By HR Brew Staff
less than 3 min read
Definition:
A noncompete agreement is a provision in an employment contract that prohibits an employee, consultant, or contractor from working for or starting competitor companies for a specific period of time following their tenure with the employer. Such an agreement may also restrict an employee’s future employment on the basis of geography or scope of work.
What is the purpose of a noncompete agreement?
Employers use noncompete agreements to maintain a competitive advantage, both by protecting intellectual property, trade secrets, and clients, and reducing turnover.
How do noncompete agreements affect the labor market?
Noncompete agreements reduce workers’ ability to change jobs, thus restricting labor market competition and wage growth, even for those who are not bound by the terms of such employment clauses. Some 30 million American workers are bound to the terms of noncompete agreements, without which, the Federal Trade Commission (FTC) estimates, wages would increase by as much as $296 billion annually.
How are noncompete agreements regulated?
The FTC abandoned a proposed nationwide ban on most noncompete agreements in September 2025 following challenges to the rule. In the absence of federal ban, employers must ensure compliance with a patchwork of state regulations. Four states, including California and Minnesota, have passed a full ban on noncompete agreements, while 34 others and the District of Columbia have passed some sort of restrictions, including those based on income.
Can you put noncompete agreement into context?
“Noncompetes typically prevent workers from joining a competing firm for a certain period of time, and are common in industries like warehousing and medicine. In recent years, this practice drew criticism due to concerns it may limit workers’ salary potential and career mobility, as well as hamper competition,” HR Brew reported in September 2025.
