North Dakota non-compete law: why the state voids employment non-competes, the narrow sale-of-business and partnership exceptions, what protections survive, and what employees need to know

North Dakota voids employment non-competes

North Dakota is one of the original non-compete ban states, with a statute that predates and helped model California's approach. North Dakota Century Code §9-08-06 provides that every contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is void, subject only to narrow statutory exceptions.

The statutory language closely tracks California's foundational provision, and the two states share the same core principle: employment non-competes are void as a matter of public policy, and the only permitted restrictions arise in the sale-of-business and partnership-dissolution contexts. North Dakota courts have enforced the ban consistently and have rejected attempts to create exceptions beyond those the statute specifies.

The practical result is that a traditional employment non-compete — a restriction preventing a former employee from working for a competitor or starting a competing business — is unenforceable in North Dakota. An employee bound by such an agreement is free to compete.

The strict enforcement of the ban

North Dakota courts apply the ban strictly and have refused to recognize exceptions that other states permit. The North Dakota Supreme Court has held that the statutory exceptions are exhaustive — if a restriction doesn't fall within one of the specifically enumerated exceptions, it is void, regardless of how reasonable it might be or how legitimate the employer's interest.

In Warner and Company v. Solberg (2001) 634 N.W.2d 65, the North Dakota Supreme Court reinforced the strict application of the ban, declining to enforce a non-compete that didn't fit within the statutory exceptions. The court emphasized that North Dakota's public policy strongly disfavors restraints on trade and that the statutory exceptions must be narrowly construed.

This strict approach distinguishes North Dakota from states that have softened their bans through judicial interpretation or that recognize quasi-exceptions like the customer non-solicitation carve-out in Oklahoma. North Dakota's ban is closer to California's in its breadth — general employment non-competes are simply void, and the exceptions are limited to genuine sale-of-business and partnership situations.

The sale-of-business exception

North Dakota Century Code §9-08-06(1) permits a non-compete in connection with the sale of the goodwill of a business. A person who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business within a specified geographic area, so long as the buyer or the buyer's successors carry on a like business there.

The logic is the universal sale-of-business principle: a buyer who pays for the goodwill of a business is entitled to protection against the seller immediately reopening a competing operation and reclaiming the customer base. This exception exists in every state, including the ban states, because it protects a genuine transfer of value rather than restraining an employee's mobility.

The exception applies to the sale of goodwill, not to employment. An employee — even a senior executive or an owner-employee — cannot be bound by a non-compete arising from the employment relationship. The exception applies only when there is a genuine sale of the business's goodwill.

The partnership-dissolution exception

North Dakota Century Code §9-08-06(2) permits a non-compete among partners in anticipation of, or upon, the dissolution of a partnership. Partners may agree that some or all of them will refrain from carrying on a similar business within a specified geographic area where the partnership conducted business.

This exception parallels the sale-of-business exception and rests on similar logic: when a partnership dissolves and partners divide the business's value, a non-compete protects the partners who continue the business from the departing partners' immediate competition. The exception reflects the equities of a business division among owners rather than the imposition of a restraint on an employee.

What survives the ban

Like the other ban states, North Dakota's prohibition on employment non-competes doesn't eliminate all post-employment obligations.

Trade secret protection. North Dakota has adopted the Uniform Trade Secrets Act (N.D.C.C. ch. 47-25.1), which provides a cause of action for misappropriation of trade secrets independent of any non-compete. An employer can prevent a former employee from using or disclosing genuine trade secrets and can seek injunctive relief and damages for misappropriation.

Non-disclosure agreements. Confidentiality obligations protecting genuinely confidential information remain enforceable. An NDA restricts what the employee can disclose or use, not where the employee can work, and is not affected by the non-compete ban.

Non-solicitation agreements. The treatment of customer and employee non-solicitation agreements under North Dakota's framework is less settled than in Oklahoma, which has an explicit customer non-solicitation carve-out. North Dakota's broad statutory language voiding restraints on trade raises questions about whether customer non-solicitation agreements that function to restrict the employee's competitive activity are enforceable. A narrowly drawn non-solicitation provision that doesn't effectively prevent the employee from competing may survive, but a non-solicitation agreement so broad that it operates as a de facto non-compete is vulnerable to the same voidness rule that applies to non-competes.

The practical consequence is that North Dakota employers rely primarily on trade-secret law and non-disclosure agreements for post-employment protection, with non-solicitation agreements occupying uncertain ground.

Choice of law and the out-of-state question

For employees who work in North Dakota for out-of-state employers, North Dakota's strong public policy against non-competes provides a basis for refusing to enforce out-of-state non-competes against North Dakota-based workers. North Dakota courts apply North Dakota law to employment relationships centered in the state, and the strength of the state's anti-non-compete policy supports overriding a contractual choice-of-law provision that would import another state's enforcement-friendly rules.

An employer based in a state that enforces non-competes who hires a North Dakota-based employee cannot reliably circumvent North Dakota's ban through a choice-of-law clause, particularly when the employee primarily works in North Dakota. The state's public policy against restraints on trade is strong enough to provide a defense even when the agreement designates another state's law.

The energy and agriculture economy

North Dakota's economy is dominated by energy (the Bakken shale oil boom transformed the state's economy) and agriculture. Both sectors involve employees with access to proprietary technical information, geological and exploration data, customer relationships, and specialized expertise.

Despite the value of these protectable interests, North Dakota employers cannot use non-competes to protect them. An oil-and-gas company that wants to prevent a departing engineer from joining a competitor cannot do so through a non-compete — the company must rely on trade-secret law and confidentiality agreements. A departing employee with knowledge of proprietary drilling techniques or geological data is free to work for a competitor, though the employee cannot use or disclose the former employer's trade secrets.

This dynamic — substantial protectable interests but no non-compete tool to protect them — shapes North Dakota's post-employment litigation, which centers on trade-secret claims rather than non-compete enforcement.

North Dakota's historical influence

North Dakota's non-compete ban is one of the oldest in the country, and its statutory language influenced the development of similar bans elsewhere. The provision voiding contracts that restrain the exercise of a lawful profession, trade, or business traces to the state's early codification of contract law, drawing on the same Field Code tradition that shaped California's foundational provision.

This shared heritage means that North Dakota and California courts have often looked to each other's decisions in interpreting their respective bans, and the two states apply substantially similar frameworks. The core principle — that employment non-competes are void and that the exceptions are limited to genuine sale-of-business and partnership situations — is common to both.

The longevity of North Dakota's ban gives it a settled quality. Unlike the recently enacted bans and restrictions in states like Minnesota (2023), Washington, and Colorado, where employers and courts are still adjusting to new rules, North Dakota's framework is long-established and consistently applied. Employers operating in North Dakota have long understood that non-competes are unavailable, and the state's employment practices have developed accordingly.

The independent contractor question

North Dakota's broad statutory language voiding restraints on trade raises questions about its application to independent contractors. The statute addresses restraints on exercising a lawful profession, trade, or business, language broad enough to encompass restrictions on independent contractors as well as employees.

A restrictive covenant imposed on an independent contractor that functions to restrain the contractor's ability to practice their trade or business faces the same voidness rule that applies to employment non-competes. Contractors subject to non-competes in North Dakota should recognize that the general prohibition likely applies to them, and that the contractor relationship doesn't create an exception to the ban. As with employees, the protections that survive are trade-secret law and properly drawn confidentiality obligations.

The practical enforcement landscape

North Dakota non-compete litigation is limited by the ban — there is little enforcement of general non-competes because they're void. The post-employment litigation that does occur centers on trade-secret misappropriation claims, NDA enforcement, and disputes over the scope of the sale-of-business and partnership exceptions.

The district courts in the state's population centers — Cass County (Fargo), Burleigh County (Bismarck), Grand Forks County, and Ward County (Minot) — handle these cases, along with the federal District of North Dakota.

Enforcement activity is concentrated in energy, agriculture, healthcare, and financial services. The energy sector's reliance on proprietary technical information generates trade-secret disputes, but not non-compete enforcement, because the non-compete tool is unavailable.

Litigation costs in North Dakota are moderate and often lower than in states where general non-competes are litigated, because the cases turn on trade-secret misuse and the narrow statutory exceptions rather than the substantive reasonableness of a general restriction.

What North Dakota employees should know

If your agreement contains a general non-compete — a restriction on working for a competitor or starting a competing business — that restriction is void. You are free to compete and to work in the same field.

Your employer can still protect genuine trade secrets and confidential information through trade-secret law and non-disclosure agreements. The ban on non-competes frees you to work for a competitor; it doesn't free you to use or disclose the former employer's confidential information.

Non-solicitation agreements occupy uncertain ground in North Dakota. A narrowly drawn restriction may survive, but a broad non-solicitation provision that operates as a de facto non-compete is vulnerable to the same voidness rule.

If your agreement designates another state's law, North Dakota's strong public policy against non-competes may override that designation if you primarily work in North Dakota.

If you're negotiating a severance agreement, any general non-compete in the agreement is unenforceable under North Dakota law. The negotiable restrictions are confidentiality provisions and any narrowly drawn non-solicitation terms.

The national overview positions North Dakota among the ban states — alongside California, Minnesota, and Oklahoma — with one of the strictest applications of the ban. North Dakota's statute, which helped model California's, voids general employment non-competes and permits restrictions only in the sale-of-business and partnership contexts.