Non-Compete Clause / Agreement

Non-Compete Clause / Agreement

When to use this

Use this skill when drafting a post-employment or post-relationship non-competition obligation. Three primary contexts:

1. Employment: restricting a departing employee from working for a competitor or starting a competing business for a defined period and geography
2. Business / share sale (M&A): restricting the seller of a business from competing with the buyer's newly acquired business (these are generally more enforceable than employment non-competes because the seller has received consideration specifically for the goodwill)
3. Partnership / JV dissolution: restricting a departing partner or JV party from competing with the remaining business

Always pair with [[draft-non-solicit]] — non-solicitation clauses protect customer and employee relationships, are easier to enforce, and provide protection even when the non-compete fails.

Required inputs

Enforceability — jurisdiction matrix

Enforceability of non-competes varies dramatically by jurisdiction. Always verify current law with local counsel before finalizing.

Model clause (employment context)

"During the Term of Employment and for a period of [12/24] months following the termination of the Employee's employment for any reason (the Restricted Period), the Employee shall not, directly or indirectly, within the [Restricted Territory] (meaning [defined geography]):

(a) own, manage, operate, control, be employed by, provide services to, participate in, or be connected with, in any capacity, any Competing Business (as defined below);

(b) hold any equity interest in any Competing Business exceeding [2%] of the issued share capital of a publicly listed company;

(c) serve as a director, officer, consultant, advisor, or independent contractor for any Competing Business.

For the purposes of this clause, 'Competing Business' means any business that competes directly with [Employer's Business as defined in Schedule X]."

Adjust bracketed items per the inputs. The more specifically the Competing Business is defined, the more enforceable the clause — "any business that competes in any way" is far weaker than naming specific types of companies or named competitors.

Critical elements

Legitimate business interest

A non-compete that protects no genuine interest will be struck down in most jurisdictions. Recognized legitimate interests include:

• Trade secrets and confidential customer/technical information
• Customer relationships (the employee had material contact with and relationship with customers)
• Business goodwill acquired by the employee at the employer's expense
• Specialized skills or training provided by the employer

A non-compete that simply prevents an employee from using their general skills and experience in the market is not protecting a legitimate interest — it is suppressing labor mobility, which courts do not accept.

Proportionality

Even where there is a legitimate interest, the restraint must be proportionate:

• Duration: 12 months is standard and generally enforceable; 24 months is the outer limit in most jurisdictions (especially UAE Art. 10); anything beyond 24 months for employees is very high risk
• Geography: must match the actual area in which the business operates and where the employee competed — a Saudi-based employee with a global non-compete is unlikely to be enforced globally
• Activity scope: "any employment in the technology sector" is too broad; "any role in B2B fintech product development focused on MENA remittances" is more precise and more enforceable

Consideration

• In employment contexts: consideration is the employment itself if the clause is signed at the start; for clauses added during employment, additional consideration (bonus, promotion, salary increase) must be provided for the new restriction
• In France: mandatory financial compensation during the restraint period is a statutory requirement, not optional
• In M&A: the purchase price for the business is the consideration

Carve-outs

Standard carve-outs that improve commercial acceptability without destroying protection:

• Holding up to [2-5%] of shares in a publicly listed company (passive investment, no management role)
• Employment in the same broad industry but in a non-competing division (e.g., working for a bank that does not compete in the employer's specific product line)
• Return to home jurisdiction if the employee was relocated for the role (limits the geographic scope effectively)
• Activities that the employer is not currently conducting (protects existing business, not future aspirations)

Pairing with non-solicit

Non-compete and non-solicit clauses serve different but complementary functions:

• Non-compete: prevents the departing party from working for or building a competing business
• Non-solicit: prevents the departing party from taking customers or employees from the former employer

Courts universally consider non-solicit clauses more favorably than non-competes because they protect a more specific, definable business interest without broadly preventing the individual from earning a living.

Best practice: include both provisions. If the non-compete is struck down or narrowed, the non-solicit may survive and provide meaningful protection for the employer's customer relationships and talent.

See [[draft-non-solicit]] for the companion skill.

Common mistakes

• Drafting a global non-compete for an employee whose work was regionally limited — unenforceable in most jurisdictions
• No additional consideration for a mid-employment clause amendment — renders the new restriction unenforceable for lack of consideration (common-law jurisdictions)
• Copying a California non-compete form for use in UAE or France — fundamentally different enforceability frameworks
• Activity scope defined as the entire industry rather than the specific competitive activity — courts will strike it down
• Omitting France's mandatory compensation — the clause is void without it; the employer does not even get a morally binding commitment

Related skills

• [[draft-non-solicit]]
• [[draft-employment-contract]]
• [[draft-nda-unilateral]]
• [[review-employment-risk]]