State-Specific Laws: Non-compete laws vary significantly by state. Some states like California largely prohibit non-competes, while others have specific duration and geographic restrictions. Recent reforms in states like Illinois and Washington have further limited non-compete agreements.
FTC Proposed Rule: The Federal Trade Commission has proposed a ban on non-compete clauses (as of 2023). Any current agreement must consider potential changes in federal regulation.
Federal Antitrust Laws: Key federal antitrust legislation including the Sherman Act, Clayton Act, and FTC Act must be considered when drafting non-compete agreements to ensure compliance with competition laws.
Employment Law Considerations: Must comply with Fair Labor Standards Act (FLSA), state employment laws, and consider the at-will employment doctrine when drafting the agreement.
Contract Law Principles: Basic contract law requirements including consideration, reasonableness standards, and proper contract formation must be met for the agreement to be enforceable.
Court Precedents: State-specific case law on enforcement, reasonableness tests, and the blue pencil doctrine (court's ability to modify terms) must be considered in drafting.
Scope Restrictions: The agreement must clearly define the scope of restricted activities, ensuring they are reasonable and directly related to protecting legitimate business interests.
Geographic Limitations: The agreement must specify reasonable geographic boundaries for the non-compete restrictions, which vary by state and industry.
Duration Requirements: Time limitations must be reasonable and specific, typically ranging from 6 months to 2 years depending on state laws and industry standards.
Legitimate Business Interests: The agreement must demonstrate protection of legitimate business interests such as trade secrets, confidential information, or customer relationships.
