# Non-Competes in Puerto Rico[^about] Puerto Rico has no non-compete statute; post-employment covenants are enforceable only if they satisfy the strict three-part reasonableness test of Arthur Young & Co. v. Vega III, and courts void rather than rewrite any covenant that falls short. ## Are employee non-compete agreements enforceable in Puerto Rico? {#employee-noncompetes} **Short answer.** Sometimes. Puerto Rico has no statute that governs non-competes. As a civil-law jurisdiction, it enforces post-employment covenants only when they satisfy the strict three-part reasonableness test the Puerto Rico Supreme Court announced in *Arthur Young & Co. v. Vega III* [^ay-test]. Puerto Rico is not a per se ban jurisdiction like California or North Dakota, and it is not a statutory-reasonableness jurisdiction either. Enforceability rests on freedom of contract under the Puerto Rico Civil Code, as constrained by case law. *Arthur Young* is the controlling decision, and it frames every non-compete question that follows. The threshold framing matters for in-house counsel. Because the limits are judge-made rather than statutory, a covenant that would survive in a blue-pencil state can be void here, and the analysis turns on a single line of Supreme Court and federal authority rather than on a code section. "Para ser razonable, un acuerdo de no competir debe reunir los siguientes requisitos: (1) debe ser necesario para proteger un interés legítimo del patrono, (2) no debe imponer al empleado una carga demasiado onerosa, (3) y no debe afectar demasiado al público."[^ay-test] In plain English, the covenant must protect a legitimate employer interest, must not impose too onerous a burden on the employee, and must not unduly harm the public. The sections below break those principles into the operating requirements Puerto Rico courts actually apply. ## What requirements must a Puerto Rico non-compete satisfy? {#reasonableness-requirements} **Short answer.** A federal court applying Puerto Rico law restated *Arthur Young* as a five-element checklist: a legitimate employer interest, a scope that fits that interest and does not exceed twelve months, consideration beyond mere job tenure, a valid underlying contract, and a writing [^sc-elements]. The duration ceiling is unusually concrete. *Arthur Young* holds that a non-competition term must not exceed twelve months, and that any additional time is excessive and unnecessary to protect the employer [^ay-duration]. That is a bright-line public-policy ceiling, not a starting point for negotiation, so a two-year covenant is exposed even if the rest of the terms are modest. Two formal requirements round out the test. The covenant must protect a real employer interest and be limited to activities similar to the employee's work, and it must be in writing [^ay-writing]. An oral understanding or a covenant aimed at ordinary competition rather than a protectable interest does not qualify. ## Will Puerto Rico courts narrow an overbroad non-compete? {#court-narrowing} **Short answer.** No. *Arthur Young* directs courts to declare an overbroad covenant null rather than modify the parties' agreement to make it reasonable [^ay-nullity]. Puerto Rico rejects the blue-pencil and partial-enforcement approaches that many states allow. The Supreme Court reaffirmed in *PACIV, Inc. v. Pérez Rivera* that once any one of the requirements is breached, the agreement is null in its entirety [^paciv-nullity]. There is no judicial salvage of a covenant that reaches too far. Federal courts apply the same rule. In *TLS Management & Marketing Services, LLC v. Rodríguez-Toledo*, the First Circuit refused to narrow overbroad agreements to a reasonable scope under Puerto Rico law [^tls-decline], echoing the instruction in *Smarte Carte* that courts may not apply a common-law reasonableness rule to modify the provision [^sc-noreform]. "We decline to rewrite the nondisclosure agreements by narrowing their scope to be reasonable."[^tls-decline] > [!CAUTION] > **Drafting note.** > > Do not rely on a court to rescue an aggressive covenant. In Puerto Rico, a single overbroad term voids the entire non-compete, so drafting to the twelve-month ceiling and to a genuine protectable interest is the only protection [^ay-nullity][^paciv-nullity]. ## What consideration supports a Puerto Rico non-compete? {#consideration} **Short answer.** Real consideration is required, and continued employment alone does not count. *Arthur Young* holds that mere continued employment will not be accepted as the consideration for a non-compete [^ay-consideration]. Timing is the practical trap. In *Cherena v. Coors Brewing Co.*, the federal court held that consideration must be given when the agreement is signed, not at the moment of discharge [^cherena-timing]. A covenant imposed on an existing employee therefore likely needs new and distinct consideration, for example a promotion or a bonus, beyond simply keeping the job, although Puerto Rico courts have not spelled out what qualifies. "Such a consideration in this jurisdiction must be forthcoming at the moment the agreement was entered into and not at the moment of discharge from employment."[^cherena-timing] The consideration rule is specific to non-competes. In *Soto v. State Industrial Products, Inc.*, the First Circuit declined to extend *Arthur Young*'s special consideration requirement to an arbitration agreement [^soto-scope], a reminder that the *Arthur Young* line is a targeted restrictive-covenant doctrine rather than a general contract rule. ## How does Puerto Rico treat NDAs, non-solicits, and confidentiality clauses? {#other-covenants} **Short answer.** A confidentiality or non-solicitation clause that operates like a disguised non-compete is judged by the same *Arthur Young* standard. In *TLS Management*, an overbroad nondisclosure agreement was unenforceable because it functioned as a *de facto* non-compete [^tls-decline-2]. The drafting lesson is precision. A confidentiality clause that effectively bars the employee from working in the field will be treated as a non-compete and subjected to the twelve-month ceiling and the reasonableness requirements, rather than escaping review because it is labeled an NDA. A genuinely separate covenant can survive, however, even when the non-compete fails. In *Cherena*, the court voided the non-compete but enforced the distinct non-disclosure provisions in the same agreement [^cherena-severable]. A severability clause does not save the non-compete itself, but it can preserve an independent and reasonable NDA. > [!NOTE] > **Practice note.** > > Draft confidentiality and non-solicitation covenants as standalone, narrowly tailored restraints. If an NDA sweeps so broadly that it stops the employee from competing, a Puerto Rico court will analyze it as a non-compete and may void it [^tls-decline-2]. ## How specific must the geographic and customer scope be? {#scope-territory-clients} **Short answer.** A covenant does not need both a geographic limit and a customer limit; one of them suffices. In *Reyes Ramis CPA Group, P.S.C. v. Serra Torres*, the Supreme Court held that it is not correct to require every non-compete to contain both a territorial and a client restriction [^rr-disjunctive]. This is a meaningful clarification of *Arthur Young*. The Court explained that it never made a combined geographic-and-client limitation a constitutive requirement of a valid covenant [^rr-scope]. A covenant that is tightly limited to the customers an employee actually served can be reasonable even without a geographic radius, and vice versa. *Reyes Ramis* also confirms that the strict *Arthur Young* requirements are an employment-law doctrine. The Court held that a non-compete tied to a stock-redemption arrangement among owners did not have to conform fully to the strict conditions established in *Arthur Young* [^rr-stock]. Covenants ancillary to the sale of a business or an ownership exit are analyzed more flexibly than employer-employee restraints. ## Does the restricted period toll or extend if the employee breaches? {#tolling} **Short answer.** Puerto Rico primary law is silent. No Puerto Rico Supreme Court, Court of Appeals, federal district, or First Circuit decision squarely approves or rejects either a contractual extension-on-breach clause or a court-ordered equitable extension of a Puerto Rico non-compete. The safest assumption is that a court will hold the employer to the twelve-month ceiling [^ay-duration-2]. Because there is no Puerto Rico authority on point, the question is genuinely open, and an employer should not assume a court will pause the clock while litigation runs. The nearest guidance comes from outside Puerto Rico. In *EMC Corp. v. Arturi*, the First Circuit, applying Massachusetts law, refused to equitably extend a covenant after its term had expired and observed that the employer could have contracted for tolling instead [^emc-contract]. "Being forewarned, EMC could have contracted, as the district judge noted, for tolling the term of the restriction during litigation, or for a period of restriction to commence upon preliminary finding of breach."[^emc-contract] > [!CAUTION] > **Drafting note.** > > A tolling clause carries a Puerto Rico-specific risk. *EMC v. Arturi* is Massachusetts law, not Puerto Rico law, and a contractual extension that pushes actual enforcement past *Arthur Young*'s twelve-month ceiling could itself render the covenant void under Puerto Rico's bright-line rule [^emc-contract][^ay-duration-2]. Treat tolling as an unsettled question and weigh a shorter base term against an extension mechanism. ## What recent developments should employers monitor? {#recent-developments} **Short answer.** As of June 2, 2026, the governing framework remains the *Arthur Young* line of cases. The Supreme Court last restated and refined that test in *Reyes Ramis* in 2016, and no Puerto Rico statute has displaced it [^rr-current]. Two background developments matter for monitoring but do not change the Puerto Rico rule. Puerto Rico's labor reform legislation did not codify a non-compete standard, so the judge-made *Arthur Young* test still controls. And the federal FTC Non-Compete Rule was challenged and, as of this review, has been treated as unenforceable, so it is not an operative Puerto Rico rule either. The practical takeaway is stability with a narrow margin. Because the framework is judicial, the most reliable signal of change would be a new Supreme Court decision rather than a bill, and *Reyes Ramis* remains the most recent word: the strict requirements apply to employer-employee covenants, with a single territorial or customer limit sufficing [^rr-current]. [^about]: By Steven Obiajulu, J.D. Published by [openagreements.org](https://openagreements.org). Last reviewed 2026-06-02. License: CC BY 4.0. Steven Obiajulu, J.D. is admitted in New York, not Puerto Rico. This article synthesizes Puerto Rico primary law and is not legal advice from a Puerto Rico-admitted attorney. This article is for informational purposes only and does not create an attorney-client relationship. [^ay-test]: **Arthur Young & Co. v. Vega III** — "Para ser razonable, un acuerdo de no competir debe reunir los siguientes requisitos: (1) debe ser necesario para proteger un interés legítimo del patrono, (2) no debe imponer al empleado una carga demasiado onerosa, (3) y no debe afectar demasiado al público." *Arthur Young & Co. v. Vega III, 136 D.P.R. 157 (1994).* [^sc-elements]: **Smarte Carte, Inc. v. Colón** — "The elements of a valid non-competition agreement in Puerto Rico as set forth in Arthur Young are: (1.) The employer must have a legitimate interest in the agreement; (2.)the scope of the prohibition must fit the employer's interest but not exceed twelve months; (3.) The employer shall offer a consideration in exchange for the employee signing the non-competition covenant other than mere job tenure; (4.) Non-competition agreements must be valid contracts; (5.) Non-competition covenants must be in writing." *Smarte Carte, Inc. v. Colón, 47 F. Supp. 2d 183 (D.P.R. 1999).* [^ay-duration]: **Arthur Young & Co. v. Vega III** — "El término de no competencia no debe exceder de doce meses, entendiéndose que cualquier tiempo adicional es excesivo e innecesario para proteger adecuadamente al patrono." *Arthur Young & Co. v. Vega III, 136 D.P.R. 157 (1994).* [^ay-writing]: **Arthur Young & Co. v. Vega III** — "Finalmente, es indispensable que los pactos de no competencia consten por escrito." *Arthur Young & Co. v. Vega III, 136 D.P.R. 157 (1994).* [^ay-nullity]: **Arthur Young & Co. v. Vega III** — "Por tal razón, en vez de modificar la voluntad de las partes para ajustarla a normas razonables, se declarará nulo todo pacto de no competir que no cumpla con las anteriores condiciones." *Arthur Young & Co. v. Vega III, 136 D.P.R. 157 (1994).* [^paciv-nullity]: **PACIV, Inc. v. Pérez Rivera** — "Una vez se incumple con alguno de los requisitos establecidos en nuestra jurisprudencia, el acuerdo es nulo en su totalidad." *PACIV, Inc. v. Pérez Rivera, 159 D.P.R. 523 (2003).* [^tls-decline]: **TLS Management & Marketing Services, LLC v. Rodríguez-Toledo** — "We decline to rewrite the nondisclosure agreements by narrowing their scope to be reasonable." *TLS Mgmt. & Mktg. Servs., LLC v. Rodríguez-Toledo, 966 F.3d 46 (1st Cir. 2020).* [^sc-noreform]: **Smarte Carte, Inc. v. Colón** — "This invalidation is strictly enforced, and courts are instructed not to apply the common law rule of reasonableness in order to modify the provision." *Smarte Carte, Inc. v. Colón, 47 F. Supp. 2d 183 (D.P.R. 1999).* [^ay-consideration]: **Arthur Young & Co. v. Vega III** — "Sin embargo, no se admitirá como causa del acuerdo de no competencia la mera permanencia en el empleo." *Arthur Young & Co. v. Vega III, 136 D.P.R. 157 (1994).* [^cherena-timing]: **Cherena v. Coors Brewing Co.** — "Such a consideration in this jurisdiction must be forthcoming at the moment the agreement was entered into and not at the moment of discharge from employment." *Cherena v. Coors Brewing Co., 20 F. Supp. 2d 282 (D.P.R. 1998).* [^soto-scope]: **Soto v. State Industrial Products, Inc.** — "For these reasons, we reject Soto's invitation to expand the scope of Arthur Young to hold that continued employment cannot constitute valid consideration for an arbitration agreement." *Soto v. State Indus. Prods., Inc., 642 F.3d 67 (1st Cir. 2011).* [^tls-decline-2]: **TLS Management & Marketing Services, LLC v. Rodríguez-Toledo** — "We decline to rewrite the nondisclosure agreements by narrowing their scope to be reasonable." *TLS Mgmt. & Mktg. Servs., LLC v. Rodríguez-Toledo, 966 F.3d 46 (1st Cir. 2020).* [^cherena-severable]: **Cherena v. Coors Brewing Co.** — "Thus, although the non-competition clause is null and void, the rest of the provisions contained in the Agreement, including the non-disclosure provisions, are valid and enforceable." *Cherena v. Coors Brewing Co., 20 F. Supp. 2d 282 (D.P.R. 1998).* [^rr-disjunctive]: **Reyes Ramis CPA Group, P.S.C. v. Serra Torres** — "Por lo tanto, no es correcto afirmar que todo contrato de no competencia debe contener una restricción territorial y de clientela, basta con una de ellas." *Reyes Ramis CPA Group, P.S.C. v. Serra Torres, 194 D.P.R. ___ (2016).* [^rr-scope]: **Reyes Ramis CPA Group, P.S.C. v. Serra Torres** — "No obstante, es importante destacar que esta Curia no estableció como requisito constitutivo de un acuerdo de no competencia el que se limite geográficamente las restricciones impuestas y los clientes que estarán comprendidos." *Reyes Ramis CPA Group, P.S.C. v. Serra Torres, 194 D.P.R. ___ (2016).* [^rr-stock]: **Reyes Ramis CPA Group, P.S.C. v. Serra Torres** — "Por lo tanto, contrario a la conclusión a la que llegaron los foros inferiores, la cláusula de no competencia bajo análisis no tenía que ajustarse íntegramente a las estrictas condiciones establecidas en Arthur Young & Co. v. Vega III , supra." *Reyes Ramis CPA Group, P.S.C. v. Serra Torres, 194 D.P.R. ___ (2016).* [^ay-duration-2]: **Arthur Young & Co. v. Vega III** — "El término de no competencia no debe exceder de doce meses, entendiéndose que cualquier tiempo adicional es excesivo e innecesario para proteger adecuadamente al patrono." *Arthur Young & Co. v. Vega III, 136 D.P.R. 157 (1994).* [^emc-contract]: **EMC Corp. v. Arturi** — "Being forewarned, EMC could have contracted, as the district judge noted, for tolling the term of the restriction during litigation, or for a period of restriction to commence upon preliminary finding of breach." *EMC Corp. v. Arturi, 655 F.3d 75 (1st Cir. 2011).* [^rr-current]: **Reyes Ramis CPA Group, P.S.C. v. Serra Torres** — "Por lo tanto, no es correcto afirmar que todo contrato de no competencia debe contener una restricción territorial y de clientela, basta con una de ellas." *Reyes Ramis CPA Group, P.S.C. v. Serra Torres, 194 D.P.R. ___ (2016).*