Non-Compete Clause in Partnership Agreements
Updated May 2026. Non-compete enforceability varies dramatically by state. The 2024 FTC rule was vacated; state law continues to govern. This page covers the reasonableness framework, the California prohibition, the partnership-specific exceptions, and the drafting that holds up. General legal information, not legal advice.
General information, not legal advice. Non-compete enforceability is state-specific and the law is changing. Verify current state law and consult counsel before signing.
Three Categories of Partnership Non-Compete
Partnership non-compete clauses come in three flavours, each with different enforceability:
| Type | Triggered by | Enforceability |
|---|---|---|
| During-partnership non-compete | Operates while partner is in the partnership | Generally enforceable as a fiduciary-duty extension; even California allows it |
| Post-departure non-compete | Operates after a partner withdraws or is bought out | State-dependent; California voids it, most other states enforce if reasonable |
| Sale-of-business non-compete | Operates when seller sells partnership interest to remaining partners or third party | Broadest enforceability; even California permits per Bus. & Prof. Code §16601 in connection with sale of goodwill |
The reason for the difference: a during-partnership restriction is essentially a restatement of the partner’s fiduciary duty of loyalty to the partnership. A post-departure restriction is a contractual limit on the former partner’s ability to compete in their chosen field, which courts scrutinise more carefully. A sale-of-business restriction protects goodwill that the buyer paid for, which courts treat as a legitimate property interest deserving broader protection.
The Reasonableness Test
In states that permit non-competes (which is most), courts apply a three-part reasonableness test:
- Legitimate business interest. The restriction must protect a legitimate interest such as trade secrets, confidential information, customer relationships, or goodwill paid for in a partnership buyout. Simply preventing competition is not a legitimate interest; the restriction must be tied to something the partnership has a right to protect.
- Reasonable scope. The restriction must be reasonably limited in geography (the area where the partnership actually does business), in time (typically 1-3 years for ordinary partnerships, longer with sale of business), and in activity (the type of work or industry, not broader than necessary).
- Reasonable consideration. The partner must have received something of value in exchange for the restriction. In a partnership context, the consideration is usually the partnership interest itself, the buyout payment, or continued employment with the partnership. Bare promises without consideration are unenforceable.
Beyond the three-part test, several states have specific statutes that limit non-competes for certain professions (physicians in some states), require advance notice (Massachusetts requires 10 days’ notice), require garden-leave or post-termination payments (Massachusetts Garden Leave Act), or limit application to high-wage workers only (Washington State).
The California Position
California is the most aggressive state in voiding non-competes. Bus. & Prof. Code §16600 provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void,” with narrow exceptions in §§16601-16602.5. The §16600 prohibition has been broadly construed by California courts (Edwards v. Arthur Andersen, 44 Cal. 4th 937 (2008)) to invalidate not only formal non-compete clauses but also any contractual provision having the effect of restraining post-employment competition.
The principal exception relevant to partnerships is §16601, which permits non-compete agreements in connection with sale of goodwill (including sale of a partnership interest). Under §16601, a person who sells the goodwill of a business or all of an ownership interest in a business entity may agree to refrain from carrying on a similar business within a specified geographic area, “so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein.”
For partnerships, this means: a non-compete tied to the sale of a partner’s interest (buyout, exit, dissolution) is enforceable in California within reasonable geographic and temporal limits. A non-compete that operates merely on departure from the partnership without an associated sale is void.
As of 2024, California amended Bus. & Prof. Code §16600.5 to require employers to notify current and former employees whose contracts contain unenforceable non-competes that the non-competes are void. Violations carry statutory damages of $2,500 per employee. The amendment further strengthens California’s anti-non-compete posture.
Sample Non-Compete Clause (Reasonable Form)
Non-Solicitation: The Safer Alternative
A non-solicitation clause restricts only the solicitation of specific customers and employees, leaving the former partner free to compete generally. Most states enforce reasonable non-solicitation clauses without the close scrutiny applied to non-competes, and even California enforces non-solicitation of customers to the extent necessary to protect trade secrets (though California voids most other forms).
For many partnerships, particularly professional service firms, non-solicitation is the right answer. The partnership’s genuine concern is usually that a departing partner will take the partnership’s clients with them, not that the partner will start a competing firm in the same town. Non-solicitation directly addresses the genuine concern; non-compete addresses a broader concern that is harder to enforce and harder to justify.
Non-solicitation clauses typically run 12-24 months, cover customers with whom the former partner had material contact during a defined lookback period (commonly 12 months), and prohibit hiring of partnership employees who were employed during a defined lookback period. The drafting is similar to the non-compete clause but narrower in operative restriction.
State Survey (Selected)
| State | Standard non-compete | Sale-of-business non-compete |
|---|---|---|
| California | Void per Bus. & Prof. Code §16600 | Permitted per §16601 |
| Oklahoma | Void per 15 Okla. Stat. §219A | Permitted under specific statute |
| North Dakota | Void per N.D.C.C. §9-08-06 | Permitted |
| Texas | Permitted if reasonable; statutory framework Tex. Bus. & Com. Code §15.50 | Permitted; broader latitude |
| Florida | Permitted if reasonable; Fla. Stat. §542.335 specifically authorises and provides framework | Permitted; longer durations enforceable |
| New York | Permitted if reasonable; common-law test (BDO Seidman v. Hirshberg) | Permitted |
| Delaware | Permitted if reasonable; common-law test | Permitted |
| Massachusetts | Permitted but heavily regulated by Garden Leave Act (2018), requires advance notice and garden-leave consideration | Permitted |
| Washington | Permitted for high-wage workers only; specific statutory limits (RCW 49.62) | Permitted |
| Minnesota | Post-July 2023 non-competes void per Minn. Stat. §181.988 | Permitted |
The map is unstable; several states have considered (and may yet adopt) bans following Minnesota’s 2023 statute. Drafting should include reformation clauses (above) so courts can narrow rather than void.
Authoritative Sources
- California Bus. & Prof. Code §16600. California Legislative Information.
- California Bus. & Prof. Code §16601 (sale-of-goodwill exception).
- California Bus. & Prof. Code §16600.5 (2024 amendment, notice and damages).
- Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008).
- FTC Final Rule on Non-Compete Clauses, 16 C.F.R. Part 910 (vacated by Ryan LLC v. FTC, N.D. Tex. Aug. 2024). FTC.
- Massachusetts Noncompetition Agreement Act, Mass. Gen. Laws ch. 149, §24L (2018).
- Minn. Stat. §181.988 (July 2023 non-compete ban).
FAQ
Are partnership non-compete clauses enforceable?
It depends on the state and the scope. Most states enforce reasonable post-partnership non-competes, applying a three-part test: legitimate business interest, reasonable scope (geographic and temporal), and reasonable consideration. California is a notable exception that voids most non-compete clauses under Bus. & Prof. Code §16600. Several other states (Oklahoma, North Dakota, Minnesota in part) have similar prohibitions or strict limits. Partnership non-competes are generally more enforceable than employment non-competes because partners have more bargaining power and receive consideration through the partnership itself.
What about the 2024 FTC non-compete rule?
The FTC's final rule banning most non-compete clauses (16 C.F.R. Part 910) was published in April 2024 and was vacated in August 2024 by the U.S. District Court for the Northern District of Texas in Ryan LLC v. FTC. The court held the FTC lacked statutory authority to issue the rule. The decision was on appeal as of 2025. The FTC rule, even when in effect, contained an explicit carve-out for the sale of a business or partnership interest, so the most common partnership-context non-competes (sale of partner's interest, dissolution buyouts) would have remained enforceable. State law continues to be the primary source of non-compete law.
How long can a partnership non-compete last?
Reasonableness varies by state and by partnership type. For professional services partnerships, 1-3 years is the typical reasonable range; courts have upheld up to 5 years in connection with sale of a partner's interest. For operating businesses with significant trade secrets, 2-3 years is common. Periods over 5 years are difficult to enforce in most states unless tied to ongoing payments (e.g. earn-out periods). Permanent non-competes are generally unenforceable except in connection with sale of an entire business. The duration should match the legitimate business interest being protected.
What geographic scope is reasonable?
Reasonable geographic scope is the area where the partnership actually competes. For a local services business (restaurant, dental practice), a 10-25 mile radius is typical. For a regional business, a state or multi-state area is reasonable. For a national business with national presence, the entire country may be enforceable; for an online-only business, geographic limits are sometimes replaced by customer or industry limits. Courts blue-pencil (narrow) overbroad geographic clauses in many states; in California and a few other strict states, an overbroad clause may be void entirely with no narrowing.
Are non-solicitation clauses easier to enforce than non-competes?
Yes, in most states. Non-solicitation clauses (prohibiting solicitation of clients and employees) are narrower and generally seen as less restrictive of competition. California enforces customer non-solicitation clauses to protect trade secrets but voids the broader restriction. Most other states enforce reasonable non-solicitation clauses without close scrutiny. Many partnerships rely primarily on non-solicitation rather than non-compete clauses to protect business relationships while leaving the departing partner free to work in the industry.
Draft a Defensible Non-Compete
State-specific drafting matters here. Use the builder for a starting point, then have local counsel review.