Competition returns to non-compete law: Developments since spring 2023

Non-compete agreements (NCAs) are often used to protect a company’s intellectual property by preventing employees with access to proprietary technology and trade secrets from taking that knowledge to a competitor upon their departure. By temporarily restricting postemployment competitive activity, NCAs are an important tool in extending intellectual property protections beyond employment.

In the Spring 2023 issue of this publication, we wrote about the Federal Trade Commission’s (FTC) then-pending proposal to categorically ban nearly all employer–employee (NCAs) and the impact on intellectual property rights.¹ The proposed rule was divisive. Supporters, including the FTC majority, pointed to the widespread abuse of NCAs and the relatively slow pace of state-level regulation.

Critics raised concerns that the rule would sweep aside centuries of common-law competition law and ban even NCAs universally considered legitimate. In August 2024, just weeks before the rule would have gone into effect, a federal court vacated the rule.² The court held that the FTC lacked statutory "authority to create substantive rules" governing "unfair competition" and that the Commission acted arbitrarily by "impos[ing] such a sweeping prohibition … instead of targeting specific, harmful non-competes."³

New administration, new approach

Shortly after the presidential transition, former chair Lina Khan resigned, clearing the way for a Republican majority. The President shortly thereafter purported to fire the two remaining Democrat commissioners,⁴ leading to a major Supreme Court case⁵ that threatens to undo decades of administrative law regarding protections for so-called independent agencies.⁶

In September of last year, the Commission took several actions that together decisively signaled a new approach to non-competes. First, the agency formally withdrew its appeal of the district court order vacating the non-compete rule.⁷ The decision to abandon the nationwide ban comes as little surprise, given the vociferous dissents from the minority commissioners when it was promulgated.

The Commission’s other actions were perhaps less predictable. The same day it abandoned its appeal, the FTC announced a major enforcement action targeting NCAs. The agency’s proposed consent order required the subject company to "stop enforcing all existing noncompete agreements."⁸ The Commission also issued a request for information "to better understand the scope, prevalence, and effects of employer noncompete agreements" and "to gather information to inform possible future enforcement actions."⁹

The agency has continued to demonstrate its commitment to case-by-case enforcement of unfair NCA practices. Chairman Andrew N. Ferguson also issued warnings to "several large healthcare employers and staffing firms urging them to conduct a comprehensive review of their employment agreements—including any noncompetes or other restrictive agreements."¹⁰ The Commission also brought another enforcement action against no-hire agreements primarily targeting low-wage employees,¹¹ and is hosting workshops to educate employers and workers on the law governing NCAs.¹²

State-level trends: Expanding restrictions

While federal efforts stalled, a substantial number of states in the meantime have enacted legislation prohibiting or limiting the enforceability of NCAs.

Currently, only two states, California and Minnesota, have enacted complete bans on NCAs, other than in conjunction with the sale or dissolution of a business.¹³ Wyoming, similarly, has enacted a broad ban on NCAs, other than in conjunction with the sale of a business, excepting only executive, management, or recently relocated employees.¹⁴ Michigan, New York, and Tennessee have also introduced bills that, if passed, would result in near-complete bans outside the sale of a business.¹⁵ However, these initiatives have failed to advance or pass as of early 2026.

A considerable number of states have enacted more limited bans, voiding NCAs for certain categories of workers. These states have generally banned NCAs for certain health care professionals or employees earning below a defined threshold.¹⁶

A third set of states have enacted new legislation codifying the requirements for NCA enforcement. These states have defined by statute temporal or geographic limitations that were otherwise subject to a reasonableness requirement under the common law, and, in some cases, restrict enforcement depending on the circumstances of the employees’ termination (voluntary or involuntary or for or without cause).¹⁷

Despite the considerable amount of state legislative activity targeting NCAs, the underlying legislation reflects more nuance than outright prohibition. Notably, many states have reaffirmed through the newly enacted legislation that restrictions or prohibitions on NCAs do not affect the enforceability of non-disclosure agreements or protection of trade secrets.

The diversity in these approaches can be seen as vindication for both critics and proponents of the now-dead FTC Non-Compete Rule. For opponents, the state law developments represent the "laboratory of democracy" continuing the honored tradition of incremental development of legal doctrines—just the sort of thing the rule would have frozen in place. Advocates of the rule, however, can also take some comfort that the proposed outright ban spurred considerable activity in this area, including in the legislatures the previous majority criticized for inaction.

Practical implications for employers

The FTC’s retreat from rulemaking does not mark the end of regulatory scrutiny. Employers instead face a dual challenge in protecting intellectual property rights through NCAs: navigating aggressive federal enforcement under Section 5 and adapting to increasingly restrictive state laws.

• Audit Existing Agreements: Ensure compliance with evolving state statutes and FTC enforcement priorities.
• Limit Use: Most businesses don’t need every employee to sign an NCA. Think about who really needs to be restricted after they move on from your company.
• Tailor Restrictions: Limit scope, duration, and geography to what is necessary to protect your business interests.
• Be Transparent: Make sure NCAs are prominently disclosed in the underlying agreements and employees understand the restrictions.
• Consider Alternatives: Adopt confidentiality agreements, non-solicitation clauses, and operational safeguards to protect trade secrets and customer relationships.

The era of blanket non-competes is over; nuanced, narrowly tailored agreements—and robust alternative protections for intellectual property—are now essential.

This article was originally published in The Federal Lawyer here.

Authored by Lee Whitesell and Lacy Brown.