Non-compete and severance agreements are two of the most commonly misunderstood documents employees sign during their employment or departure. Whether you’re negotiating exit terms, starting a new job, or trying to protect your business, it’s critical to understand how these contracts impact your legal rights and future opportunities.
At Lforlaw.com, we help employees and employers connect with experienced employment attorneys who can draft, review, and negotiate non-compete and severance agreements in compliance with U.S. labor laws and state-specific requirements.
What Is a Non-compete Agreement?
A non-compete agreement (also known as a covenant not to compete) is a contract in which an employee agrees not to enter into direct competition with their employer—either during employment or for a specified period after leaving the company.
Typical restrictions may include:
- Working for a competitor
- Starting a competing business
- Soliciting former clients or co-workers
- Operating within a specific geographic region
These agreements are designed to protect legitimate business interests such as trade secrets, client relationships, and confidential strategies.
Are Non-compete Agreements Enforceable?
The enforceability of non-compete agreements varies widely by state. While some states allow them under strict conditions, others—like California, Oklahoma, and North Dakota—ban them almost entirely in most employment contexts.
In states where they are allowed, courts generally look at:
- Reasonableness of time duration (e.g., 6–24 months)
- Geographic scope (local vs. nationwide)
- Nature of restricted activity (whether it’s too broad)
- Legitimate business interest being protected
- Balance of power (was the employee forced to sign under pressure?)
If the court finds the agreement to be overly restrictive or unfair, it may refuse to enforce it—or modify it under the “blue pencil rule.”
What Employees Should Know Before Signing a Non-compete
- Ask for time to review the document with an attorney before signing.
- Understand how the clause might limit your future job opportunities.
- Negotiate narrower terms—shorter durations, smaller geographic scopes, or limited industry focus.
- Ask whether a garden leave or compensation clause exists (e.g., will you be paid during the non-compete period?).
- Remember that NDAs (non-disclosure agreements) and non-solicitation clauses may offer your employer protection without being as restrictive as a full non-compete.
What Is a Severance Agreement?
A severance agreement is a contract offered to an employee at the end of their employment, often in exchange for a waiver of certain rights or claims. Severance agreements typically include:
- A lump-sum payment or continued salary
- Payment of unused vacation or PTO
- Extended health insurance (COBRA coverage or stipends)
- A general release of claims (e.g., agreement not to sue the employer)
- Confidentiality and non-disparagement clauses
- Return of company property
- Enforcement of existing agreements (e.g., NDA or non-compete)
Employers are not generally required to offer severance—unless previously agreed to in a contract or company policy. When they do, they often seek legal protections in return.
Why You Should Have a Lawyer Review a Severance Agreement
Many severance agreements contain legal jargon that limits your rights. Before signing:
- Understand what you’re waiving — including your right to sue for wrongful termination, discrimination, or unpaid wages.
- Evaluate the fairness of the compensation offered in exchange.
- Negotiate better terms — more money, longer COBRA support, removal of non-compete language.
- Assess tax implications of lump-sum payments or deferred compensation.
In some cases, the agreement may include unenforceable or overly broad terms—like “forever” non-disparagement clauses or aggressive intellectual property provisions.
If you are over 40 years old and being asked to waive rights under the Age Discrimination in Employment Act (ADEA), federal law requires:
- 21 days to consider the agreement
- 7 days to revoke your acceptance after signing
- Clear, written notice of these rights in the agreement
Employer Considerations
Employers benefit from clearly drafted non-compete and severance agreements to:
- Protect client relationships and trade secrets
- Minimize risk of litigation
- Prevent public criticism or reputational harm
- Encourage smooth transitions with departing employees
However, overreaching or poorly written contracts can backfire—leading to legal challenges, regulatory scrutiny, or brand damage.
Employers should work with legal counsel to ensure their contracts are:
- Enforceable under state law
- Narrowly tailored to protect legitimate business interests
- Compliant with federal employment laws (EEOC, WARN Act, ADEA, etc.)
- Supported by adequate consideration (e.g., payment or benefits)
What Happens If You Violate a Non-compete?
If an employer believes you’ve violated a non-compete clause, they may:
- Send a cease and desist letter
- File a lawsuit seeking injunctive relief or damages
- Pursue action against your new employer for interference
But not all non-competes are enforceable—and many are successfully challenged in court.
If you’re being threatened or sued over a non-compete, don’t wait. Contact an attorney immediately to evaluate your defense and protect your livelihood.
Lforlaw.com Helps You Negotiate with Confidence
Whether you’re reviewing a non-compete agreement in a new job offer or being presented with a severance package after termination, the legal and financial implications are too important to ignore. At Lforlaw.com, we connect you with attorneys who can explain your rights, negotiate fairer terms, and defend you if disputes arise.
For personalized legal guidance and assistance with non-compete or severance agreements, contact us today.
