NDA vs non-compete: what each one restricts

An NDA (non-disclosure agreement) restricts what someone may say or use — confidential information they receive. A non-compete restricts where someone may work after the relationship ends. A non-solicitation clause sits between them, restricting who someone may approach: former customers or colleagues. The practical difference is enforceability. NDAs are enforced routinely across all states; non-competes are void in California, Minnesota, North Dakota and Oklahoma, and restricted in many other states, frequently by earnings thresholds.

Side by side

	NDA	Non-solicitation	Non-compete
Restricts	disclosure and use of information	approaching customers or employees	working for a competitor or starting one
Typical duration	2–5 years, or indefinite for trade secrets	1–2 years	6–24 months where permitted
Enforceability	strong in all states	mixed; void in California	void in CA, MN, ND, OK; limited elsewhere
Usual trigger	sharing plans, code, customer data	employee departure	employee departure
Consideration	often signing the agreement	often continued employment	frequently requires more, varies by state

Why non-competes keep narrowing

Beyond the four states that void them outright, the trend in state legislation has been to restrict rather than expand: income thresholds below which a non-compete cannot apply, mandatory notice before signing, carve-outs for healthcare workers or hourly staff, and requirements that the restriction be no broader than needed to protect a legitimate business interest. Courts also test duration, geography and scope, and in some states will refuse to rewrite an overbroad clause — striking it entirely instead.

The consequence for drafting: an aggressive non-compete is often worse than a modest one, because the aggressive version risks total invalidation while the modest one survives.

What is not narrowing them is federal law. The FTC's 2024 rule that would have voided most employee non-competes is dead: the agency dropped its appeals defending it in September 2025 and formally removed the rule from the Code of Federal Regulations in February 2026. The FTC still challenges individual abusive non-competes case by case, but the law that decides whether a covenant is enforceable is state law.

What to use when a non-compete is not available

In a state that bans them — or for a worker below the threshold — the protection you actually need is usually available another way:

• A strong NDA. Most of what employers fear losing is information: customer lists, pricing, roadmaps, source code. Protect it directly.
• Trade secret law. Trade secrets are protected independently of any contract, provided you took reasonable steps to keep them secret.
• Narrow non-solicitation of customers the person actually dealt with, where the state permits it.
• IP assignment. Ensure work product is owned by the company from the outset, so departure does not put ownership in question.

Practical guidance

If you are the employer: decide what you are really protecting. If it is information, an NDA does the job in every state. Do not paste a non-compete into an offer letter for a California hire — it is unenforceable and it signals that the rest of your paperwork was not checked either.

If you are being asked to sign: read the geography and duration, check whether your state bans non-competes or sets an earnings threshold, and ask whether it is triggered by any departure or only by resignation. Ask for a carve-out for your pre-existing skills and general knowledge. An unenforceable clause can still deter a future employer who does not want the argument, so it is worth negotiating even where it would ultimately fail.

The documents

Our NDA covers one-way or mutual disclosure, the definition of confidential information, permitted use and exclusions, term and return or destruction of materials.

Our employment agreement includes an optional non-compete with state gating built in: choose a governing state that bans them (CA, MN, ND, OK) and the document automatically substitutes a confidentiality and limited non-solicitation clause instead of an unenforceable restriction.

→ Non-Disclosure Agreement (NDA) · Employment Agreement

Hiring a contractor rather than an employee? Independent contractor agreement clauses.