Will This Non-Compete Hold? A Restrictive Covenant Review

Before you start

Enforceability of restrictive covenants is tightening, and it is doing so unevenly. A growing number of states have imposed income thresholds below which non-competes are void, advance-notice and consideration requirements, carve-outs for healthcare and lower-wage workers, or outright bans. Federal efforts to limit non-competes have moved in fits and starts. The practical consequence: a covenant that was comfortably enforceable a few years ago, or that is enforceable in one state on your roster, may be unenforceable in another today.

So the threshold discipline is simple. Do not assume. Identify every state whose law could govern — the employee’s work location, residence, and the contract’s choice-of-law clause — and confirm the current rule in each before you rely on the covenant. The four factors below are the common-law core nearly every state shares; the state-law overlay can override any of them.

The four enforceability factors

1. Is there a legitimate, protectable business interest?

   This is the question that decides most cases, and the one employers most often get wrong. Protectable interests are typically trade secrets and confidential information, customer goodwill and relationships the employee was paid to build, and genuinely specialized training the employer funded. Preventing ordinary competition — keeping a capable person from doing the same work for someone else — is not a protectable interest standing alone.

   Ask what this particular employee actually had access to. A covenant that sweeps in a worker with no customer contact and no confidential information is vulnerable from the outset, regardless of how the rest of it reads.

2. Is the scope reasonable — and tied to that interest?

   Duration, geography, and prohibited activity must each be no broader than necessary to protect the interest identified in step one. The three are linked: a narrow geography may justify a longer term; a nationwide reach demands a strong, specific justification. Prohibited-activity scope is where overreach is most common — a clause barring the employee from the entire industry, rather than from the specific competitive activity that threatens the interest, often fails.

   Test scope against the interest, not against the employer’s wish list. If the interest is a discrete set of customer relationships, a tailored customer non-solicit usually does the real work that an industry-wide non-compete only pretends to.

3. Was there adequate consideration — especially for existing employees?

   A covenant signed at hire, as a condition of the job offer, is generally supported by consideration. The recurring problem is the covenant imposed on a current employee. Some states treat continued at-will employment as sufficient consideration; others require something new — a raise, a bonus, a promotion, or equity — and will void a covenant backed only by the bare continuation of a job the employee already had.

   This varies by state and is frequently outcome-determinative. If covenants were rolled out to an existing workforce without fresh consideration, flag every affected agreement and confirm the rule in each governing state.

4. If the covenant is overbroad, what does the governing state do about it?

   States fall roughly into three camps, and which camp applies changes your entire risk calculus. Some blue-pencil — striking offending words but not adding any. Some go further and equitably reform an overbroad term to what is reasonable. And some void the entire covenant if any material part is unreasonable, leaving the employer with nothing.

   In a void-it state, an aggressive draft is not a strong opening position you can negotiate down later — it is a loaded failure. And even in a blue-pencil or reform state the rescue is rarely guaranteed: reformation is often discretionary, and a court may decline to rewrite a covenant it sees as deliberately overbroad. Knowing the governing state’s reformation rule before you draft, and before you sue, is essential.

Narrower alternatives that travel better

When a full non-compete is shaky, weak on consideration, or barred outright, narrower tools often protect the real interest with far less enforcement risk — and survive in states where non-competes do not.

See also the companion NDA Triage and Departing Employee Protection resources, and — when the worker is moving toward you — Hiring From a Competitor.

Quick review checklist

• Identify every governing state. Work location, residence, and choice-of-law clause — then confirm the current rule for each.
• Check for thresholds, bans, and carve-outs. Income floors, healthcare-worker and low-wage carve-outs, advance-notice requirements, or outright prohibitions in any relevant state.
• Name the protectable interest. Articulate the specific trade secret, customer relationship, or specialized training — not “competition.”
• Pressure-test the scope. Confirm duration, geography, and prohibited activity each tie back to that interest and go no further.
• Trace the consideration. For covenants signed by existing employees, verify new consideration where the state requires it.
• Know the reformation rule. Determine whether the governing state blue-pencils, reforms, or voids entirely — and draft accordingly.
• Audit templates state by state. Retire any single national form; scope each agreement to the actual interest and the actual jurisdiction.
• Consider the narrower tool. Ask whether a non-solicit and a well-drafted NDA would protect the interest with less enforcement risk.

This is general information, not legal advice. Restrictive-covenant law varies significantly by state and is actively in flux at both the state and federal level. Confirm the current rule in each governing jurisdiction before relying on any covenant.