Important Disclaimer:
I am an AI, not an attorney. Laws regarding non-compete agreements are changing rapidly (especially with the FTC rulings in the US). This guide is for educational purposes and should not be considered legal advice. Always consult a local employment lawyer before asking an employee to sign a restrictive covenant.

You spend years training an employee. You show them your client list, your pricing strategy, and your "secret sauce." Then, they quit. Two weeks later, they open a shop across the street and start poaching your customers.

This is the nightmare scenario that drives business owners to search for an employee non compete agreement template. You want protection. You want loyalty.

But in 2025, drafting a non-compete is like walking through a minefield. If you make it too broad, the court will throw it out. If you write it in a state that bans them (like California, Minnesota, or Oklahoma), you could actually be fined just for asking them to sign it.

This guide will show you how to structure a protection agreement that is actually enforceable, reasonable, and fair.

The "Reasonableness" Test: The Golden Rule

If you take nothing else from this article, remember this: Courts hate non-competes. They view them as restraints on trade that stop people from earning a living.

To survive a judge's scrutiny, your agreement must pass the "Reasonableness Test" in three areas:

  • Geography: You cannot ban them from working in "The Entire World." You can usually only ban them from the specific radius where you actually do business (e.g., "Within 15 miles of our office").
  • Time: You cannot ban them for 5 years. Usually, 6 months to 1 year is the maximum enforceable limit for standard employees.
  • Scope: You cannot ban them from "working in software." You can only ban them from working for a direct competitor in a similar role.

The Template Structure

Below is a standard clause structure. However, consider if you truly need a "Non-Compete" or if a "Non-Solicit" (which stops them from stealing clients) is actually what you want.

1. The Non-Compete Clause

SECTION 4: COVENANT NOT TO COMPETE During the term of employment and for a period of [Number, e.g., 12] months immediately following the termination of employment (the "Restricted Period"), Employee agrees not to, directly or indirectly, engage in or provide services to any business that is in direct competition with the Company within a [Number, e.g., 20] mile radius of the Company's primary place of business. "Direct Competition" is defined as any business primarily engaged in [Describe your specific niche, e.g., residential HVAC repair]. This restriction applies only to roles where the Employee would utilize the Confidential Information or specialized training acquired during their employment with the Company.

2. The Non-Solicitation Clause (The Safer Bet)

This clause is often easier to enforce because it doesn't stop the employee from getting a job; it just stops them from stealing your revenue.

SECTION 5: NON-SOLICITATION OF CLIENTS Employee agrees that during the Restricted Period, they will not solicit, induce, or attempt to divert any current Client of the Company to a competing business. "Current Client" includes any customer the Employee personally interacted with during their final 12 months of employment.

Why "Consideration" Matters

In contract law, you cannot get something for nothing. This is called "Consideration."

If you ask an existing employee to sign a non-compete today, but you don't give them anything new (like a raise, a bonus, or a promotion), the agreement is likely void. Continued employment is often not enough consideration.

Pro Tip: Always introduce the non-compete with the initial Offer Letter (see our Onboarding Guide) or attach it to a specific bonus payment.

The Risk of "Blue Pencil" States

Some states adhere to a "Blue Pencil" doctrine. This means if you write a restriction that is 50 miles (too broad), the judge can cross it out and write "10 miles" (reasonable) and enforce the rest.

However, in "Red Pencil" states, if one tiny part of your agreement is unreasonable, the judge throws the entire contract in the trash. This is why you must not be greedy with your restrictions.

Alternatives to the Nuclear Option

Before you hand this document to a new hire, ask yourself: Is the risk of them leaving worth the friction of asking them to sign this?

High-quality candidates often refuse to sign non-competes. If you are struggling to hire, check our review of hiring tools to ensure your process isn't the problem. Sometimes, retention strategies like Stay Interviews and Wellness Programs are better investments than legal threats.

Conclusion

A non-compete is a shield, not a sword. It should be used to protect legitimate business interests (trade secrets, client lists), not to punish people for leaving.

Draft it narrowly. Offer fair consideration. And when in doubt, rely on a robust Non-Disclosure Agreement (NDA) and Non-Solicitation clause, which effectively offer 90% of the protection with 10% of the legal risk.

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Frequently Asked Questions

Can I use this for independent contractors?

Almost never. Independent contractors are supposed to be independent businesses. Asking a contractor to sign a non-compete is a major "red flag" that might cause the IRS to reclassify them as an employee, costing you thousands in back taxes.

What if I operate in California?

Do not use this template. California Business and Professions Code Section 16600 voids almost all non-competes. Using one can subject you to lawsuits for unfair competition.

Does the FTC ban apply to me?

As of 2025, the FTC rule bans new non-competes for most workers. However, existing agreements for "Senior Executives" (policy-making positions earning over a certain threshold) may remain in force. You must stay updated on the status of this rule as it faces litigation.