Non-Compete Agreement: A Checklist Before Signing

Information

14 Apr 2026

Date of publication

IT contracts

(Non-)Competition?

Experienced professionals usually sign agreements with clients and employers who try to retain them with excessive penalties without much worry. Besides the deterrent in the form of penalties, clients and contractors weigh the risk of sharing too many insider details with their own employees, lest they inadvertently create a powerful competitor with their own hands.

When the desire to protect one’s share of the market overcomes the contractor’s or employee’s fear of limiting their own freedom, the parties sit down at the negotiating table to sign a non-compete agreement (NCA).

Some of your friends and colleagues have certainly signed an NCA at least once (outwardly calm, but always mentally crossing their fingers — “but what if”), while viewers of legal webinars and readers of articles have long been convinced that these agreements are not enforceable in Ukraine.

But is that really the case?

Ukraine vs. the World

How often does a standard service agreement or employment contract contain a one-size-fits-all clause copied from American contracts!

“The Contractor (Employee) undertakes not to engage in activities analogous to those of the Company, or to participate in projects analogous to the Company’s projects, independently or together with other persons, for __ months/years from the moment of termination of the (employment) contract.”

Ukrainian courts are suspicious of non-compete agreements, prohibiting clients from depriving their counterparts of the right to work and earn a living through their labor (which is protected by the Constitution), or from worsening the employee’s position (which would violate the norms of the Labor Code). And although Ukrainian law does allow recovery of lost profits from a sole proprietor (FOP), holding an employee who is not an executive liable will be difficult, because this is prevented by the prohibition on imposing liability for lost profits on an employee, as enshrined in the Labor Code of Ukraine.

Ukraine is not alone in this approach. A number of American states and European countries also prohibit this practice. Even in jurisdictions where NCAs are permitted, they often barely survive under mountains of restrictions and additional requirements imposed by law and case law.

So employees and contractors are protected from arbitrariness… but what about freedom of contract?

Does it remain merely a declaration?

Not everywhere. In many countries, the freedom to enter into any agreement not prohibited by law extends to non-compete agreements as well. NCAs can be concluded in many countries around the world, and the physical location of your office (or apartment, whichever is more convenient for you) in Ukraine may not save you from unpleasant consequences — simply because (among other factors) subjecting your contract with a client to foreign law (which recognizes such agreements) will most likely make such a non-compete agreement real and valid.

But will the clause we proposed at the beginning of the section be valid?

Under the Hood: What to Write in an NCA

Even if a country does not prohibit non-compete agreements, it almost always comes with restrictions that do not allow the employee or contractor to be deprived of the ability to earn a decent living and conduct business.

These requirements differ from country to country, and therefore lawyers must pay attention to the law governing the NCA. An agreement may be subject to individual restrictions or combinations thereof, so it is important to consider all factors that could even theoretically be relevant to it.

So what restrictions might there be?

Scope of Activity

“The Contractor (Employee) undertakes not to engage in activities in the field of arcade mobile game design, and in particular to refrain from participating in projects for the development and implementation of arcade mobile game design or individual elements thereof, providing consulting on design, and modifying the design of arcade mobile games.”

A number of jurisdictions require specifying which types of professional or business activities must be refrained from — and as precisely as possible. This may be due to many reasons, but the primary one is always the protection of the legitimate interests of the client (employer) or their special rights — confidential information, trade secrets, goodwill and business reputation, intellectual property such as partner lists, regular patients, or customer contact databases. Sometimes only the industry, professional field, analogous position, or specific competitors to whom the employee or contractor is prohibited from moving are indicated.

However, it is important that the non-compete agreement does not impose too heavy a burden and does not deprive the person of the ability to earn a living. That is, an overly broad agreement will most likely either be restricted or declared invalid by the court — and this also covers the requirement not to enter into agreements regarding those types of activities in which the client is not engaged.

It is particularly important that an NCA does not violate public order: if as a result of the non-compete agreement a monopoly position in the market is created, there is hardly any way to avoid such an agreement being declared invalid.

Duration of Restriction

“This Non-Compete Agreement is effective from the moment of conclusion and continues for 10 years after the termination of the Main Agreement.”

Establishing clear timeframes is a key aspect in avoiding the agreement being declared invalid.

A common mistake when drafting non-compete agreements is choosing impressive (and scary) numbers. It is important that this period be reasonable and justified by the need to effectively protect the client’s interests: many countries limit the maximum duration of non-competition — from a few months to 2–3 years in exceptional cases, since market conditions, the level of technological development, and the clientele of the former client or employer change, and they do so fairly quickly.

The duration often also depends on other factors — for example, the position or profession, the length of employment, and even behavior (if an employee or contractor is close to abusing their position, the court or law may reduce the required duration of continuous employment that triggers the NCA).

Sometimes there are also requirements as to when the non-compete agreement takes effect. Here are examples from several jurisdictions:

the agreement takes effect from the moment of termination of the employment contract;
the agreement takes effect from the moment of termination of the employment contract, with or without prior notice;
the agreement takes effect if the employee was dismissed for valid reasons after the probationary period, etc.

In the context of Ukraine, case law suggests that a period exceeding two years may be considered burdensome and contentious. In this context, it is worth referring to the Law of Ukraine “On Stimulating the Development of the Digital Economy in Ukraine,” which recognizes up to 12 months as an acceptable duration of non-competition.

Territory

“The Employee (Contractor) undertakes to refrain from competing with the Company throughout the entire world, including international or foreign space stations, the World Ocean, outer space, as well as when employed by interplanetary missions and embassies.”

States tend to restrict the territory within which competition is prohibited: while some recognize the territory of the entire state, others are reluctant to recognize a radius of a few miles from the former client’s headquarters as permissible. Sometimes the parties are required to agree on a list of cities or regions (districts, counties, federal states, etc.) to which the NCA will apply.

Moreover, a court may declare that the non-compete agreement will only apply in those regions where the employee’s new client would be considered a competitor to the former employer (client) — and this is not an exhaustive list of options.

Financial Compensation

Even if a country allows non-compete agreements, it almost always requires compliance with restrictions to avoid violating the employee’s rights.

For example, in many countries (including Ukraine, pursuant to the Law of Ukraine “On Stimulating the Development of the Digital Economy in Ukraine”), a necessary condition for the validity of an NCA is financial compensation. This is a justified provision: a person who refrains from competitive actions thereby restricts their professional freedom, and therefore compensation helps mitigate the negative consequences of such a restriction (in Poland, for example, this compensation must be at least 25% of the contractual remuneration).

Assignment of NCA

“In the event of a reorganization of the Employer (Client), the rights under this Agreement shall pass to the successor or successors without prior notice and without the consent of the Employee (Contractor).”

Seems fine? Not quite! In some jurisdictions, a company’s seller is prohibited from assigning the rights under a non-compete agreement to the buyer if the employee (contractor) does not provide separate consent.

Governing Law and Place of Conclusion

“This Non-Compete Agreement is concluded in Brussels (Belgium) between a Ukrainian citizen and American Company Ltd. and is governed by the substantive law of the State of Montana, USA.”

The state whose law is used may outright prohibit any restrictive measures that negatively affect trade (and a non-compete agreement is, no matter how you look at it, a restriction of trade). Or case law may not recognize these agreements as valid.

The opposite may also be true: it may be precisely because the contract is governed by the law of another state that the NCA is recognized as valid in a state where such agreements are prohibited. It may be that only agreements concluded within a country will be recognized as concluded and will remain in force. Oops!

Right to Terminate the Non-Compete Agreement

“The parties have the right to terminate the Non-Compete Agreement unilaterally no earlier than 30 days after notifying of the intention to terminate the Agreement.”

It depends solely on the law of the state whether the parties have the ability to terminate an NCA. Sometimes this right is granted to only one party in the form of an option (usually the client). And sometimes the law allows termination only by mutual consent, within a specific timeframe, or only before a certain event.

Liability for Breach of Agreement

“The Employee (Contractor) in the event of a breach of the non-compete agreement undertakes to pay a penalty of ______ US dollars and to compensate all losses and lost profits of the Employer (Client).”

Each state or its court determines at its own discretion whether the employee/counterparty will pay only compensation, or will be required to compensate exclusively for damages caused (or both together) in a given jurisdiction.

It will also be necessary to clarify separately whether the Employee will be released from the obligation to continue to refrain from competition after paying the penalty.

Because it may happen that, despite payment of all monetary sanctions, the Employee is still required to continue to refrain from competition for the duration of the NCA (as another form of liability).

A special case is holding the new employer liable as well: either separately or jointly with the employee. The law may attach significance to whether the new employer knew about the employee’s NCA, and when exactly — before, during, or after employment.

A Way Out of the Impasse

Employees (contractors) of service companies often have close relationships with the company’s clients and other business partners. Therefore, it will hardly be rare for a client to become accustomed to “their” manager (who often has access to sensitive information) and to subsequently orient themselves more toward that person’s own expertise rather than their employer (client).

So it is obvious that if the relevant employee (contractor) leaves the company, the client will not seek services either. In this case, the company can protect its interests not by prohibiting the former employee (contractor) from continuing to work with the former client or competitors, but by applying a buyout mechanism.

This allows the former employee to continue working with clients or using the knowledge and skills acquired through access to the employer’s confidential information, in exchange for compensation to the company.

In this case, the following mechanisms can be applied:

the former employer ties the buyout amount to the number or value of projects that the employee implements in their new job,
fixed payments over a certain period, without restrictions on the type or value of projects and services that the former employee will provide,
offering a buyout to the former employee if the latter has breached the non-compete agreement — a compromise instead of drawn-out litigation and the destruction of professional relationships.

Buyout agreements can also be concluded with the employee’s new employer. Moreover, in some countries there is a practice of the former employer approaching the new one if the employee has breached an NCA with a buyout provision. In such a case, the law and case law may offer the parties, for example, the following three options:

payment of the penalty stipulated in the non-compete agreement — either by the new employer or by the employee with subsequent one-time compensation from the new employer;
joint and several liability of the new employer and the employee in paying the penalty and compensating for losses and lost profits;
payment of the penalty by the employee, but on the condition that the new employer increases their salary and gradually compensates their expenses.

But in many cases, the employee (contractor) is forced to pay the penalty for breaching the NCA independently, without any compensation from their new employer (client).

Buyout provisions may also be in the form of an employee option: if such a request is made, the former employer cannot refuse to accept payment and insist on performance of the agreement.

When to Conclude an NCA?

A non-compete agreement is typically useful when:

agreements are being concluded with a team;
a company is being bought or sold;
commercial agreements are being concluded with suppliers, business partners, and independent contractors.

A former employee or contractor may use information they had access to during their cooperation with the company to compete in the future. This is hardly a dream for any employer (client), and so at some point in the life of every company the thought arises: “What would happen if we added a non-compete agreement to our standard contracts?”

However, before calling all counterparties to offer yet another small agreement, your lawyer will first propose taking ten related steps.

It is precisely these preparations for concluding the ideal non-compete agreement that we will take care of:

1. Identify positions and partners that require an individual approach

A single non-compete agreement template for the entire company will not hold any employee or contractor other than the one for whom the agreement was originally written.

Position, responsibilities, income level, relationships with the company’s clients, even the number of business lines in the company can affect the content and form of the agreement. They should also be reviewed from time to time — legislation can change the approach to trade restriction instruments so significantly within a few months that an outdated non-compete agreement may only create problems.

Thus, the US Federal Trade Commission (FTC) planned in 2023 to ban non-compete agreements (NCAs) nationwide. The FTC’s main argument was that such agreements restrict employee mobility, reduce their earnings, and hinder business development, especially for startups and small businesses. However, the corresponding changes have not yet taken place.

If a non-compete agreement is provided for in a collective agreement, the law may require proof that the employee was aware of such an obligation (which is effectively a separate consent of the employee).

2. Sign NCAs with talented employees

Talented professionals often resign from their positions or leave a company to start their own business. And if your former employees (contractors) had access to clients or trade secrets at their last place of work — the appearance of a threatening competitor in the office across the street will hardly make running a business any easier.

3. Use additional tools to protect your market share

An NCA does not work alone: it is worth considering whether restricting (potential) competition alone is sufficient to prevent the disclosure of confidential information and the loss of regular clients and key employees. These risks are interconnected, so the tools must be complementary. It is better for the non-compete agreement to serve as a safeguard for the company’s internal policies, non-disclosure agreements, and contracts with counterparties, rather than being the only weapon at a critical moment.

4. Sign the non-compete agreement separately from the main contract

This may be required by both laws and case law. Sometimes they are kept separately to ensure confidentiality (both from other employees of the company and from third parties). Another requirement for concluding the agreement is the validity and enforceability of the main contract to which it is attached — and this must also be taken into account when, for example, an employee is dismissed.

5. Do not include non-competition clauses in all standard employment contracts

This may be justified both by compliance with the law — the chosen jurisdiction may have a minimum income threshold below which such agreements are prohibited — and by efforts to maintain a reputation as a caring employer.

In some states, the reference point may be not income but the position or scope of duties.

6. Verify that the employee (contractor) can enter into non-compete agreements

It may be that the legislation either entirely prohibits restricting professional freedom in a certain field, or significantly weakens the effect of concluded NCAs — in terms of the duration of the contract or the ability to terminate it. And the reverse may also be true — only IT specialists may be able to enter into such agreements or extend their duration for several years rather than several months. Additionally, more traditional limitations remain — for example, the age of the employee (usually 16–18 years, although in many countries teenagers may begin working earlier).

7. Review case law

Case law may indicate the invalidity of certain provisions or the agreement as a whole.

Because judges are guided not only by the law but also by their specific rights and limitations: for example, in certain jurisdictions the rules of civil procedure allow the judge, together with the parties, to modify (in a sense, “edit”) the contract, removing or changing individual provisions and leaving the rest valid (this approach is known in English-speaking countries as the “blue pencil” rule, or “bluepenciling”), while other courts are forced to declare the agreement invalid often even in the presence of technical rather than substantive errors.

Therefore, a good practice in preparing a quality NCA is to know which provisions are valid in a given jurisdiction and which are not.

8. Leave the employee an option to exit the agreement

If wishing to compete after the end of the cooperation or, for example, to go work for the client of their former employer, the former employee (contractor) may be quite willing to shorten the contract period and pay a pre-agreed amount in exchange for the termination of such obligations.

Moreover, in some jurisdictions such a provision must be present in the non-compete agreement as required by law or case law.

9. Consider whether you can protect yourself with a less burdensome contract

Sometimes a non-disclosure agreement (NDA) or a non-solicitation agreement in other countries may be viewed as a more flexible approach to protecting business assets (such as a client base): it is known that courts in some US states and Canada often inquire whether it was possible to conclude a less burdensome contract that would achieve an equivalent result, and if the answer is yes — they declare the NCA invalid.

10. Do not forget about statutory liability

Even if you cannot choose a law that would legitimize the non-compete agreement, you can still protect yourself. The law generally still leaves you the right to file claims for breach of confidentiality and intellectual property rights, so that the company can recover at least the damages it has suffered.

Depending on the jurisdiction, the court may also separately hold the employee (contractor) liable for violations of competition rules.

Yet even in such a case, companies still tend to hedge their risks, and the level of protection provided by the law alone does not satisfy them.

Instead of Conclusions

So, if the goal is to retain an employee — it is necessary to draft an agreement that either makes it impossible to work directly for competitors. Both through sanctions and effective provisions on the restriction of scope of activity, and through financial remuneration that the employee (client) can receive for refraining from competition.

Case law in a number of European countries provides that non-compete agreements must:

be justified by the protection of the employer’s legitimate interests;
contain a clearly defined term (for example, in France — no more than 2 years);
define the specific field of activity to which the restrictions apply (for example, “functional and non-functional testing of mobile applications,” not simply “IT services”).

If a non-compete agreement does not meet these criteria, courts may declare it invalid. That is precisely why a non-compete agreement must always be based on mutual respect between the parties and their desire to fulfill their promises.

And the consequence of its conclusion — protecting yourself as an employer (client), and maintaining the loyalty of the employee (contractor) for that unlikely event when their particular knowledge or talents will be vitally necessary for the further development of the business.

Non-Compete Agreement: A Checklist Before Signing

(Non-)Competition?

Ukraine vs. the World