In the fast-moving startup world, it’s natural to want protection against former employees joining a competitor. That’s why non-compete clauses have been popular for years. But the legal landscape is changing - raising real questions about whether they’re enforceable, useful, or even worth including.
Let’s break down what non-competes do, what the legal landscape looks like, and whether your startup should rely on them.
What’s a Non-Compete Clause?
A non-compete clause (or agreement) restricts a former employee from working for a competitor or starting a competing business for a certain period after leaving your company.
Typical non-competes include:
- A time limit (usually 6–24 months)
- A geographic scope (e.g., within California or the U.S.)
- A definition of competitors or prohibited industries
Startups often want to prevent ex-engineers or salespeople from jumping to better-funded competitors - but courts look skeptically at overly broad restrictions.
Are They Enforceable?
The answer depends entirely on state law:
- California: Completely banned. Even asking employees to sign a non-compete can be illegal.
- Massachusetts, New York, Texas: Allowed, but only if they’re narrow and protect a legitimate business interest.
- Federal level: The FTC has proposed a nationwide ban on non-competes, which could take effect soon.
Even in states where non-competes are allowed, courts want to see:
- Reasonable duration and scope
- Clear consideration (like a promotion or bonus)
- Protection of something specific - like trade secrets or customer goodwill
Are They Worth It?
If you operate in a non-compete-friendly state and your business relies heavily on trade secrets or customer relationships, a non-compete might make sense for certain roles.
But many startups find better protection through:
- Non-solicitation clauses (less restrictive, more enforceable)
- Confidentiality and invention assignment agreements
- Culture and loyalty—building a workplace people want to stay in
Alternatives to Consider
- Non-solicitation clauses: Prevent poaching of employees or clients.
- NDAs and IP assignments: Protect your secret sauce.
- Garden leave: Require notice periods with paid leave to limit competition without formal bans.
Final Thoughts
Non-competes are no longer the catch-all protection they used to be - and in many states, they’re not worth the paper they’re written on. Focus on enforceable, targeted protections instead. Want to review your agreements? We can help.
Frequently Asked Questions
FAQs on Non-Compete Clauses for Startups
Are non-compete clauses legal in all states?
No. Some states, like California, ban them outright. Others only enforce them if they’re narrow and justified by a legitimate business interest.
What’s the difference between a non-compete and a non-solicitation clause?
A non-compete restricts where someone can work, while a non-solicitation clause only prevents them from taking your clients or employees. The latter is generally easier to enforce.
Do startups need non-competes to protect intellectual property?
Not necessarily. Strong confidentiality and invention assignment agreements often provide more reliable protection for IP and trade secrets.
Should founders include non-competes in all offer letters?
No. Non-competes should be used cautiously, only in states where they’re enforceable and for roles where they are truly necessary. Otherwise, focus on enforceable alternatives.
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