Non-compete clauses restrict individuals or entities from engaging in competitive activity for a defined period after employment, advisory roles, or business sales.

How it works

Typical employee non-competes span six months to two years and limit work in a narrow market segment — not entire industries. Founders selling a company often sign broader non-competes as part of acquisition consideration, sometimes with carve-outs for passive investing.

Enforceability varies sharply: many U.S. states limit or ban employee non-competes; California generally voids them for employees with narrow exceptions. Courts weigh reasonableness — duration, geography, and scope must protect legitimate business interests without blocking all livelihood.

Non-competes pair with non-solicit (no poaching clients or staff) and PIIA (confidentiality and IP assignment). Investors ask whether a departing co-founder is constrained from building a look-alike startup.

Why it matters

• Founders: Use narrowly tailored restrictions and consult counsel for your jurisdiction. Relying on unenforceable boilerplate creates false confidence; trade secrets and non-solicits often do the real work.
• Investors: Key person risk includes legal freedom to operate. A star hire bound by a aggressive former employer non-compete can delay product launches or trigger litigation.

Common mistake

Copying generic non-compete templates from another state. A clause that works in one jurisdiction may be void elsewhere, leaving only goodwill and relationships at risk.

Related ideas

See also non-solicit, PIIA, trade secret protection, and change-of-control employment agreements.