Non-compete agreement

A non-compete agreement — NCA (Non-Compete Agreement) — is used when a business wants to restrict certain competitive activities of an employee, contractor, gig specialist or another person who, during the course of cooperation, gains access to clients, the team, technologies or key business processes.

However, the mere fact that a document is signed under the title “non-compete agreement” does not mean that all restrictions contained in it will automatically be enforceable. The legal assessment depends on the status of the parties, the cooperation model, the scope of the restrictions, the duration, territory, compensation and the law governing the relationship.

It is particularly important to distinguish ordinary employment or civil-law relationships from the special Diia City regime, for which the law expressly establishes separate NCA rules.

What is a non-compete agreement?

An NCA is an agreement under which one party undertakes, for a defined period, to refrain from specific competitive activities in relation to the other party.

In practice, the restrictions may concern, for example:

• working with specified competitors;
• conducting one’s own competing business activities;
• participating in a competing business;
• working with certain clients;
• using competitive advantages obtained during the cooperation.

However, an NCA should not be drafted as an abstract prohibition preventing a person from working in their profession or engaging in any business activity.

The Constitution of Ukraine guarantees the right to work and the right to engage in entrepreneurial activity that is not prohibited by law. Civil legislation also establishes limits on transactions that restrict an individual’s ability to hold civil rights and obligations. Therefore, the broader the restriction, the more important a separate assessment of its permissibility becomes. Ukrainian legislation

This is why the provision:

“For three years after termination of employment, the person may not work in the IT sector in any country”

and a provision that defines specific competitive activities, duration, territory and the economic rationale for the restriction carry fundamentally different levels of legal risk.

When may a business need an NCA?

A non-compete agreement is not necessary for every employee or contractor. First of all, it is worth assessing which specific business interest the company wants to protect.

An NCA may be considered where a person has access to:

• a strategic client base;
• sales and pricing models;
• business strategy;
• technologies or products;
• key internal processes;
• the team and recruitment system;
• commercially important development plans;
• information whose use by a competitor may create a genuine risk for the business.

For example, where a specialist has no access to clients, management information or key processes, a broad non-compete restriction may be difficult to justify solely by the fact that the person works for the company.

In such cases, it is worth determining first whether an NCA is actually required. Some risks may sometimes be more appropriately regulated through an NDA, a trade secret regime, intellectual property provisions or restrictions on soliciting clients and team members.

How does an NCA differ from an NDA and non-solicitation?

These documents may be used together, but they protect different business interests.

For example, if a company wants to prevent its client database from being transferred to a competitor, this is primarily a matter of confidentiality and rules governing the use of information. If the intention is to restrict the very fact of engaging in certain competitive activities, this is an NCA issue.

Therefore, the formula “we will sign an NDA and prohibit working for competitors” legally mixes different mechanisms.

The Prikhodko & Partners website already has a separate service for preparing and reviewing Non-Disclosure Agreements (NDAs), so this section should be linked internally to the relevant page.

Which terms should be reviewed in a non-compete agreement?

Before signing an NCA, it is necessary to analyse not only the title of the document but each restriction separately.

Who are the parties to the agreement?

The legal assessment will differ depending on whether the agreement is entered into with:

• an employee;
• a sole proprietor or another contractor;
• a gig specialist;
• a partner;
• a participant in another business model.

The same NCA provision may have a different legal context depending on the status of the parties.

Which specific activities are considered competitive?

Wording such as “not to compete with the company” does not in itself explain which specific activities are prohibited.

It is advisable to determine:

• which activities are considered competing activities;
• whether specific competitors are covered;
• whether operating one’s own similar business is prohibited;
• whether work as an employee or contractor is covered;
• which activities remain permitted.

The less clearly defined the subject of the restriction, the greater the risk of different interpretations by the parties.

Duration

An NCA should clearly specify how long the restriction applies and from what point this period is calculated.

For the special Diia City regime, the law expressly provides that the obligation to refrain from competitive activities must end no later than 12 months after the termination of employment, civil-law or commercial-law relations with a Diia City resident. Ukrainian legislation

This period should not automatically be applied to every other NCA model — outside Diia City, the legal structure must be assessed separately.

Territory

It is necessary to determine where exactly the restriction applies: a specific country, several states or another justified territory.

Wording such as “worldwide” without a connection to the actual activities of the business may create an additional risk of a dispute concerning the proportionality of such a restriction.

Compensation or other consideration

This is particularly important for Diia City. The law expressly defines such an agreement as compensated and requires the material benefits received by the specialist in exchange for the obligation to refrain from competitive activities to be specified. Ukrainian legislation

At the same time, it should not be automatically assumed that the same compensation model is suitable for every NCA. It must be aligned with the status of the parties and the structure of the agreement.

Liability

The agreement should separately address:

• what exactly constitutes a breach;
• how the breach must be evidenced;
• what consequences arise;
• whether a penalty, compensation or damages are provided for;
• whether the liability is proportionate to the nature of the breach.

The mere inclusion of a large penalty in the agreement does not mean that the entire stated amount will automatically be recovered. Whether a particular provision can be applied depends on the legal structure of the agreement, the circumstances and the evidence.

Governing law

For agreements involving an international element, provisions on governing law and dispute resolution should be reviewed separately.

An NCA prepared under the law of the United States, the United Kingdom or another country should not simply be copied and used for Ukrainian relationships without adaptation.

NCA in employment relationships, with contractors and in Diia City

NCA with an employee

In ordinary employment relationships, non-compete matters require particularly careful assessment.

The Constitution guarantees a person the right to work that they freely choose or freely agree to perform. The Labour Code of Ukraine provides that terms of employment agreements that worsen an employee’s position compared with labour legislation are invalid. Ukrainian legislation

Therefore, a broad provision such as “after dismissal, the employee may not work for competitors” should not be assessed solely on the basis that the parties voluntarily signed it.

The content of the restriction, the status of the parties and the legal basis for its application must be reviewed.

NCA with a contractor or sole proprietor

In civil-law relationships, the principle of freedom of contract applies: the parties are free to determine its terms within the limits of legislation and the requirements of reasonableness and fairness. Ukrainian legislation

At the same time, freedom of contract is not unlimited. In particular, the Civil Code establishes requirements for the content of transactions and contains a rule on the inadmissibility of transactions that restrict an individual’s ability to hold civil rights and obligations not prohibited by law. Ukrainian legislation

This is why, for a sole proprietor or another contractor, the specific NCA must be analysed rather than mechanically applying the rules governing employment relationships or Diia City.

NCA in Diia City

Diia City residents are subject to special legislative regulation.

An agreement requiring a specialist to refrain from competitive activities:

• must be concluded in writing;
• must provide consideration;
• must specify the duration;
• must specify the territory;
• must contain an exhaustive list of competing activities and/or persons carrying out such activities;
• must specify the material benefits received by the specialist;
• may remain in force for no more than 12 months after termination of the relationship. Ukrainian legislation

The law also expressly provides that an employee’s or gig specialist’s refusal to enter into an NCA may not constitute grounds for terminating an employment agreement or gig contract. Disputes under such agreements with employees and gig specialists are considered under civil procedure. Ukrainian legislation

Therefore, an NCA in Diia City must be prepared specifically in accordance with the special requirements of Law No. 1667-IX rather than using a generic non-compete agreement template.

Non-compete agreement template: why it should not be copied without review

An NCA template may be useful for understanding the structure of the document, but it is not a universal agreement that only needs the parties’ details to be inserted.

Before using a template, check at least:

• who is signing the NCA;
• the underlying cooperation model;
• which business interest needs to be protected;
• which specific competitive activities are prohibited;
• which activities remain permitted;
• the duration of the restriction;
• the territory;
• compensation or other consideration;
• liability for breach;
• its relationship with the NDA, main agreement and other documents;
• governing law and dispute resolution procedure.

For example, an NCA for a gig specialist of a Diia City resident and a document for an independent contractor under an international contract may require fundamentally different approaches.

Therefore, a non-compete agreement template should be used as a structural checklist rather than as a ready-made legal solution.

Risks and liability for breach of an NCA

Risks arise for both parties to the agreement.

For the business, the problem may be that it has prepared an excessively broad or unclear NCA and, once a dispute arises, cannot clearly determine which specific action was prohibited.

For the person signing the agreement, risks may include:

• excessively broad restrictions;
• significant financial liability;
• an unclear list of competitors;
• restrictions that effectively make future professional activities more difficult;
• inconsistency between the NCA and the main agreement.

A separate issue is proving a breach.

The mere fact that a specialist moves to another company does not automatically prove a breach of the NCA in every case. The person’s actual actions must be compared with the specific provisions of the agreement.

Likewise, the presence of a penalty or other sanction in the agreement does not by itself guarantee its recovery. The legal prospects depend on the content of the agreement, applicable legislation, evidence and the specific circumstances of the dispute.

Common mistakes when preparing an NCA

Prohibiting everything instead of identifying a specific risk.
The phrase “not to engage in activities similar to those of the company” may cover an excessively broad range of work.

Failing to define the territory.
This becomes particularly problematic for companies operating online and serving clients in several countries.

Setting a duration without explaining its economic rationale.
The restriction should correspond to the genuine need to protect the business’s interests.

Failing to regulate compensation.
For Diia City, consideration is an express statutory requirement. Ukrainian legislation

Mixing NCA and NDA.
A prohibition on disclosing a client database is not the same as a prohibition on working for a competitor.

Copying a foreign template.
Terms developed for another jurisdiction may not correspond to the Ukrainian model of legal relationships.

Failing to align the NCA with other agreements.
The main contract, NDA, IP provisions, non-solicitation provisions and NCA should operate as one system rather than contradicting one another.

When should you consult a lawyer?

Legal review is particularly advisable where:

• the company is implementing an NCA for the first time;
• the document is being offered to an employee or contractor for signature;
• an NCA needs to be prepared for a Diia City resident;
• the agreement contains a significant penalty or other liability;
• the parties are located in different countries;
• the NCA needs to be combined with an NDA and non-solicitation provisions;
• there is already a suspicion that the terms have been breached;
• a party wants to challenge or enforce a particular restriction.

The lawyer’s task at this stage is not merely to review the wording but to determine whether the selected mechanism corresponds to the particular cooperation model and the interest the business seeks to protect.

Advantages of working with Prikhodko & Partners

The lawyers at Prikhodko & Partners can assist both with preparing a new NCA and reviewing a document that has already been proposed for signature.

The work may include:

• analysis of the status of the parties and cooperation model;
• review of the permissibility of the proposed restrictions;
• analysis of the duration, territory and subject matter of the NCA;
• review of compensation and liability provisions;
• alignment of the NCA with the NDA and the main agreement;
• preparation or revision of the document;
• explanation of legal risks and possible ways to reduce them.

The client receives not a universal template but a document or legal assessment adapted to the specific legal relationship.

Conclusion

A non-compete agreement can be one of the tools used to protect a business, but its effectiveness depends not on the title of the document but on the legal model of the relationship and the precision of its terms.

It is particularly important to define the parties, competitive activities, duration, territory, compensation and liability correctly. For Diia City residents, these requirements are largely established by special legislation; in other cooperation models, a separate legal analysis is required.

If you are preparing an NCA or have already received such a document for signature, the lawyers at Prikhodko & Partners can review its terms and propose a legal structure appropriate to the specific situation.