Non-Compete Clause Analysis and Draft Language

Critical Preliminary Warning

California and New York require fundamentally different approaches. This is not a stylistic difference—it reflects opposing legal philosophies that require separate drafting strategies.

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PART I: THE CALIFORNIA VERSION

Why This Requires Special Attention

California Business & Professions Code § 16600 renders non-compete agreements void and unenforceable as a matter of public policy, with extremely narrow exceptions. As of January 1, 2024, California law also:

• Prohibits employers from entering into non-competes regardless of where the employee works
• Requires employers to notify current and former employees of void non-competes
• Creates a private right of action for employees

The honest answer for California: A traditional non-compete clause will not be enforceable.

What IS Enforceable in California (Alternative Protections)

Rather than a void non-compete, California employers should use:

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CALIFORNIA-COMPLIANT PROTECTIVE AGREEMENT

EMPLOYEE PROTECTIVE COVENANTS AGREEMENT

Between [Company Name] ("Company") and [Employee Name] ("Engineer")

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1. TRADE SECRET AND CONFIDENTIAL INFORMATION PROTECTION

1.1 Scope of Protection. Engineer acknowledges that during employment, Engineer has had access to trade secrets and confidential information including, without limitation:

• Proprietary source code, algorithms, and software architecture
• Unreleased product roadmaps and technical specifications
• Customer lists, pricing structures, and business relationships
• Non-public financial information and strategic plans
• Research and development data

1.2 Ongoing Obligations. Engineer agrees that following separation from employment, Engineer shall not:

(a) Use any Company trade secret to directly or indirectly solicit Company customers, for a period of as long as the information retains trade secret status under the Defend Trade Secrets Act (18 U.S.C. § 1836) and California Uniform Trade Secrets Act;

(b) Disclose any confidential information to any third party without express written consent from the Company; or

(c) Use confidential information to gain an unfair competitive advantage in subsequent employment.

1.3 Permitted Disclosure. Nothing in this Agreement prohibits Engineer from disclosing confidential information to government agencies investigating potential legal violations, or from discussing wages, hours, or working conditions with coworkers.

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2. CUSTOMER NON-SOLICITATION (Note: California courts have struck down overbroad customer non-solicitation clauses; narrow drafting is essential)

2.1 For a period of twelve (12) months following the Separation Date, Engineer shall not directly solicit any customer with whom Engineer had direct, material contact during the final twelve months of employment, for the purpose of providing services substantially similar to those Engineer provided at the Company, where such solicitation necessarily requires the use of Company trade secrets.

2.2 This clause shall not restrict Engineer from:

• Accepting business from customers who initiate contact independently
• Working in the same general industry
• Soliciting customers Engineer had no personal relationship with at the Company

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3. EMPLOYEE NON-SOLICITATION

3.1 For a period of twelve (12) months following the Separation Date, Engineer shall not directly solicit Company employees with whom Engineer worked directly, for the purpose of causing them to leave the Company's employment.

Drafting Note: California courts as of 2022-2023 have shown increasing skepticism toward employee non-solicitation clauses as well. These should be narrowly tailored.

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4. INTELLECTUAL PROPERTY ASSIGNMENT

4.1 Engineer assigns to the Company all right, title, and interest in work product created during employment using Company resources or related to the Company's business.

4.2 California Labor Code § 2870 Exception. This assignment expressly excludes inventions that Engineer developed entirely on their own time, without using Company equipment or information, and which do not relate to the Company's current or reasonably anticipated business.

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WHAT THIS AGREEMENT DOES NOT DO: Engineer retains the unrestricted right to:

• Accept employment with any competitor
• Use general skills and knowledge acquired during employment
• Work anywhere in California or elsewhere
• Compete in any industry segment not involving misappropriation of trade secrets

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PART II: THE NEW YORK VERSION

New York Legal Landscape

New York applies a "reasonableness" test under the BDO Seidman v. Hirshfield standard. Courts evaluate:

1. Whether the restriction is necessary to protect a legitimate business interest
2. Whether it imposes undue hardship on the employee
3. Whether it injures the public
4. Whether the restriction is reasonable in time and geographic scope

Important 2023-2024 developments: The FTC issued a rule banning most non-competes (effective August 2024), but its enforcement has been subject to litigation and injunctions. Verify current federal status before relying on any non-compete. New York City also enacted local restrictions for lower-wage workers.

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NEW YORK NON-COMPETE AGREEMENT

RESTRICTIVE COVENANT AGREEMENT FOR TECHNICAL EMPLOYEES

Between [Company Name], a [State] corporation ("Company") and [Employee Name] ("Engineer")

Effective Date of Separation: [Date]

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RECITALS

WHEREAS, Engineer has been employed as a software engineer with access to proprietary technology, trade secrets, and key customer relationships;

WHEREAS, Company has invested substantial resources in developing its technology platform, customer relationships, and competitive position;

WHEREAS, the parties agree that reasonable restrictions are necessary to protect these legitimate business interests;

NOW THEREFORE, in consideration of [severance payment of $_______ / continued equity vesting / other consideration], the parties agree:

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SECTION 1: NON-COMPETITION COVENANT

1.1 Restricted Period. For a period of twelve (12) months following the Separation Date ("Restricted Period"), Engineer shall not:

1.2 Restricted Activities. Directly or indirectly engage in, own, manage, operate, control, be employed by, provide services to, or participate in any capacity in a Competing Business, where "participation" means:

(a) Engineering, developing, or architecting products or services that are substantially similar to [specific product/service description]; or

(b) Using knowledge of Company's proprietary [specific technology area] to develop competing functionality; or

(c) Serving in a technical leadership role at a direct competitor where Engineer's specific knowledge would provide material competitive advantage.

1.3 Geographic Restriction. This restriction applies within:

Option A (Narrower/More Defensible):

The metropolitan areas of [New York City / specific cities where Company operates], and any additional market where Engineer had direct responsibility during the final twelve months of employment.

Option B (Broader/Higher Risk of Challenge):

The United States, where Company conducts or is actively planning to conduct business operations.

Drafting Note: For software companies operating nationally, courts have accepted national restrictions but are more likely to enforce Option A. Geographic scope should match the actual scope of Engineer's role and Company's market.

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1.4 Competing Business Definition. A "Competing Business" means any entity that:

(a) Offers [specific, narrowly defined product category] to [specific customer segment]; AND

(b) Directly competes with the Company's [specific product line] for the same customer contracts.

Drafting Note: Broad definitions like "any company in the software industry" will be struck down. The definition must reflect the specific competitive threat.

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SECTION 2: CUSTOMER NON-SOLICITATION

2.1 During the Restricted Period, Engineer shall not, directly or indirectly, solicit or attempt to solicit business from any customer:

(a) With whom Engineer had direct, material contact during the twenty-four (24) months preceding separation; AND

(b) For products or services that compete with those Engineer was responsible for at the Company.

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SECTION 3: EMPLOYEE NON-SOLICITATION

3.1 During the eighteen (18) month period following Separation Date, Engineer shall not directly recruit, solicit, or induce any Company employee with whom Engineer worked directly to leave the Company's employment.

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SECTION 4: CONSIDERATION

[Critical: New York courts require independent consideration for post-employment non-competes signed after employment begins]

4.1 In consideration for Engineer's execution of this Agreement, Company agrees to provide:

☐ Severance payment of $_______ payable over _____ months ☐ Accelerated vesting of _______ equity units ☐ Extension of health benefits for _____ months ☐ Positive reference letter and cooperation with background checks ☐ Other: _______________________

Drafting Note: "Continued employment" alone is generally insufficient consideration in New York for agreements signed after initial hiring.

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SECTION 5: BLUE-PENCIL PROVISION

5.1 If any provision of this Agreement is found to be unenforceable as written, the parties authorize the court to modify the provision to the minimum extent necessary to make it enforceable, rather than striking the provision entirely.

5.2 The parties acknowledge this Agreement shall be interpreted to provide the maximum protection permissible under applicable law.

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SECTION 6: CHOICE OF LAW AND FORUM

6.1 This Agreement shall be governed by the laws of the State of New York.

6.2 The parties consent to jurisdiction in the state and federal courts of New York County, New York.

Drafting Note: Choice-of-law clauses attempting to apply New York law to California residents are void under California law. Do not use this clause if the employee works in California.

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SECTION 7: INJUNCTIVE RELIEF

7.1 The parties acknowledge that breach of this Agreement would cause irreparable harm not adequately compensable by monetary damages, and that Company shall be entitled to seek injunctive relief in addition to other remedies.

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PART III: SIDE-BY-SIDE COMPARISON

Factor	California	New York
Non-compete enforceability	Void (§ 16600)	Enforceable if reasonable
Recommended time limit	N/A	6–12 months (preferred); 18 months (aggressive)
Geographic scope	N/A	Specific markets/cities preferred
Customer non-solicitation	Narrow trade secret nexus required	Enforceable with direct contact requirement
Employee non-solicitation	Increasingly challenged	Generally enforceable up to 18 months
Consideration required	Yes, for any covenant	Yes, must be independent of continued employment
Trade secret protection	Strongly enforceable	Strongly enforceable
Blue penciling	Courts reluctant	Courts will often modify overbroad clauses

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PART IV: PRACTICAL RECOMMENDATIONS

For the Departing Engineer

• In California: Any traditional non-compete you signed is almost certainly void; consult an employment attorney before assuming restrictions apply
• In New York: Review whether adequate consideration was provided and whether the scope matches your actual role
• Nationally: Monitor FTC rule developments before accepting positions at competitors

For the Startup

• Invest in trade secret protection regardless of jurisdiction—this is enforceable everywhere
• Avoid overreaching—overbroad clauses signal bad faith and can result in fee-shifting against the company
• Provide real consideration—severance packages make enforcement far more likely
• Document legitimate business interests specifically rather than using boilerplate

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Disclaimer

This draft is provided for educational and illustrative purposes only and does not constitute legal advice. Non-compete law is jurisdiction-specific, rapidly evolving, and highly fact-dependent. The FTC's non-compete rule, state legislative changes, and case law developments may significantly affect enforceability. Consult a licensed employment attorney in the relevant jurisdiction before drafting or signing any restrictive covenant agreement.

Non-Compete Clause Drafts

Below, I provide tailored drafts of a non-compete clause (often embedded in a separation or employment agreement) for a software engineer departing a startup. These assume a tech startup with proprietary software (e.g., SaaS platform), where the clause aims to protect trade secrets, confidential information, and legitimate business interests like client relationships and specialized expertise.

Key Legal Notes (Critical Reading Required):

• California: Non-compete agreements are generally unenforceable under Cal. Bus. & Prof. Code § 16600 (as interpreted in Edwards v. Arthur Andersen and reinforced by a 2024 law explicitly voiding them post-employment). Courts void clauses restricting "ordinary competition." Exceptions are narrow (e.g., business sales under § 16601). Instead, use non-solicitation, non-disclosure (NDA), and non-recruitment clauses, which remain enforceable if reasonable. A pure non-compete will likely be struck down entirely.
• New York: Non-competes are enforceable if reasonable in time, geography, and scope, per BDO Seidman v. Hirshberg and NY case law. They must protect legitimate interests (e.g., trade secrets), not unduly burden the employee, and not harm the public. "Reasonable" typically means ≤1 year time, limited geography (e.g., metro area or where business operates), and narrow activity (e.g., not "any tech job").

These drafts use reasonable restrictions:

• Time: 12 months (upper end of enforceable in NY; shorter is safer).
• Geography (NY): NYC metro area + states where startup has significant operations/customers (scalable for startup growth).
• Geography (CA): Minimal/none, pivoting to alternatives.
• Employee carve-outs: Owns <5% equity, prior experience, etc.
• Always pair with NDA, non-solicit, and return of property clauses.

Consult a lawyer for customization/enforceability in specific facts.

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New York-Enforceable Version

(Suitable for NY-based startup/employee or NY choice-of-law. Likely enforceable if startup shows client goodwill/trade secrets at risk.)

Non-Competition Covenant. During the term of employment and for a period of twelve (12) months following the termination of Employee's employment for any reason (the "Restricted Period"), Employee shall not, directly or indirectly, anywhere within the New York City metropolitan area (including New York, New Jersey, and Connecticut counties bordering NYC) and any other U.S. states where the Company has material customers or operations as of the date of termination (collectively, the "Restricted Territory"):

• (i) engage in, own, manage, operate, control, finance, or participate in any business that directly competes with the Company's principal business of developing and selling [describe software, e.g., "cloud-based SaaS analytics platforms for enterprise data management"];
• (ii) render services as a software engineer or in a similar technical role to any Competitor (defined as any entity that, as of the date of termination, derives ≥20% revenue from products/services substantially similar to the Company's); or
• (iii) assist any person or entity in any of the foregoing.

This covenant is limited to activities using the Company's Confidential Information (as defined in the NDA) or leveraging relationships developed during employment. Employee may accept employment outside the Restricted Territory or in non-competitive roles (e.g., non-technical management). Employee acknowledges this is reasonable given Employee's access to proprietary codebases, algorithms, and key clients.

Remedies: Breach shall entitle Company to injunctive relief, damages, and reasonable attorneys' fees. Restricted Period tolled during violations.

(Rationale: Geography tied to actual business footprint—NY courts uphold if not overly broad. 12 months OK for high-level engineers per Reed, Roberts Assocs. v. Strauman.)

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California Version (Non-Compete Minimized; Focus on Enforceable Alternatives)

(For CA-based startup/employee. Pure non-compete void; this pivots to NSO/NSN, which are enforceable if reasonable per Loral Corp. v. Moyes.)

No Non-Compete; Post-Employment Restrictions. California law prohibits covenants not to compete with lawful professions, trades, or businesses (Cal. Bus. & Prof. Code § 16600). Accordingly, Employee is not restricted from working for any competitor or in any software engineering role post-employment. To protect legitimate interests, Employee agrees to the following enforceable restrictions:

1. Non-Solicitation of Customers/Employees. For twelve (12) months following termination (the "Restricted Period"), Employee shall not, directly or indirectly, within California:

   • Solicit or service any Company customer or prospective customer with whom Employee had Material Contact (defined as personal dealings resulting in ≥$50,000 revenue) during the last 12 months of employment, for competing products/services; or
   • Solicit, recruit, or induce any Company employee or contractor to terminate employment.

2. Confidentiality. Perpetual NDA obligations survive, prohibiting use/disclosure of Confidential Information (e.g., source code, algorithms, client lists). No geographic limit.

3. No Disparagement/Return of Property. Employee shall not disparage Company and must return all property upon termination.

Remedies: Breach entitles Company to injunctive relief, damages (including liquidated damages of [e.g., $100,000] per violation), and attorneys' fees. Restricted Period tolled during violations.

(Rationale: Avoids void non-compete; NSO/NSN upheld if narrowly tailored to actual relationships, per Application Group v. Hunter Group. No geographic overreach. Include in every CA agreement.)

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These clauses can be inserted into a separation agreement. For cross-jurisdiction startups, use NY governing law with a NY venue if employee agrees (enforceable if not "unconscionable"), but CA courts may ignore for residents. Add severability: "Invalid provisions reformed to closest enforceable terms." Test enforceability via local counsel.