Can I Be Fired for Refusing to Sign a Non-Compete Agreement?
The enforceability of non-competes varies by state and circumstances
By Andra DelMonico, J.D. | Reviewed by Canaan Suitt, J.D. | Last updated on June 13, 2024 Featuring practical insights from contributing attorney Justin D. CumminsUse these links to jump to different sections:
- What Are Non-Compete Agreements?
- Are Non-Competes Enforceable?
- FTC Banning of Non-Compete Agreements
- When Can I Refuse to Sign a Non-Compete?
- Other Ways Employers Can Protect Confidential Information
- What To Do if You Were Fired for Refusing to Sign a Non-Compete Contract
- Find an Experienced Employment Lawyer
A business wants to protect its assets and ensure its future financial growth. Employees want to progress in their careers. Most of the time, these two goals align. However, a business faces potential vulnerability when key employees leave. To address this, many businesses look for ways to insulate themselves from risk. One of these ways is to have employees sign non-compete agreements. However, these agreements restrict former employees’ ability to choose their next position freely.
“These kinds of restrictions prevent or impede people from moving to a different place where they have more opportunities, which interferes with the exercise of their legal rights under the National Labor Relations Act,” says Justin Cummins, an employment litigation attorney for Cummins & Cummins, LLP in Minneapolis, Minnesota. This leads employees to question their right to refuse to sign.
What Are Non-Compete Agreements?
The agreement is a legal tool under employment law. It can be a restrictive covenant in an employment contract or an independent contractual agreement separate from the employment agreement. The purpose of a non-compete agreement is to prevent employees from working for a competitor immediately after leaving a business. It can also prevent former employees from speaking to clients or sharing proprietary information.
Companies ask their employees to sign non-competes to protect the business and its proprietary information. This confidential information could include customer lists, trade secrets, and internal business practices.
The agreement will typically include a specific time period, geographical area, and particular types of activities. A common time restriction is two years. A common geographic scope is the immediate area where the company does business.
Are Non-Competes Enforceable?
No clear yes or no answer applies to all non-competition agreements. No federal law makes non-compete agreements illegal. Instead, each state has its own laws that define their enforceability.
1. States That Ban Non-Compete Agreements
Five states completely ban non-compete agreements. The presumption is that they are void. The business seeking to enforce them would need to prove that they fall within the law’s exceptions.
- California
- Colorado
- Oklahoma
- North Dakota
- Minnesota
2. States That Restrict the Use of Non-Competes
Nine states allow non-compete agreements but place strong limitations on their use. In these states, non-compete agreements must comply with strict use standards. Otherwise, they could be deemed too restrictive and, therefore, void.
- Colorado
- Illinois
- Maine
- Maryland
- New Hampshire
- Oregon
- Rhode Island
- Virginia
- Washington
More states are considering this route, and several are voting on proposed legislative changes. The outcome of the legislative process in these states may change how current and future non-compete agreements are enforced:
- Massachusetts
- Michigan
- New York City
- Wisconsin
Cummins explains why so many states have prioritized the restriction or outright banning of non-compete agreements: “It really goes to the heart of people being able to earn their living for themselves and their family.”
3. States that Allow Non-Competes
In states where non-compete agreements are allowed, states will take a conservative approach to enforcing them. As a matter of public policy, a former employer can’t be too restrictive with their non-compete agreements. Highly restrictive non-competes prevent people from being able to find gainful employment in their chosen industry.
Individually, this hinders someone’s ability to support their family by using the knowledge, skills, and experience they have gained. On a larger scale, non-competes hinder industry progress and innovation. If people can’t work for another company in the industry, they will move to a different one. This overly restrictive approach can be seen as exploitative, hindering employees’ autonomy over their free movement.
For a non-compete to be enforceable, it must address legitimate business interests directly. There must be a genuine need to protect proprietary information unique to the business. It also needs to balance protecting legitimate interests with not imposing undue hardship on the employee. It cannot cause harm to the public. It also needs reasonable limits on scope, such as the period after the employee leaves and the geographic area.
Many courts will examine the employee’s role within the business and the company’s interests to determine enforceability. What is reasonable for one business may not be for another. In addition, what is reasonable for one employee may not be for another within the same business. Speaking with an employment lawyer can be helpful, as their legal advice can help you better understand your legal rights.
FTC Banning of Non-Compete Agreements
A significant change took place in May 2024, with the Federal Trade Commission (FTC) voting in favor of banning non-compete clauses. The agency deemed the use of non-competes to be unfair business practices. This final rule impacts all businesses subject to FTC oversight. The ruling applied to full-time and part-time employees, unpaid workers, and independent contractors.
The ban doesn’t apply to all non-compete contracts, though. Under the ruling, existing non-compete contracts with senior executives can remain. Senior executives are defined as employees making over $151,164 annually and directly involved in company-wide policy decision-making.
Cummins points out that while the FTC’s bold stance is powerful, it will face strong opposition that can impact its enforcement. However, this change signals greater potential for employees to stand up for their legal rights. “I think it will be a while before the [FTC] litigation is sorted out, and it may very well go all the way to the U.S. Supreme Court. The fact that this really important federal enforcement agency looked at this issue carefully, solicited public comments, did a rigorous analysis, and ultimately concluded that this is contrary to public policies and established law and must stop—that strengthens the hand of an employee who has to defend themselves against a non-compete lawsuit.”
When Can I Refuse to Sign a Non-Compete?
Generally, a new employer will ask employees to sign a non-compete agreement when hiring. It will be part of the onboarding contracts and paperwork. While many states make it illegal to require employees to sign a non-compete agreement, it is not illegal to rescind the new job offer because of a refusal to sign. If you do not want to sign the agreement, you have every right to do so. However, the consequence may be that you aren’t the right fit for that company.
In some situations, companies ask current employees to sign a non-compete agreement. Current employees can refuse to sign, and a business may decide to terminate an employee who refuses to sign. An employee may, though, have a discrimination or wrongful termination case.
A business could craft an overly restrictive non-compete agreement that no one would be able to sign. It could only ask targeted employees to sign the agreement. Then, when the employees obviously say no, they are laid off. The business may employ discriminatory behavior against those individuals who refuse to sign. The company will fabricate reasons to fire these individuals so they can fire them soon after refusal.
Other Ways Employers Can Protect Confidential Information
Employers have multiple options for protecting their business that do not require the use of non-compete agreements. A non-disclosure agreement places restrictions on individuals. This type of agreement restricts the information, not the person. It serves to create a layer of protection for proprietary information. A non-solicitation agreement can prevent former employees from approaching a company’s clients, protecting a business’s relationship with its customers and clients.
What To Do if You Were Fired for Refusing to Sign a Non-Compete Contract
You might have a wrongful termination claim if you were fired for refusing to sign a non-compete agreement. Keep detailed records of your interactions with the company, the non-compete agreement, and anything else related to your employment termination.
Speaking with an employment lawyer about your potential wrongful termination can help you determine if you have a case. The attorney will review the circumstances surrounding your wrongful termination refusal and subsequent termination.
Cummins highlights that speaking with a lawyer before your employer terminates you can be helpful. An employment law attorney can provide legal advice on how to best handle the situation to protect your rights in accordance with the laws of your state. “I would advise my client to say in writing that non-compete agreements are illegal in Minnesota, and they are objecting to an illegal provision. This potentially triggers protection under federal labor law and state whistleblower law. They should also state that they are doing this on behalf of themselves and their coworkers.”
Find an Experienced Employment Lawyer
Workers should not feel pressured to sign a non-compete contract. While they can be useful in certain industries and situations, they are not a one-size-fits-all solution. Because enforceability is fact-specific, speaking with a lawyer can provide valuable insight. Schedule a consultation with a lawyer who practices in your area and represents clients in wrongful termination cases.
Encourage readers to seek legal advice from an experienced employment attorney who handles wrongful termination cases. Learn more about your situation by reading our reviews on proving wrongful termination and legal rights after termination.
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