Non-Competes and Trade Secrets in the United States

A senior salesperson resigns on Friday and appears on a competitor's website on Monday. She signed a contract five years ago containing a twelve-month non-competition covenant, a client non-solicitation clause and a confidentiality undertaking. The chief executive wants to know whether the covenant can be enforced.

In the United States, the honest first answer to that question is: which state? There is no federal law of restrictive covenants. Enforceability is a matter of state contract law, and the states range from those that enforce reasonable restraints as a matter of routine to those that treat them as void ab initio and impose penalties on the employer that tried. An identical covenant signed by two employees of the same company may be fully enforceable against one and unlawful even to include in the other's contract.

Trade secret protection is the other half of the picture, and it is more uniform. This guide covers both: how the states divide on restrictive covenants, what the federal trade secrets statute added in 2016, the drafting decisions that determine whether an overbroad clause is saved or destroyed, and the practical steps available to each side when an employee leaves.

The state-law patchwork

The prohibition states

California is the most significant. Section 16600 of the Business and Professions Code provides that every contract by which anyone is restrained from engaging in a lawful profession, trade or business is to that extent void, subject to narrow statutory exceptions for the sale of a business and the dissolution of a partnership or limited liability company. California's courts have declined to read in the sort of narrow-restraint exception that other jurisdictions apply.

The position has since been reinforced by statute. Recent amendments make it unlawful for an employer to include a void non-compete in an employment contract or to attempt to enforce one, provide a private right of action with attorney's fees, require notice to affected current and former employees, and — importantly for out-of-state employers — declare void a non-compete that is unenforceable under California law regardless of where and when the contract was signed. A Delaware choice-of-law clause and a New York forum selection clause do not, in the ordinary case, solve the problem for a California employee.

Other states impose comparable prohibitions. Oklahoma and North Dakota have long done so by statute, and Minnesota banned new employee non-competes with effect from 2023. The precise scope varies, and each preserves some exceptions, but the direction of travel is unmistakable.

The reasonableness states

The majority approach asks whether the restraint is reasonable, and applies a three-part test with local variations:

Is there a legitimate protectable interest? Trade secrets and genuinely confidential information qualify; so do customer goodwill and relationships developed at the employer's expense, and, in some states, extraordinary or specialised training. Protection from ordinary competition by a skilled former employee does not.
Is the restraint no wider than necessary? Duration, geographic scope and the scope of restricted activity are assessed together. Twelve months is commonly upheld; three years rarely. A worldwide restriction on a regional salesperson is a classic overreach. A restraint on working in any capacity for any competitor — including in a role with no access to the protected information — is another.
Is the restraint reasonable as to the employee and the public? Courts weigh the hardship to the employee against the employer's interest, and consider the public interest, which weighs particularly heavily in healthcare, where several states now bar or restrict physician non-competes outright.

Statutory overlays

Even in reasonableness states, legislatures have been active. A number now impose compensation thresholds, so that non-competes cannot be enforced against employees below a stated salary; several require advance notice of the covenant before an offer is accepted, or a period of consideration; some require garden leave payment during the restricted period. Illinois, Washington, Colorado, Oregon, Massachusetts, Virginia and Maine are among those with regimes of this kind, and the details differ in every one. An employer with employees in a dozen states cannot use a single form.

Consideration

An easily overlooked point: what the employee received in exchange. Some states treat an offer of employment, or continued employment, as sufficient consideration for a covenant. Others require something more where the covenant is imposed on an existing employee — a promotion, a bonus, or a defined period of continued employment thereafter. A covenant signed in year three of employment in exchange for nothing at all is vulnerable in a significant number of jurisdictions.

Overbreadth: saved, trimmed or destroyed

What a court does with a covenant that goes too far is perhaps the single most consequential state-law variation, and it drives drafting practice.

Reformation or equitable modification. The court rewrites the covenant to what is reasonable and enforces it as rewritten. This is the most employer-friendly approach and, unsurprisingly, encourages aggressive drafting.
Blue-pencilling. The court may strike offending words but may not add or rewrite. A covenant drafted with severable geographic units may survive; one drafted as a single unreasonable whole will not. This rewards careful, modular drafting.
The red-pencil approach. An overbroad covenant is void in its entirety and the court will not save any part of it. Virginia, Wisconsin and Nebraska are the traditional examples. Under this approach, drafting a restraint one month longer than a court will accept destroys the whole clause.

The lesson for employers is that the drafting decision must be made state by state, and that in a red-pencil state the temptation to ask for more is not merely unproductive but actively dangerous.

The federal position

In 2024 the Federal Trade Commission adopted a rule that would have banned most employee non-competes across the United States and invalidated most existing ones. Before it took effect a federal district court in Texas set it aside, and the matter has remained in contest since. Employers and employees should treat the federal position as unsettled and should not plan on the footing that any nationwide rule is currently in force. What governs the enforceability of a covenant today, as it did before 2024, is the law of the applicable state — and the trend in state legislatures has been towards restriction irrespective of what happens federally.

Trade secrets: the more reliable protection

An employer that cannot enforce a non-compete is not without remedy. Trade secret law protects the information itself, is available in every state, and does not depend on the employee having signed anything.

The Defend Trade Secrets Act of 2016 created a federal civil cause of action for misappropriation of a trade secret related to a product or service used in interstate commerce, codified at 18 U.S.C. § 1836. It sits alongside, rather than displacing, state law — nearly every state having adopted a version of the Uniform Trade Secrets Act, with New York a notable exception continuing to apply common law.

The elements are two, and the second is where cases are lost:

The information derives independent economic value from not being generally known and not being readily ascertainable by proper means. Customer lists, pricing models, formulations, source code and manufacturing processes commonly qualify; general industry knowledge and the employee's own skill do not.
The owner took reasonable measures to keep it secret. This is a question of fact about what the employer actually did: access controls, confidentiality agreements, marking, exit interviews, restrictions on removable media. An employer that let the entire sales force download the customer database to personal devices will struggle, whatever the document says.

Remedies under the federal Act include injunctive relief, damages for actual loss and unjust enrichment or, in the alternative, a reasonable royalty; exemplary damages of up to twice the compensatory award for wilful and malicious misappropriation; and attorney's fees. It also provides for civil seizure of property in extraordinary circumstances, on an ex parte basis — a remedy deliberately hedged with conditions and used sparingly.

One trap deserves particular attention because it is a drafting matter and entirely avoidable. The Act requires employers to include a notice of the statutory whistleblower immunity in any contract or agreement with an employee that governs the use of trade secret or confidential information. An employer that omits the notice cannot recover exemplary damages or attorney's fees against that employee. It is a single clause, and its absence forfeits the two most valuable remedies in the statute.

Inevitable disclosure

Some states permit an employer to restrain a former employee from taking a role in which he would inevitably disclose or rely upon trade secrets, even without evidence of actual misappropriation. Others reject the doctrine, and California in particular regards it as a non-compete by another name. It is not a doctrine to rely upon without checking the law of the forum.

What each side should actually do

For employers:

Audit the agreements state by state, and stop using a single national form. The cost of the audit is trivial against the cost of an unenforceable covenant discovered at the injunction hearing.
Rely on the narrower instruments where the non-compete is unavailable. Confidentiality undertakings, customer and employee non-solicitation clauses, and notice or garden leave provisions are enforceable in many places where a non-compete is not.
Build the trade secret case before it is needed: access controls, documented policies, exit interviews with a signed acknowledgement, and preservation of device images when a senior employee resigns.
Move quickly. Injunctive relief depends on urgency, and an employer that waited four months has already answered the court's question about irreparable harm.

For employees:

Obtain the agreement and read it before resigning, not after. The governing law clause matters and so does the forum clause.
Take nothing. The single most damaging act a departing employee can commit is to email documents to a personal account or copy files to a drive. Modern forensic examination finds it invariably, and it converts a defensible competition case into a misappropriation case.
Tell the new employer about the covenant. Concealment exposes the employee to a claim from both sides.
Remember that an unenforceable covenant still costs money to defeat, and that in the United States each party ordinarily bears its own fees.

For the position in a jurisdiction that applies a unitary reasonableness test without the state-by-state variation, see our guide to non-compete clauses and restraint of trade in Australia. Where the employment contract contains an arbitration clause — as a great many American employment contracts do — the forum question may be settled before the merits are reached, and our guide to forced arbitration in the US explains how.

If you are assessing a covenant, drafting one for a multi-state workforce, or facing a claim after a resignation, CommonBench's Legal Chat can take you through the applicable state law and the federal trade secrets framework.

This article is published by CommonBench for informational purposes only and does not constitute legal advice. If an employee has left for a competitor, or you have been asked to sign or defend a non-compete in the United States, try CommonBench — AI-powered legal research with verified citations across five common law jurisdictions.