Autopsy of the FTC's Aborted Non-Compete Regulation
Employee Non-Competition Agreements in the United States: A Complex Patchwork of State Laws
The landscape of employee non-competition agreements in the United States is currently characterized by a lack of federal regulations, leaving enforcement and legality primarily governed by a complex patchwork of state laws with varying rules and restrictions.
In April 2024, the Federal Trade Commission (FTC) attempted to impose a nationwide ban on most employee non-compete agreements with a final rule intended to take effect by September 2024. This rule would have invalidated nearly all new and existing non-competes, except for those involving senior executives. However, in August 2024, a federal court in Texas blocked enforcement of the FTC’s rule, ruling that it exceeded the agency’s authority and violated federal administrative law. Consequently, the FTC’s broad ban on non-competes is not currently enforceable.
The result has returned non-competes regulation to the states, where laws are highly varied. Some states, like California, North Dakota, Oklahoma, and Minnesota, effectively ban non-competes outright for nearly all employees. Other states permit non-competes but only enforce them if employees exceed certain salary thresholds. For example, Illinois, Washington, and Colorado only enforce non-competes for employees earning above $75,000, $123,000, and $127,000 respectively. Even then, agreements must be reasonable in scope and duration. States differ further in industry-specific bans, such as restrictions on healthcare workers in Arkansas, Indiana, and Colorado.
Notably, in July 2025, Florida passed the CHOICE Act, which assertively legalizes and creates a presumption of enforceability for covered non-competes meeting salary thresholds. This Act also includes “garden leave” provisions (paid leave during non-compete enforcement) — a rare example of state legislation affirming and clarifying non-compete enforceability.
Meanwhile, at the federal level, previous executive orders promoting competition policies that encouraged FTC regulation of non-competes have been revoked by the current administration, signaling less federal intervention for now.
Employers with a multistate workforce often seek to include choice of law (and, often, choice of forum) provisions in their employee non-compete agreements to ensure a consistent governing law. However, courts may view choice of law provisions as against public policy, particularly when attempting to enforce a choice of law provision that is friendly to non-competes in a jurisdiction that disapproves of non-competes.
Conflicting state laws can complicate matters, particularly when an employee moves across state lines, leading to disagreements about which state’s law should apply to their non-compete. Delaware court cases have struck down non-compete provisions after finding them to be overbroad, leaving the employees free to work for direct competitors.
FTC Chairman Andrew N. Ferguson stated that non-compete agreements are among the "notable examples of conduct that falls under the FTC’s jurisdiction." The FTC retains its authority to adjudicate unfair business practices in specific cases, including non-competes. The FTC has also announced a task force on unfair and anti-competitive labor market practices.
Employers should stay informed about non-compete laws in those jurisdictions where they have employees and any developments from the federal government, such as how the FTC task force proceeds. As the regulatory environment remains fragmented, compliance can be challenging, especially for companies operating across multiple states or with remote workforces.
[1] FTC’s Non-Compete Rule Blocked by Texas Court [2] State Laws on Non-Compete Agreements [3] Non-Compete Agreements: A State-by-State Guide [4] Biden Administration Revokes Executive Order Promoting Competition [5] FTC’s Non-Compete Rule Blocked: What Employers Need to Know
- In the context of the United States, the litigation over the FTC's non-compete rule has left the public policy surrounding employee non-competition agreements largely determined by state laws, making it crucial for businesses with a multistate workforce to stay updated on state-specific policies (State Laws on Non-Compete Agreements).
- The financial implications of non-competition agreements for businesses can be significant, as varying state laws and the fluidity of federal regulations require constant monitoring to ensure compliance and avoid litigation (Non-Compete Agreements: A State-by-State Guide).
