A more thorough explanation:

A covenant not to compete is an agreement between two parties where one party agrees not to engage in activities that would increase competition for the other party for a specific period of time. This agreement is often found in employment contracts or sale of business contracts.

For example, in an employment contract, a non-compete clause may prevent an employee from using their current employer's resources to benefit a future employer or from joining a direct competitor for a specified period of time after leaving their initial company. In a sale of business contract, a covenant not to compete may prevent the party selling their business from creating a second business that would compete with the one sold for a specified period of time.

The legality of non-compete agreements varies from state to state. In most states, non-compete clauses are allowed as long as the restrictions are reasonable. However, some courts have concluded that non-compete clauses that bar parties from participating in similar, but not identical, industries are too broad to be considered reasonable. Additionally, courts tend not to uphold non-compete agreements that bar former employees from obtaining new employment entirely as these clauses act more like penalties to dissuade employees from quitting.

For example, in Karpinski v. Ingrasci, the court concluded that a dentist could use a non-compete agreement to temporarily bar a former employee from the field of dentistry but not from the field of oral surgery. In Edwards v. Arthur Anderson, the California Supreme Court determined that the law should be read strictly, and not only void the “unreasonable” noncompete clause, but all noncompete clauses other than those explicitly allowed in the code.