Non-competes, arbitration clauses, and collective bargaining agreements are three of the most consequential contracts in US employment. They sit in different parts of the workforce, they are governed by different laws, and they land on the recruiter's desk in different ways, but they show up together in most enterprise handbooks. This guide explains each in plain terms, flags the state-by-state landscape that matters most in 2026, and points to where each one intersects with the hiring workflow.
The pages currently ranking for these terms are dominated by legal directories and encyclopedic references. They are accurate, but they are written for law students, not for HR operators trying to decide what to put in a US offer letter this quarter. This is the operator's version.
What each agreement actually is
Non-competes, arbitration clauses, and collective bargaining agreements all restrict or govern what an employee can do, but they come from three different bodies of law and serve three different purposes. Non-competes are individual restrictive covenants signed at hire, governed by state contract and common law. Arbitration clauses are dispute-resolution provisions, often embedded in an offer letter or handbook, governed federally by the Federal Arbitration Act (FAA) and interpreted state by state. Collective bargaining agreements are group contracts between an employer and a union, negotiated under the National Labor Relations Act (NLRA) and enforced by the National Labor Relations Board (NLRB). Understanding which one applies to which situation is the first compliance move: they are not interchangeable, and treating them as if they were is how enforceability defects creep into an offer stack.
Non-compete agreements
A non-compete agreement is a written promise that restricts a worker from taking a competing job or starting a competing business for a defined period after leaving the employer. It is a form of restrictive covenant, sitting alongside non-disclosure agreements (NDAs), non-solicitation agreements, and garden-leave clauses. Its stated purpose is to protect a legitimate business interest, most commonly trade secrets, confidential customer information, or specialized training the employer paid for. Its practical effect on the labor market has been controversial for a decade, and the last two years have been especially turbulent: the Federal Trade Commission voted to ban most non-competes in April 2024, a federal court struck the rule down in August 2024, and the FTC dropped its appeal in 2025. That returns the question to where it was before, which is state law.
What is a non-compete in practice
The typical non-compete restricts three things: the type of work (usually "in competition with the employer"), the geography (a state, a metro, a customer list), and the duration (six months to two years is common). Courts test each of these for reasonableness. A national, five-year non-compete on a junior engineer will not survive review in most states; a six-month, in-state non-compete on a senior salesperson with a client book will. SHRM's employment law tracking reflects how much the rules move at the state level.
State-by-state enforceability
State treatment of non-competes ranges from outright prohibition to reasonableness review to statutory salary floors. The table below summarizes the current landscape at a high level. It is not legal advice, and specific state rules move faster than any blog post. Verify against your state's most recent statute before drafting.
| Treatment | Representative states | What it means for employers |
|---|---|---|
| Prohibited or void | California, Minnesota, Oklahoma, North Dakota | Non-competes are unenforceable regardless of what the employee signed. Use NDAs and trade-secret protection instead. |
| Salary threshold applies | Washington, Illinois, Virginia, Colorado, Oregon, Massachusetts, Maryland, Rhode Island, New Hampshire | Non-competes are only enforceable above a defined salary or wage floor. Below the threshold they are void. |
| Reasonableness review | Most other states (Texas, Florida, New York, Georgia, Ohio, Pennsylvania, and others) | Enforceable if reasonable in scope, geography, and duration, and supported by consideration. Courts may reform overbroad clauses. |
Alternatives when a non-compete will not hold
In states that void non-competes, and for roles below salary thresholds, employers rely on other restrictive covenants that are more consistently enforced. Non-disclosure agreements protect confidential information. Non-solicitation agreements restrict a departing employee from contacting former clients or coworkers. Garden-leave clauses pay the employee to stay off the market during a notice period. Trade-secret protection under state and federal law provides a remedy without any signed restrictive covenant, provided the employer treated the information as a secret in the first place.
Arbitration clauses
An arbitration clause is a written agreement, often embedded in an offer letter, standalone arbitration agreement, or employee handbook, that requires the parties to resolve disputes through private, binding arbitration rather than in court. The clause is governed federally by the Federal Arbitration Act, and the Supreme Court has consistently held it enforceable in employment contracts, with two important carve-outs added in 2022. Arbitration is not the same as mediation (non-binding) or litigation (public). It is a formal proceeding with a neutral arbitrator, written award, and limited grounds for appeal.
Define arbitration in the employment context
In the employment context, an arbitration clause typically requires that any claim between employer and employee, wage disputes, discrimination claims, wrongful termination, and so on, be arbitrated instead of filed in court. Many clauses also include a class-action waiver, requiring individual rather than class-wide claims. The result is faster and more confidential resolution, but with less discovery, no jury, and narrower appeal rights than a court proceeding.
The two big carve-outs from 2022
Two federal laws passed in 2022 narrowed the scope of what an arbitration clause can cover:
- The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act gives an employee alleging sexual assault or sexual harassment the right to reject a pre-dispute arbitration clause and file in court instead.
- The Speak Out Act prohibits pre-dispute nondisclosure and non-disparagement provisions that would prevent an employee from disclosing sexual assault or harassment.
Both apply regardless of what the arbitration clause says. An employer with a broad arbitration clause needs to know these two claims sit outside it.
What HR and legal usually decide together
Deciding whether to require arbitration is a policy call, not a compliance question. The tradeoffs are real. Arbitration keeps disputes private and typically resolves faster, but public court rulings can also be strategically useful, and mandatory arbitration has become a talent-brand issue for candidates who read hiring pages carefully. This is one where legal counsel should own the drafting and HR should own the disclosure at offer stage. Our code of conduct and personnel files guide covers where arbitration clauses typically live inside the broader handbook.
Collective bargaining agreements
A collective bargaining agreement (CBA) is a contract between an employer and a union that represents a defined group of employees (the "bargaining unit"). It covers wages, hours, benefits, discipline, grievance procedures, and other terms and conditions of employment for the group as a whole. Unlike a non-compete or an arbitration clause, a CBA is negotiated and applies collectively, not individually. It sits under a distinct legal regime: the National Labor Relations Act for most private-sector employers, the Railway Labor Act for airlines and railroads, and state public-employment law for state and municipal workers. The NLRB's public guidance on collective bargaining is the authoritative reference for the private-sector process.
How the collective bargaining process works
The process has four broad stages, each governed by the good-faith bargaining obligation under the NLRA:
- Recognition. The union is recognized as the exclusive representative of the bargaining unit, either through an NLRB-supervised election or voluntary recognition after a card-check.
- Negotiation. The union and the employer bargain in good faith over mandatory subjects (wages, hours, working conditions) and, if both agree, permissive subjects.
- Ratification. The tentative agreement is submitted to the union membership for a ratification vote.
- Administration. During the contract term, disputes are handled through a written grievance procedure, usually ending in labor arbitration if the parties cannot resolve them internally.
Where CBAs intersect with non-competes and arbitration
CBAs frequently override or displace both non-competes and individual arbitration agreements for covered employees. If the CBA has its own grievance-and-arbitration procedure, that is typically the exclusive remedy for disputes over the CBA's terms. And most unionized workforces (especially in industries like manufacturing, transportation, and hospitality) are outside the non-compete conversation entirely; the union contract is doing that governance work instead.
Non-union employers still have NLRA obligations
The NLRA protects "concerted activity" (two or more employees discussing pay, working conditions, or workplace issues) even at non-union employers. A well-known example is that a handbook rule prohibiting employees from discussing their pay with each other is generally unlawful under Section 7 of the NLRA, regardless of union status. HR teams sometimes miss this because "NLRA" reads as a union statute; it is not.
Where these three intersect with the hiring workflow
Each of these three agreements shows up at a different point in the hiring workflow, and each creates a different kind of recruiter risk. Non-competes typically enter the picture when hiring from a competitor: the new hire may still be under a covenant from the previous employer, and the recruiter or hiring manager who ignores it can pull the company into tortious interference exposure. Arbitration clauses enter at offer, usually bundled into the offer letter or a companion agreement, and need to be presented so the candidate can actually read and understand them before signing. Collective bargaining considerations enter earlier, in job design: a role posted for a location covered by a CBA has to be posted at the CBA rate and reflect any union-negotiated terms. All three sit inside the same compliance surface as pay transparency, ban-the-box, and I-9 verification, which is why they get grouped in a single guide.
How Fabric fits into the compliance picture
Fabric is an AI interview platform. Recruiters connect Fabric to LinkedIn Jobs, an existing ATS, or upload candidate profiles, and Fabric's AI agents handle sourcing, outreach, screening, and Round 1 interviews. Fabric does not draft, review, or interpret restrictive covenants, arbitration clauses, or collective bargaining agreements. Those are legal instruments that live outside the interview loop, with counsel and HR. Where Fabric does contribute to the compliance picture is upstream of any of these agreements: it produces a structured, recorded, and consistently scored Round 1 record for every candidate, which is the audit trail that anti-discrimination law and state AI-hiring rules ultimately measure hiring decisions against.
Fabric's Interview Engine screens, scores, and shortlists. It does not decide. The recruiter or hiring panel using Fabric remains responsible for every hiring decision, including any decision to require or waive a restrictive covenant at offer.
Fabric's cheating detection is designed to flag AI-assisted answers during interviews and surface them to your recruiter. It is a signal for your team to weigh, not an automatic reject.
Building a defensible employment-agreement stack
A workable employment-agreement stack is layered and jurisdiction-aware, not one template stamped across every hire. The layers are:
- A state-specific offer letter that includes only the restrictive covenants enforceable in that state.
- An NDA that protects trade secrets and confidential information regardless of state, because trade-secret law does most of the work non-competes are asked to do.
- An arbitration agreement (if the employer chooses arbitration) that is disclosed at offer, references the two 2022 carve-outs, and is signed as a separate document rather than buried in a handbook.
- A CBA acknowledgment for any role covered by a union contract, confirming the new hire has received and reviewed the current agreement.
- A compliance calendar that flags state statute changes (salary thresholds, pay transparency, non-compete reform bills) with enough lead time to update templates.
Teams that operate across multiple states or countries usually build this as a jurisdiction matrix, one row per state, one column per agreement type. Our EOR vs PEO guide explains where employment-of-record providers pick up some of that jurisdiction work for cross-border hires.
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- Employee Code of Conduct & Personnel Files: Best Practices
- Exempt vs. Non-Exempt Employees: What's the Difference?
- EOR vs. PEO: Global Employment Models Compared
FAQ
Are noncompetes now illegal?
Not federally. The FTC's 2024 rule banning most non-competes was blocked in court and the FTC dropped its appeal in 2025, so enforceability is back to state law, where California, Minnesota, Oklahoma, and North Dakota prohibit them and most others allow reasonable ones.
How does a non-compete agreement work?
A non-compete restricts a worker from taking a competing role or starting a competing business for a defined period after leaving. Enforceability depends on state law, the scope of the restriction, and whether the employer had a legitimate business interest to protect.
Do non-competes really hold up in court?
Sometimes. Courts enforce narrowly drawn non-competes (limited duration, defined geography, a real trade-secret or client-list interest) and reject or rewrite overbroad ones, with enforcement varying sharply by state.
Can you say no to a non-compete?
Yes, though refusing may cost the offer if the employer requires it. In states with pay-threshold rules (Washington, Illinois, Virginia, Colorado, Oregon), a non-compete below the salary floor is unenforceable regardless of what the employee signed.
What is a non-compete agreement for an employee?
It is a written promise not to work for a competitor or start a competing business for a set time after leaving. It is separate from an NDA (which protects information) and a non-solicitation agreement (which limits contacting clients or coworkers).
What is the difference between arbitration and collective bargaining?
Arbitration is a private, binding dispute-resolution process that resolves an individual claim outside court. Collective bargaining is the ongoing negotiation between an employer and a union about wages, hours, and working conditions for a group of employees.
Does a collective bargaining agreement override a non-compete?
Usually yes for covered employees. If the CBA has its own grievance-and-arbitration procedure and covers post-employment restrictions, that is typically the exclusive remedy, and individual non-competes are often displaced or unused in unionized workforces.