KEY TAKEAWAYS 

  • Non-competes may be voidable

  • As of September 4, 2024, most non-compete agreements are federally unenforceable

  • There are loopholes available for individuals still subject to non-competes

 

Voiding a non-compete contract is possible in certain circumstances such as proving you never signed it or the contract is against the public interest. 
 

In certain circumstances, it is possible to find non-compete contract loopholes that may void the contract. For example, if you can prove that you never signed the contract, or if you can prove the contract is against the public interest, you may be able to void the agreement. 

We highly recommend you hire a contract review attorney to help, but first, read this article to learn more about the topic.

What Are Non-Compete Agreements?

A non-compete clause is also known as a restrictive covenant or provision is designed to protect an employer's business interests by preventing employees from working for competitors after they leave their company .

In some industries, it is standard for employees to sign a noncompete clause. You will often see these contracts arise in industries such as  financial services, media, manufacturing, and information technology to name a few.

If your employment contract includes a non-compete clause, the prospective employer cannot force you to sign a non-compete agreement; however, they can legally refuse to hire you if you decline. In some states, employers may also withhold severance pay if you refuse to agree to a non-compete clause.

As of September 4, 2024, non-compete agreements are federally unenforceable for most workers, following new rules under Section 5 of the Federal Trade Commission Act. However, if you are the CEO,CFO, President or Vice President of a company who entered into a non-compete agreement before the FTC’s effective date, you could still be subject to a non-compete agreement.

How Long Are Non-Competes Valid?

In many industries, a six-month non-compete is generally considered reasonable and enforceable. However, the duration of non-compete cannot be longer than the employer's legitimate business interests. If you need help deciding whether your non-compete agreement is fair and reasonable, seeking assistance from an attorney is advisable.

 

Employer's Business Interests

An employer can use non-compete agreements to protect themselves from former employees disclosing trade secrets, customer relationships, and other operations. Their goal is to mitigate industry competition by restricting employees from joining rival firms. In most cases, you must sign the non-compete as part of the employment agreement. 
 

Can Non-Competes Be Enforced?

Many state courts will not uphold non-compete agreements because many are not legally enforceable. For an organization, a non-compete can be a significant source of value. In a dispute involving a non-compete contract, the court will usually try to determine if the terms of the contract are reasonable. For a non-compete agreement to be legally enforceable, it must meet several qualifications:

  1. The agreement must protect a legitimate business interest.

  2. The scope and length of the agreement should be reasonable.

  3. The agreement must be in line with the public interest.

As of September 4, 2024, non-compete agreements will only apply to senior executives who were subject to such contracts prior to that date. This change is due to Section 5 of the Federal Trade Commission Act, which limits the enforceability of non-compete agreements for certain employees. For the purpose of the amended FTC rule, a senior executive is someone who is in a policy making position and earns at least $151,164.

Do Non-Competes Hold Up in Court?

Non-compete clauses are treated differently by courts in different states. Some states are keen to enforce covenants and will aggressively revise the ones that are overly broad in scope or time to make them more enforceable, while other states are more open.

If your state is more worker-friendly, you could attempt to prove that the terms of the contract are too broad. For example, if the non-compete clause lasts an unreasonable amount of time or restricts you from working in an overly large geographic area, the contract might not be enforceable. 

If your employer only operates in a single state, for instance, it would be unreasonable to restrict you from working for a competitor that does not operate within that state. It would also be unreasonable for a non-compete agreement to prohibit you from working for a competitor years after the trade secrets your employer seeks to protect are no longer valid.

How to Get Out of a Non-Compete Agreement: Top Loopholes 

In some cases, it may be possible for you to defeat a non-compete contract. Let’s take a look at a few below.

There Is No Violation of the Agreement

If you can prove that accepting your new role doesn't violate the terms of the agreement, you should be able to accept your new position, and your former employer won't be able to stop you. 

Make sure to carefully read the terms of your non-compete contract so you understand its limits. The terms of the agreement may be more flexible than you think.

Illegal or Unethical Employer Behavior 

Another way to defeat a non-compete contract is to show that your employer has behaved illegally or unethically towards their clients. In general, an employer will not want these matters raised in a court case, so they may void your non-compete agreement if you have proof of these behaviors. If you take this route, you must have concrete evidence of your employer's misconduct, such as documentation, emails, or witness testimonies. 

There Is No Legitimate Business Interest

Showing that the agreement is not related to a legitimate business interest is the most effective way of getting out of a non-compete contract. The goal of any non-compete agreement is to protect trade secrets. If you can show that your former role did not require you to access trade secrets, you should be able to accept employment with any company.

Breach of Employment Contract

Proving there was a breach of your employment contract is another way that you can defeat a non-compete agreement. If your employer did not fulfill the employment contract terms, they likely can't force you to stick to a non-compete agreement. This is known as a material breach.

For example, if your employment contract required that you receive a lump sum payment upon termination and your employer refused to pay this sum, you should be able to void the non-compete clause.

There’s No Evidence that You Signed the Non-Compete Agreement 

If you are able to prove that you never signed the non-compete agreement. The agreement will be deemed unenforceable. To demonstrate this you simply need to show that the contract does not contain your signature.

There is a Violation of State Law

 Some states, like California, heavily restrict or outright ban non-compete agreements.

There is a Violation of the Federal Trade Commission Act

The amended Federal Trade Commission Act makes most non-competes largely unenforceable. Under the Act, non-competes only apply to senior executives who entered the agreement before September 4, 2024. The Act prohibits employers from entering into or attempting to enforce any new non-competes, even if they involve senior executives. Showing that you are not a senior executive or that you signed the agreement after September 4, 2024 could help you to get out of your agreement.

Insufficient Notice

Under the new FTC rule, employers are  required to provide notice to workers other than senior executives who are bound by an existing noncompete that the non-compete is unenforceable. If you show that you were not notified and that you are not a senior executive, you could get out of your agreement.

Can You Go to Jail for Breaking a Non-Compete? Legal Risks

While you cannot go to jail for breaking a non-compete agreement, you could face some hefty legal consequences, let’s take a look at a few below.

What Happens If You Break a Non-Compete Agreement?

Breaking a non-compete agreement will most certainly not land you in jail; however it could get you fired. If you signed a non-compete, it included clauses related to working for another company. Once you leave your current employer, the Non-Compete contract is still valid. 

If you are trying to find loopholes in your con-compete agreement, an UpCounsel employment attorney may be able to help you out. 

Here are some legal situations you should be aware of if you break a non-compete agreement:

Injunctive Relief

An injunction is the most frequently requested and granted relief for violating a non-compete agreement.

When an injunctive relief is issued, the previous employer does not attempt to determine whether there are damages.

Alternatively, a previous employer can request a judge to uphold a non-compete Agreement and force the worker to leave their new employer.

Monetary Damages

Sometimes, former employers may intentionally look for damages against their former employees. Compensation for loss of profits (as a result of a violation) is a common form of damage. 

For instance, Cambridge Engineering, Inc. v. Mercury Partners 89 BL, Inc is a case where monetary damages were awarded.

Monetary damages are only granted when there is evidence of a veritable loss. For monetary damages to be granted, there must be evidence of a veritable loss. This loss can vary from small to significant amounts, according to the evidence of damages presented by the employer to the judge.

Punitive Damages

Punitive damages are another common kind of damages awarded for vindictive behavior. Punitive damages can be granted only if there’s clear proof of intentioned, vindictive conduct. To substantiate a claim, malicious behavior is necessary – so if such a claim is satisfied, punitive damages will be made available. 

Liquidated Damages

Liquidated damages are another relief option for the breach of a non-compete clause.

These are stated in a contract as the sum, or a formula for producing an exact sum, that one party to a contract will pay for violating that contract.

In the case of liquidated damages, an employer can list a sum their worker must pay if they violate the non-compete contract with their boss.

As liquidated damages are a component of the contract, a new employer will not be required to pay liquidated damages, unless the employee signed an agreement with their previous employer.

A judge will decide whether a liquidated damages clause is appropriate before asking a party to pay the damages. The sum of money depends on the situation.

Consequences can vary depending on the state and the specific circumstances.

States That Do Not Enforce Non-Compete Agreements 

Most states recognize non-compete agreements. However, the following states specifically prohibit non-compete agreements in all circumstances: 

  • California

  • North Dakota

  • Montana

  • Oklahoma

Need Help Voiding a Non-Compete Contract? 

If you need help voiding a non-compete contract, you can post your legal needs on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers on its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

 

What is the Federal Trade Commission Act

Under the FTC’s new rule, most non-compete agreements are federally enforceable. However, senior executives, who entered into an agreement before September 4, 2024, are still subject to non-compete agreements. As outlined by the new rule, after the effective date,  employers are banned from entering into or attempting to enforce any new non-competes, even if they involve senior executives. Employers are also required to provide  notice to workers other than senior executives who are bound by an existing noncompete that the existing non-compete is enforceable.

Alternatives to Non-Competes

 

While employers cannot enforce non-competes against most workers there are still methods for employers to protect their legitimate business interest. Employers may pursue protections under trade secret laws or have their employees sign  non-disclosure agreements (NDAs). Both of these methods help to protect  the employers proprietary information.

 

Frequently Asked Questions

Where are non-competes unenforceable?

As of 2024, most non-competes are federally unenforceable. However, they have been unenforceable in California, North Dakota, Montana, and Oklahoma.

 

What is the final rule for non-compete?

Under the final rule, existing non-competes for senior executives can remain in force. Employers cannot enforce new non-competes with senior executives. They are banned for all other workers.