How Do Noncompete Clauses Work?
Even low-skilled workers have been subjected to noncompete clauses. The FTC has banned them, but business groups are challenging that ban.


“My family operates an upscale Italian restaurant, and our employees are paid much more hourly than comparable establishments. We hire college grads, dedicate a great deal of time to training by certified hospitality educators, who cover everything from understanding the menu, to proper grooming, how to conduct yourself as a professional server and related skills.
“All restaurant owners face the same problem: hiring, training, and then the employee jumps ship for a similar restaurant, often for as little as a dollar more an hour. I have never used an actual signed employment contract, but wonder if I can have a noncompete clause, limiting an employee from working in a similar type of a restaurant within, say, 50 miles? Thanks, ‘Luigi.’”
The FTC voted in April 2024 to ban noncompete clauses, though business groups are challenging the ban in federal court, leaving businesses in limbo about whether to keep noncompetes for now or eliminate them. In 2023, a bipartisan group in Congress introduced the Workforce Mobility Act, which, if adopted, would also ban noncompetes across the U.S.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
To find out the ins and outs of noncompete clauses, I consulted with attorney Steven Kelly, former associate commissioner with the New York City Department of Consumer and Worker Protection. He is an instructor with Ontario, Canada-based LearnFormula, which provides continuing education and professional-development podcast courses.
Q: What is a noncompetition agreement?
Kelly: Preventing an ex-employee from competing with an employer has been a real issue going back — literally — hundreds of years. Typically, a noncompete is a clause in a contract, signed at the start of employment, that prohibits the employee from competing with the employer directly or indirectly for a specific duration of time and in a certain geographic area, after their employment has ended. If one party breaches the agreement, they may have to pay damages or cease certain activities.
Q: When does a noncompete make sense?
Kelly: This issue comes up instinctively where we have a highly skilled employee, and the company has invested thousands of dollars into their training. The employer does not want them to leave after benefiting from the training. A noncompete is reasonable and certainly makes sense in these situations, most business owners would say. Additionally, many employment contracts have a Training Repayment Agreement (TRA) that require repaying the cost of training if they leave the job before the end of a certain period. TRAs are often a take-it-or-leave-it proposition: No signed TRA, no job.
Q: How does this affect non- or low-skilled workers?
Kelly: Noncompetes are also being used with millions of non- or low-skilled workers who do not make very much money and are often unaware of being bound by one. This includes hairstylists, security guards, fast-food workers. For the benefit of their family, they would like to be more mobile and find a better-paying employer. This obviously makes no sense to most people, and noncompetes in these areas are being targeted at the state and federal level as being harmful to the individual worker, and our economy, by restricting mobility and keeping wages low.
Q: What does a noncompete clause look like?
Kelly: We all know the saying, “If it looks like a duck, quacks like a duck, it’s a duck,” and the same thing applies to noncompetes. First of all, it does not need to be a separate document that is entitled “Noncompetition Agreement.” Often, it is a paragraph buried within the onboarding package and might say, “Upon leaving the company, the employee is prohibited from working for another organization in the same industry or which competes with the employer within 100 miles for one year.”
Business owners must be well informed
Kelly makes it clear that employers need to be aware of the legal issues “that are evolving day-by-day,” adding, “There are several ways to be kept up to date, beginning with trade associations that are constantly monitoring developments at the state and federal levels, online research and scheduling a consultation with an employment attorney who represents business owners.”
He concluded our interview with a word of caution: “You need to be up to date with this stuff, as a violation could lead to expensive litigation. Yes, lawyers can be a cost you would like to avoid, but this is such an important issue and absolutely requires being kept informed.”
For lawyers, accountants and other professionals needing continuing-education credits, I recommend spending time on the LearnFormula website, which also provides info on this topic.
Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.
Related Content
- Is Someone Sabotaging Your Company? Is It You?
- What Happens When Bosses Heap Praise Only on Their ‘Stars’?
- Are You an Emotional Miser With Your Employees?
- Older Doctor Just Wants to Work, But New HR Boss Changes the Rules
- What Not to Do if You Join Your Family Business
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, "You and the Law." Through his column, he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."
-
Rally Fades on Mixed AI Revolution News: Stock Market Today
All three main U.S. equity indexes opened higher but closed lower as a seven-session winning streak for the S&P 500 came to an end.
-
Stretch Your Holiday Shopping Budget Further with These Under-$50 Gifts That Don't Feel Cheap
Amazon October Prime Day is the perfect chance to nab some under-$50 gifts that feel more expensive than they are (because normally they would be).
-
The Spendthrift Trap: Here's One Way to Protect Your Legacy From an Irresponsible Heir
A spendthrift clause in an estate plan can protect an inheritance from a financially irresponsible child's debts and poor decisions.
-
Adapting to AI's Evolving Landscape: A Survival Guide for Businesses
Like it or not, AI is here to stay, and opting out could be disastrous for your organization. Instead, focus on what you can control and be flexible, as AI is still evolving.
-
Striking Gold (or Gas): A Financial Pro Unpacks the Nuances of Energy Investing
Investing in the energy industry, particularly oil and gas, involves understanding the facts about how projects generate returns through cash flow and long-term asset building, while also being aware of the risks.
-
Escaping the New Golden Handcuffs: A Financial Expert Has a Plan for Today's Executives
Feeling stuck in your job? It could be your complicated compensation package, but it also could be where you live, your family or even how you view yourself.
-
I'm a Financial Planner: Here's How to Invest Like the Wealthy, Even if You Don't Have Millions
Private market investments, once exclusive to the ultra-wealthy and institutions, have become more accessible to individual investors, thanks to regulatory changes and new investment structures.
-
Four Ways a Massive Emergency Fund Can Hurt You More Than It Helps
Saving too much could mean you're missing opportunities to put your money to work. Redirect some of that money toward paying off debt, building retirement funds, fulfilling a dream or investing in higher-growth options.
-
I'm a Financial Planner: How to Dodge a Retirement Danger You May Not Have Heard About
Timing is everything, and sequence of returns risk can mean the difference between a retirement nest egg that's overflowing … or empty.
-
Caring for Aging Parents: An Expert Guide to Easing the Financial and Emotional Strain
Early conversations, financial planning and understanding the progression of care needs can help to mitigate stress and protect family relationships.