service, you can create compliant non-compete agreements tailored to local regulations in any of the 185+ countries where we operate.
Our country-specific experts understand the legal and cultural nuances of non-competes, helping you define fair, enforceable terms while maintaining compliance with national labor laws.
Pebl manages the full employment lifecycle, from onboarding through offboarding. Let's chat and see if a non-compete agreement is right for your business.
Disclaimer: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided "as is," and no representations are made that the content is error-free.
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