Beyond the Headlines: What to Know About Non-Compete Enforcement After the FTC’s Retreat

By Ethan Litwin and Lindsay Maher

Non-compete agreements are facing heightened scrutiny at both the state and federal levels. Although the Federal Trade Commission’s (FTC) nationwide non-compete rule was struck down (and ultimately withdrawn), there is a broad political consensus on the need to limit restrictions on competition in labor markets, leading to a dynamically evolving enforcement landscape at the state level.

Indeed, courts and legislatures across the country are increasingly questioning whether non-competes are necessary at all—especially where confidentiality, non-solicitation, and trade-secret protections already serve to safeguard legitimate employer interests in most instances.

From an antitrust enforcement perspective, non-competes should be viewed as exceptional measures, justified only when narrowly tailored to prevent demonstrable harm to a legitimate competitive or proprietary interest. Used broadly, particularly against low-wage or entry-level employees, they risk violating antitrust and state labor laws designed to preserve open labor markets.

Part I: The Legal Landscape

1. What happened to the FTC’s non-compete rule?

In 2023, the FTC proposed a sweeping rule declaring most non-compete clauses to be “unfair methods of competition” under Section 5 of the FTC Act, effectively banning them nationwide. The final rule, issued in April 2024, would have voided existing non-competes and prohibited future ones, except for a limited category of senior executives.

Before the FTC’s rule could take effect, it was challenged in Ryan LLC v. FTC (N.D. Tex. 2024), where the court held that the FTC had exceeded its limited statutory rulemaking authority. Following this defeat, the FTC abandoned its appeal and withdrew the rule, ceding much of the enforcement landscape regarding non-competes to the states.

Yet, even in defeat, the FTC’s effort crystallized a national policy consensus: broad non-competes harm competition, suppress wages, and restrict worker mobility. That evolving consensus now guides state legislatures, enforcement agencies, and courts, which are rapidly tightening standards for what counts as a “reasonable” restraint on labor markets.

2. Are non-competes still enforceable?

Yes—but only in increasingly narrow circumstances. Broadly speaking, non-competes remain enforceable under most state laws when they serve a legitimate business interest and are reasonable in duration, geography, and scope.

However, courts increasingly hold that non-competes are invalid when they duplicate protections already provided by valid confidentiality or non-solicitation agreements. Moreover, agreements that purport to bind lower-level or hourly employees, or that blanket entire industries, are particularly vulnerable to challenge. The clear and obvious trend is to require companies to demonstrate that the restraint created by a non-compete is “narrowly tailored” to protecting a legitimate business interest. Where employees can demonstrate that less restrictive alternatives to a non-compete exist, courts are increasingly refusing to enforce the terms of those non-compete provisions.

3. Which states have banned non-competes entirely?

Four states—California, Minnesota, Oklahoma, and North Dakota—enforce complete prohibitions on employment non-competes.

California’s 2023 amendments codified long-standing case law and extended the ban to cover agreements executed outside the state but enforced within it. Minnesota’s 2023 statute imposed a prospective ban, allowing exceptions only in connection with the sale or dissolution of a business.

Other states, including Michigan, Illinois, and Texas, have pending or proposed legislation modeled on these bans. This reflects a growing view that employment mobility and fair competition outweigh speculative concerns about employee defection.

4. What about income-based limits on the enforceability of non-competes?

Some states have adopted income-based statutory guidelines on whether companies can impose non-compete obligations on an employee. Effectively, these guidelines are a middle path between outright bans and permissive enforcement, exposing only high income earners to potential non-compete obligations.

Examples include:

• Maine: Ban on non-competes for workers earning at or below 400% of the federal poverty level.
• Rhode Island: Ban on non-competes for workers earning below 250% of the federal poverty level.
• Virginia: Ban on non-competes for employees earning less than the state’s average weekly wage.

Significantly, a bill pending in the New York legislature proposes to ban non-competes for all workers earning less than $500,000 annually. The New York bill has passed in the Senate and is in Assembly Committee.

5. How do industry-specific restrictions work?

Several states have adopted targeted bans—especially in healthcare, where public welfare and patient access outweigh employer interests. For example, Arkansas and Louisiana have largely prohibited physician non-competes, while Indiana has expanded its ban on physician non-competes with hospitals and related entities. Pennsylvania prohibits non-competes for most healthcare practitioners, but still allows reasonable restrictions in other industries. New York’s draft bill also prohibits non-competes in healthcare generally.

These laws reflect another important trend to banning the use of non-competes that restrain worker mobility in essential services.

6. What does the “reasonableness” test require?

In states without statutory bans, courts apply a reasonableness test, balancing the employer’s legitimate business interest against the hardship to the employee and the public. Typical factors include duration, geographic scope, breadth of prohibited activity, and availability of less restrictive means (like the use of confidentiality or targeted non-solicitation clauses).

Courts are now applying this test more strictly than ever. Non-competes that extend beyond what is necessary to protect legitimate interests—or that apply to workers without access to sensitive information or that are not responsible for key customer relationships—are often deemed unenforceable restraints of trade.

7. What does “narrow tailoring” mean in practice?

A narrowly tailored non-compete provision would apply only to employees with genuine access to highly sensitive information, covers an appropriately limited geographic area and duration, targets specific competitive activities that threaten legitimate interests, and does not duplicate obligations on former employees to continue to protect the former employer’s confidential information and trade secrets.

8. What is an example of a problematic non-compete clause?

“You hereby acknowledge that the business that the Company is engaged in is highly competitive and that the Company would be irreparably harmed if you were to compete, directly or indirectly, with the Company or to assist any other person or party in a manner that was competitive to the Company. Accordingly, you hereby agree that you will not, following your End Date, acting alone or with others, engage in, directly or indirectly, or have any direct or indirect interest in, any person, firm, corporation or business, whose principal business activity corresponds to the business of the Company, either in whole or in part, whether as an employee, employer, consultant, advisor, officer, director, agent, partner, stockholder, member or otherwise that is competitive to the business of the firm, without the express written consent of the Company. In addition, you hereby agree that you will not, following your End Date, perform job functions or responsibilities similar to those which you performed for the Company. This includes working for your own account or for any person, firm, partnership, corporation, limited liability company, or any other entity.”

This clause is problematic for several reasons. First, the Company does not identify any legitimate business reason for restraining its employee’s freedom of movement. Second, the clause prohibits any employment by any competitor of the Company under any circumstances. Other than in states that continue to broadly enforce non-competes, this extremely broad restriction would be highly susceptible to invalidation. Third, the clause prohibits the employee from continuing to market his expertise under any circumstances. This restraint, standing alone, is highly problematic since it essentially precludes the employee from future employment for the period stated. Such a restraint would likely be invalidated under most state laws. Finally, the clause is not limited by geography or duration. Under most state laws, non-competes must be narrowly tailored by geography and duration. The failure to specify geography or duration would invite invalidation or, where state law permits courts to “blue line” non-competes, invite a court to determine what those reasonable limitations should be.

9. What is an example of a narrowly-tailored non-compete?

Even a non-compete that is narrowly tailored in scope, duration, and geography may still be invalidated if contrary to state laws that either prohibit non-competes outright or otherwise impose mandatory income guidelines or other metrics of reasonableness. With that caveat, the following example reflects many of the best practices developed in light of court decisions across multiple jurisdictions:

“For good and valuable consideration, to which I would not otherwise be entitled without entering into this Agreement, including: (i) my employment with the Company; (ii) any bona fide promotion I have received; or, (iii) other good and valuable monetary consideration I have received, I agree that, during the period of my employment with the Company and for a period of one year after my End Date, I will not, within the Restricted Territory and to preserve the Company’s goodwill therein, solicit, or sell to, any customer of the Company that was previously solicited by me on behalf of the Company or with whom I otherwise had material contact with during the six month period preceding my End Date. The Company and I agree and understand that the terms of this paragraph shall not apply if my primary place of employment is located in the State of California (or any other jurisdiction in which such terms are unlawful). The Company and I further agree and understand that the obligations in this paragraph shall not apply to me to the extent that any law applies to prohibit them, including on the basis of my residency, location of work, or income.”

Of course, this example is merely that and provided here only to show what an appropriately tailored non-compete might look like under applicable law and is not intended to demonstrate compliance with any particular state law. As noted below, employers should consult with counsel to review their legacy and current non-competes to ensure their ability to enforce their terms should the need arise.

10. What should employers do now?

Although state law, as discussed above, varies widely in approach, we recommend that employers should:

1. Re-evaluate all of their current and legacy non-compete language for compliance with applicable law, recognizing that applicable law may include not only the law as defined in the employment agreement, but also where the employee lives and/or conducts company business.
2. Use language to make clear that any restraint on worker mobility is narrowly tailored to protect specific legitimate business objectives regarding only those employees with demonstrable access to confidential data or responsibility for managing key customer relationships.
3. Consider whether the company can protect its interests through less restrictive tools—such as robust confidentiality, trade-secret, and non-solicitation clauses—to achieve the same objectives.
4. Ensure compensation or consideration for requiring the employee to agree to a non-compete clause is proportionate to the restriction and compliant with applicable laws.
5. Generally avoid applying non-competes to entry-level or hourly employees, where justification is weakest absent unusual circumstances.

11. When should employees seek legal advice about non-competes?

Legal advice is essential before signing or challenging a non-compete, as state law varies sharply and violations can lead to litigation or loss of employment opportunities. Employees that have signed non-compete agreements (or employment agreements with a non-compete clause) should consult counsel immediately if they are changing jobs, even if they are not joining a perceived competitor. Counsel can advise on how best to handle any concerns about the former employer’s ability to enforce the non-compete under the circumstances.

12. What steps should employees take when moving jobs?

Before giving notice to an employer:

1. Review any non-compete provisions carefully—note duration, geography, and covered activities. Compile evidence showing when the non-compete was agreed to, whether its terms were negotiated, whether the non-compete was included in the employee’s first employment agreement with the company, and if any consideration was paid in exchange for agreeing to the non-complete (e.g., higher salary or bonus).
2. Consult with antitrust counsel to determine whether the specific non-compete clause is enforceable under the applicable law that applies to the employment agreement or otherwise based on the employee’s residence or primary place of business.
3. Inform your new employer (confidentially) about the non-compete.

After joining a new company:

1. Do not use or disclose any of the prior employer’s confidential information.
2. Do not use or disclose any of the prior employer’s trade secrets.
3. If there is ambiguity concerning whether something is confidential or a trade secret, consult with counsel before using or disclosing such to a new employer.

Bottom line: Employees who act transparently and seek advice early are better positioned to negotiate limits or invalidate overbroad restrictions.

13. Can employees challenge a non-compete?

Yes. Depending on the applicable state law, a non-compete may be invalid if it is overly broad or unlimited in scope, lacks a clear legitimate business justification, applies to workers without access to trade secrets, or violates state statutes limiting non-competes by income or industry. While rules vary considerably by state, some relevant factors include:

1. Was the employee terminated without cause?
2. Can the employer clearly articulate the need for the non-compete, i.e., what is the specific legitimate business interest in the case of this specific employee?
3. Has the employer breached the employment agreement in any way, e.g., by failing to pay bonuses or commissions, or any benefits promised?
4. Is the effect of the non-compete so broad as to prevent the employee from working for a competitor, even in an unrelated role?
5. Is the new employer actually a competitor?

Many challenges succeed through negotiation or declaratory relief—without full litigation. Courts are especially receptive to arguments that the restriction duplicates confidentiality protections or unreasonably limits career advancement.

14. What remedies are available?

Employees can seek declaratory judgments that a non-compete is void, injunctions preventing enforcement, or damages and attorney’s fees where authorized by statute.

However, unilateral disregard of a non-compete without legal advice can still trigger disputes. The safest course is to consult counsel before acting, particularly where the agreement is ambiguous.

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The FTC’s failed rulemaking did not end the debate—it accelerated it. Across the country, legislatures, courts, and enforcers are converging on the same message: non-competes must be narrow, justified, and truly necessary to protect legitimate interests.

For employers, this means revisiting old templates and relying more on confidentiality and non-solicitation tools. For employees, it means recognizing that non-competes are now increasingly open to legal challenge.