Employment / Editorial

Non-competition Agreements, the State-by-State Reality After the FTC Rule Vacatur

Non-competition agreements are restrictive covenants between an employer and an employee that bar the employee from competing with the employer's business for a defined period after the employment ends. Whether a specific covenant is enforceable depends entirely on the governing state's rule and the four-factor reasonableness analysis, because the FTC noncompete rule was vacated nationwide on August 20, 2024 in Ryan LLC v. FTC. State law controls.

Reviewed by Lisa Nguyen, Esq., Employment Law AttorneyBar admissions: Texas, Illinois

Banned or Voided

  • CaliforniaCal. Bus. & Prof. Code s. 16600 voids non-competes in nearly all employment settings, with narrow sale-of-business and partnership exceptions.
  • OklahomaOkla. Stat. tit. 15 s. 217 prohibits non-compete restraints on the right to engage in a lawful profession, except for narrow business-sale carve-outs.
  • North DakotaN.D. Cent. Code s. 9-08-06 voids contracts that restrain anyone from exercising a lawful profession, with limited business-sale and partnership-dissolution exceptions.
  • MinnesotaMinn. Stat. s. 181.988 voids non-competes signed on or after July 1, 2023; pre-existing covenants remain governed by prior common law.

Limited or Capped

  • ColoradoC.R.S. s. 8-2-113 limits non-competes to highly compensated workers with disclosure and 14-day notice requirements.
  • IllinoisIllinois Freedom to Work Act caps non-competes by salary threshold and requires 14-day review and tied-back consideration beyond at-will employment.
  • MassachusettsMNAA imposes a salary floor, garden-leave or other consideration, and a one-year duration cap with mandatory disclosure.
  • WashingtonRCW 49.62 caps non-competes by salary threshold and limits duration to eighteen months without specific justification.
  • OregonORS 653.295 limits non-competes by salary threshold, written notice timing, and a maximum duration of twelve months.
  • Maine26 M.R.S. s. 599-A bans non-competes for low-wage workers and requires advance written notice for higher-wage employees.

Broadly Enforceable

  • TexasTex. Bus. & Com. Code s. 15.50 enforces non-competes ancillary to an otherwise enforceable agreement, where the restraint is reasonable in time, scope, and geography.
  • FloridaFla. Stat. s. 542.335 expressly enforces reasonable restrictive covenants and codifies a presumption of reasonableness for short-duration restraints.
  • GeorgiaO.C.G.A. s. 13-8-50 et seq. authorizes reasonable restrictive covenants and permits judicial blue-penciling of overbroad terms.
  • New YorkCommon-law standard: enforceable where necessary to protect a legitimate business interest, reasonable in scope, and not harmful to the public.
  • OhioCommon-law standard: courts apply Raimonde v. Van Vlerah, modifying overbroad covenants to reasonable terms (judicial blue-pencil).
  • Most other statesApply the Restatement (Second) of Contracts s. 188 reasonableness analysis; some allow blue-penciling, others apply red-pencil all-or-nothing review.
Definition

What Non Competition Agreements Actually Bind

A non-compete covenant is a private contract between an employer and an employee under which the employee promises not to compete with the employer for a defined time, in a defined territory, after the employment ends. The promise typically covers three categories of post-employment conduct: working for a direct competitor in the same line of business, starting a competing business of one's own, and soliciting the employer's customers or recruiting the employer's workforce. Drafters call this combination a restrictive covenant bundle. Each of those three categories can be drafted and enforced separately, and many sophisticated employment agreements do exactly that, breaking the broad restraint into a non-compete, a non-solicitation of customers, and a non-recruit of employees.

The doctrinal frame is the Restatement (Second) of Contracts section 188, which treats non-compete agreementterms as restraints on trade and applies a reasonableness test: the restraint is enforceable only if it protects a legitimate business interest, is no broader than necessary to protect that interest, and does not impose undue hardship on the employee or harm to the public. Every state that enforces non-competes layers that frame on top, and every state that bans them does so by statute that overrides the common-law test. The federal layer, the FTC's Non-Compete Clause Rule, was vacated nationwide in 2024 and does not currently apply.

Outside the employment context, the same noncompete agreement mechanism appears in business-sale agreements, where the seller agrees not to compete with the buyer's acquired business, and in franchise agreements, where the franchisee agrees not to compete with the franchisor's system. Sale-of-business covenants are enforced more readily than employment covenants, because the seller is paid a substantial sum for the goodwill being transferred and courts treat the bargain as a sale of an asset rather than a restraint on a worker's livelihood.

For business contracts that ship alongside non-competes (employee offer letters, severance agreements, equity grant agreements, confidentiality covenants), the underlying contract-formation elements are the same as any other commercial agreement: offer, acceptance, and consideration. The non-compete sits on top of that ordinary contract foundation; the analysis below assumes those formation elements are already satisfied.

Purpose

Why Employers Ship Non-competition Agreements at All

Employers ship non-competition agreements to protect a small number of legitimate business interests that cannot be protected by trade-secret law alone. The first is customer goodwill cultivated by the employee on the employer's payroll, the asset a non-compete clause is designed to capture. A senior account manager who spent five years building relationships with the employer's top thirty customers carries those relationships personally; if the employee walks across the street, the customers may walk with them. A reasonable non-solicitation provision tethered to that customer list is the standard protection.

The second protected interest is confidential information that does not quite rise to the level of a trade secret. Pricing strategy, internal margin data, in-development product roadmaps, and unpublished sales pipelines are commercially sensitive but often fail the strict trade-secret test under the Defend Trade Secrets Act. A short-duration non-compete fills that gap by preventing the employee from immediately deploying the same knowledge against the employer in a competing role.

The third protected interest is specialized trainingpaid for by the employer. A three-month manufacturer-certified training that costs the employer fifteen thousand dollars per employee is a real investment. A modest non-compete, often paired with an educational repayment provision, recoups that investment if the employee leaves quickly. Some states (Illinois, Massachusetts) require the training to be substantial and uncommon in the industry before that interest will support a covenant.

The fourth, and the most contested, is workforce stability. A few states recognize a thin protectable interest in preventing organized employee raids by departing leaders. Most do not, and the trend in the past decade has been to narrow this category sharply. The first three interests carry most modern non-compete litigation; workforce-stability rarely survives standalone review.

Employers in California, Oklahoma, North Dakota, and (for covenants signed after July 2023) Minnesota cannot rely on non-competes at all and must protect those four interests through other doctrinal vehicles, principally the federal Defend Trade Secrets Act, the relevant state Uniform Trade Secrets Act, standalone confidentiality covenants, and well-drafted non-solicitation provisions that some banning states still enforce within narrow limits. Companies that operate across all four banning states often pair a confidentiality covenant with a NDA confidentiality agreement template and rely on the trade-secret track instead.

Anatomy

Anatomy of a Working Non-competition Agreement

A working non-competition agreement has four scoring elements that every reviewing court evaluates in sequence. Each element of the non-compete enforceabilitytest has a presumptively-reasonable range and a red-flag pattern that gets the covenant struck. The grid below is how an employment lawyer scores a covenant on intake; it is also how state courts score it on summary judgment.

1

Legitimate business interest

Protected interests recognized by most states: trade secrets, confidential customer information, customer goodwill cultivated by the employee, specialized training paid for by the employer, and (in some states) workforce stability.

Red flag:A general fear of competition from a former employee, with no specific protectable interest, is not legitimate and the covenant fails at the threshold.

2

Geographic scope

Reasonable scope is tied to where the employer actually does business and where the employee actually performed work or had customer contact. National scope is enforced for genuinely national businesses, narrower scope for regional businesses.

Red flag:A regional service business that imposes a nationwide non-compete on a junior employee with local-only contact will routinely be struck or blue-penciled to the actual territory.

3

Temporal scope

Most states accept six to twelve months as presumptively reasonable. Twelve to twenty-four months is enforced where the protected interest justifies the longer window. Beyond two years, the burden on the employer to justify the restraint becomes substantial.

Red flag:A five-year non-compete on a sales rep who never had access to long-term confidential strategy will almost always be struck or reduced.

4

Adequate consideration

Initial employment is sufficient consideration in most states. Some states (Illinois, Pennsylvania) require continued employment for a substantial period, or new consideration like a promotion, bonus, equity, or specialized training, when a non-compete is signed mid-employment.

Red flag:A non-compete forced on an existing at-will employee with nothing new in exchange will fail in jurisdictions that require independent consideration (Illinois Freedom to Work Act expressly requires it).

Federal Rule Status, 2023 to 2026

The FTC Non-Compete Rule, Proposed to Vacated

  1. 1
    2023-01-05
    FTC proposes the Non-Compete Clause Rule

    The Federal Trade Commission published a Notice of Proposed Rulemaking that would categorically ban most non-competes nationwide and void existing covenants for many workers.

  2. 2
    2024-04-23
    Final rule adopted (16 CFR Part 910)

    FTC voted 3-2 to adopt the final rule with a 120-day effective window. The rule would have banned new non-competes for all workers and voided existing non-competes for everyone except senior executives.

  3. 3
    2024-07-03
    Preliminary injunction in Ryan LLC v. FTC

    Northern District of Texas issued a preliminary injunction limited to the named plaintiffs, while signaling skepticism of the FTC's statutory authority to issue substantive competition rules.

  4. 4
    2024-08-20
    Nationwide vacatur

    Same court entered a final order setting aside the rule on a nationwide basis. As of 2026 the rule has no enforcement effect and state law continues to control non-compete enforceability.

Bottom line for 2026 drafting: ignore the federal rule, draft to the governing state's standard, and assume any subsequent FTC reissuance will face the same vacatur path.

Non-compete vs. Trade Secret, Pick the Doctrinal Track

Non-competition agreement
  • •Bars the employee from competing for a defined time and territory after the employment ends.
  • •Enforceability turns on state law, the four-factor reasonableness rubric, and adequacy of consideration.
  • •Employer must affirmatively prove a legitimate business interest justifies the restraint.
  • •Banned in California, Oklahoma, North Dakota; capped in Colorado, Illinois, Massachusetts, Oregon, Washington, Maine.
Trade-secret protection (DTSA + state UTSA)
  • •Protects defined confidential information (formulas, customer lists, source code, processes) for as long as the information remains a trade secret.
  • •Enforced uniformly under the federal Defend Trade Secrets Act, 18 U.S.C. s. 1836, plus most states' Uniform Trade Secrets Act.
  • •No geographic or temporal limit; the obligation runs as long as the information has independent economic value and is subject to reasonable secrecy efforts.
  • •Available in every state, including the three that ban non-competes outright. The doctrinal fallback for employers who lose the non-compete fight.

Many restrictive covenant packages now pair a narrow non-compete with a detailed confidentiality covenant and a separate non-solicitation. Companies that distribute confidential business information to employees as part of an equity grant or a partnership-track promotion frequently use a standalone NDA as the primary protection, with the non-competition agreement as a secondary layer. The NDA agreements overview covers the confidentiality side; this page covers the restrictive-covenant side.

Enforcement

How Courts Tilt the Balance on Non-competition Agreements

Three opinions illustrate the modern enforcement landscape from the broadest state ban to the federal rule vacatur to the judicial-modification approach used by most enforcing states. Read together, they describe the spectrum a covenant can land on depending on jurisdiction, and they explain why drafting to the governing state matters more than drafting to a generic template.

Edwards v. Arthur Andersen, 44 Cal.4th 937 (Cal. 2008)

California Supreme Court squarely reaffirmed that section 16600 voids non-competes in nearly all employment contexts and rejected the narrow-restraint exception some federal courts had read into prior case law. Confirms California's status as the broadest non-compete ban among U.S. jurisdictions.

Ryan LLC v. FTC, No. 3:24-cv-00986 (N.D. Tex. Aug. 20, 2024)

Federal district court vacated the FTC's Non-Compete Clause Rule nationwide, holding the agency lacks statutory authority under the FTC Act to promulgate substantive competition rules of that scope. As of 2026 the federal rule is not enforced and state law controls.

Reed Mitchell Inc. v. Maddox, 158 N.E.3d 1019 (Ohio Ct. App. 2020)

Ohio appellate court applied the Raimonde reasonableness factors and blue-penciled an overbroad covenant from twenty-four months to twelve months and from a multi-state radius to the territory the employee actually serviced. Illustrates the modify-rather-than-strike approach typical of blue-pencil states.

Blue-Pencil States vs. Red-Pencil States, the Modification Question

When a covenant is overbroad, two judicial responses dominate. Under the blue pencil doctrine, states like Florida, Georgia, Ohio, Texas (under some decisions), and many others modify the offending term to a reasonable scope and enforce the modified version. Red-pencil states (Virginia, traditionally Wisconsin) refuse to modify and void the entire covenant if any term is unreasonable, which penalizes overdrafting and rewards employees in close cases. Reformation states (a middle category) rewrite the covenant to a judicial best-guess of what the parties would have agreed to. Drafting to the governing state's response is the practical difference between a covenant that survives and a covenant that evaporates entirely.

Blue-Pencil

Court strikes the unreasonable language and enforces the rest. Florida, Georgia, Ohio (Raimonde), Texas (under some statutes and decisions). Most forgiving of overbroad drafting.

Red-Pencil

Court voids the entire covenant if any term is unreasonable. Virginia and (historically) Wisconsin. Punishes overbroad drafting; rewards conservative narrow scope.

Reformation

Court rewrites the covenant to what the parties most likely would have agreed to in a reasonable bargain. Some states use this as a formal doctrine; others arrive there in practice.

The pattern across the case law is consistent: a narrow, specific, well-supported non-compete tied to a real protectable interest survives in most enforcing states. A broad, generic, template-driven covenant fails. For business agreements that sit alongside non-competes (employee equity grants, operating agreements that reference founder non-competes, partnership agreements with member-departure restraints), the underlying corporate documents carry equal weight; the LLC operating agreements template walkthrough covers the entity-level drafting.

Common Questions

Non-competition Agreements, Frequently Asked Questions

Are noncompete agreements illegal now?
No, not nationally. The FTC's Non-Compete Clause Rule, which would have voided most existing non-competes and barred new ones, was vacated nationwide on August 20, 2024 by the U.S. District Court for the Northern District of Texas in Ryan LLC v. FTC. The court held that the FTC lacked statutory authority to issue substantive competition rules of that scope. As of 2026 the federal rule is not enforced, and non-competition agreements are governed by state law. Three states (California, Oklahoma, North Dakota) ban non-competes in nearly all employment contexts. Minnesota voids new non-competes signed after July 1, 2023. Several states (Colorado, Illinois, Massachusetts, Oregon, Washington, Maine) cap non-competes by salary threshold, geographic scope, or temporal scope. Most other states still enforce reasonable non-competes that protect a legitimate business interest, are reasonable in geographic and temporal scope, and are supported by adequate consideration. Whether a specific non-compete is enforceable turns entirely on the governing state's rule and the four-factor reasonableness analysis.
What is a non-competitive agreement?
A non-competitive agreement, more often called a non-competition agreement or non-compete, is a contract between an employer and an employee under which the employee agrees not to compete with the employer's business for a defined period after the employment ends. The employee typically agrees not to work for a direct competitor, not to start a competing business, and not to solicit the employer's customers within a specified geographic area for a specified time. The employer typically provides consideration in the form of initial employment, continued employment, a promotion, a bonus, equity, or specialized training. Outside the employment context, similar covenants appear in business-sale agreements (the seller agrees not to compete with the buyer's acquired business) and in franchise agreements (the franchisee agrees not to compete with the franchisor's system). Whatever the setting, the core mechanism is the same: a restrictive covenant exchanged for value, enforceable only if reasonable and supported by a legitimate protectable interest.
What is an example of a non-compete agreement?
A representative non-compete reads: 'For a period of twelve months following the termination of employment for any reason, Employee agrees that Employee will not, directly or indirectly, within a fifty-mile radius of any office at which Employee worked during the final twelve months of employment, engage in, own, manage, operate, control, be employed by, or provide services to any business that competes with Employer's commercial-grade HVAC installation business. Employee further agrees not to solicit any Employer customer Employee personally serviced during the final twelve months of employment, and not to recruit any then-current Employer employee, for the same twelve-month period.' That covenant has all four reasonableness elements: a defined activity (commercial-grade HVAC installation, not all HVAC work), a defined geography (fifty-mile radius from where the employee actually worked), a defined duration (twelve months), and tied-back consideration (the at-will employment itself, which most non-California states accept as sufficient consideration). A court evaluating that covenant will weigh whether each element is reasonable in the specific industry and the specific employee's role.

Drafting or Reviewing a Non-compete?

A workable non-compete is calibrated to the governing state, the employee's specific role, and the actual protectable interest. Submit the deal facts, and an employment-law attorney returns a drafted or reviewed covenant tied to the four-factor reasonableness test, the relevant state statute, and the available trade-secret-track fallback.

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Or browse the contract templates Word library and the free agreement contract template catalog for the underlying drafting frames.