Non-Compete Agreement: What It Means for Employers

What it means in practice

What the term covers. Official definitions vary in wording but share a core. The FTC describes a non-compete as contract terms that, after a worker has stopped working for an employer, restrict the worker's freedom to accept employment with a competing business, to form a competing business, or otherwise to compete with the employer. Minnesota defines a covenant not to compete as an agreement that restricts an employee, after termination, from working for another employer for a specified period, in a specified geographical area, or in a similar capacity. Washington's definition is broader: every written or oral covenant that restrains an employee or independent contractor from a lawful profession, trade or business, plus any agreement that directly or indirectly prohibits accepting or transacting business with a customer. Non-competes can sit in offer letters, employment contracts and severance agreements; the NLRB General Counsel's 2023 memo addressed both employment contracts and severance agreements.

Who sets the rules. There is no general federal statute that approves or bans employee non-competes. Whether one can be enforced is decided mainly under state law, which ranges from near-total bans to statutes that allow non-competes only above an earnings threshold or with advance disclosure. In the Gateway matter, FTC Chairman Andrew Ferguson wrote that all fifty states regulate non-competes extensively. Federal agencies can still act against particular agreements, as described below. This page explains the framework; it does not assess whether any specific agreement is enforceable.

Non-compete vs. non-solicitation vs. NDA. These are related but different restrictions. A non-solicitation agreement bars a former employee from soliciting the employer's customers or employees; Washington defines it as prohibiting solicitation of any employee to leave, or of any current customer to stop or reduce business with the employer. A non-disclosure agreement (NDA) protects confidential information and trade secrets. Minnesota and Washington both exclude NDAs and non-solicitation agreements from their definitions of a non-compete, so a state non-compete ban does not by itself void them. Labels do not control, though: Washington treats a clause that bars doing business with a customer as a non-compete, and from June 30, 2027 a Washington customer non-solicitation clause may cover only customers, patients or clients with whom the employee established or substantially developed a direct relationship, for no more than 18 months. The FTC has pointed to narrowly tailored NDAs and non-solicitation agreements as less restrictive alternatives to non-competes. "Garden leave," where a departing employee stays on the payroll but away from work during a notice period, is a contract arrangement rather than a term defined in the federal sources reviewed here; how a state treats it depends on its law and the wording.

The FTC rule that never took effect. On May 7, 2024, the FTC published its Non-Compete Clause Rule (89 FR 38342). It would have made it an unfair method of competition to enter into non-competes with workers on or after September 4, 2024, and would have made most existing non-competes unenforceable, while letting existing agreements with senior executives remain. In Ryan, LLC v. FTC, the federal district court in the Northern District of Texas concluded the FTC exceeded its statutory authority and that the rule was arbitrary and capricious, and set it aside; the FTC says that August 20, 2024 order stopped it from enforcing the rule. On September 5, 2025 the Commission voted 3-1 to dismiss its appeals in the Fifth and Eleventh Circuits and accede to the vacatur. A final rule effective February 12, 2026 (91 FR 6507) removed part 910 from the Code of Federal Regulations. The FTC's rule page states the rule is not in effect and not enforceable.

FTC enforcement, case by case. Section 5 of the FTC Act prohibits unfair methods of competition, and the FTC now challenges individual non-competes it considers unjustified, overbroad or anticompetitive. On September 4, 2025 it issued a request for information on employer non-competes (comments were due November 3, 2025), saying non-competes "can serve valid purposes in some circumstances" but are "often subject to abuse." On September 10, 2025, Chairman Ferguson sent warning letters to several large healthcare employers and staffing firms urging a comprehensive review of their employment agreements, including non-competes. In April 2026 the FTC sent similar letters to 13 pest-control companies.

Gateway Services. The FTC alleged that the largest U.S. pet cremation company required all new hires from 2019, including hourly crematory workers and route drivers, to accept a one-year ban on working in pet cremation anywhere in the United States (California employees excepted). The FTC approved a final order in November 2025 covering nearly 1,800 workers. As described in the Federal Register, the proposed order bars Gateway from entering, maintaining or enforcing non-competes, limits customer non-solicitation clauses to customers the employee directly contacted or personally served in the last 12 months of employment, requires written notice to current and former employees, and runs ten years.

Rollins. The FTC alleged that Rollins, one of the largest U.S. pest-control companies, required non-competes of new hires including technicians and customer-service representatives, typically barring pest-control work for two years within about 75 miles of the employee's location. The complaint analysis said narrowly tailored non-solicitation agreements could serve Rollins's interests. A final consent order approved June 22, 2026 requires Rollins to stop enforcing non-competes against more than 18,000 employees and to tell current and former employees they may compete, including by starting their own business.

Facts the FTC has cited. In Gateway, the Chairman's statement said the Commission applies a case-specific approach and that not all non-competes are unlawful; it noted they can encourage investment in training and make it possible to sell a business. Facts it pointed to included nationwide geographic scope, applying the same covenant to executives and low-skill hourly workers, demanding non-competes from workers terminated weeks later or in areas the company had left, and the availability of less restrictive means. These are enforcement views, not a safe harbor.

NLRB General Counsel memos. On May 30, 2023, NLRB General Counsel Jennifer Abruzzo issued GC 23-08 to the agency's regional offices, taking the view that offering, maintaining or enforcing non-competes violates the National Labor Relations Act except in limited circumstances, because they can chill employees' Section 7 rights to act together. A later memo, GC 25-01, addressed remedies. On February 14, 2025, Acting General Counsel William Cowen issued GC 25-05, which rescinded both, citing a case backlog.

Where states differ: California (example). Business and Professions Code 16600 voids every contract that restrains anyone from a lawful profession, trade or business, except as provided in sections 16601 through 16607 (for example, sale or dissolution of a business). According to the California Attorney General, SB 699 (section 16600.5), effective January 1, 2024, makes it generally illegal for employers to enter into non-competes with California employees, applies to agreements signed inside or outside California, and lets employees seek damages, injunctive relief and attorney's fees. AB 1076 (section 16600.1) required employers to notify current employees, and former employees employed after January 1, 2022, by February 14, 2024 that their non-compete was void; the Attorney General says failing to do so is an act of unfair competition. The Senate Judiciary Committee analysis describes the notice as a written individualized communication to the last known address and email address. See California labor laws for related rules.

Minnesota (example). Minnesota Statutes 181.988 makes any covenant not to compete void and unenforceable, except one agreed to during the sale of a business or in anticipation of a business dissolution. It applies to agreements entered into on or after July 1, 2023. "Employee" includes independent contractors, and other provisions of a contract survive when the non-compete is void. An employer may not require an employee who primarily resides and works in Minnesota to litigate or arbitrate a Minnesota claim elsewhere or give up Minnesota law, and a court may award an employee attorney fees.

Washington (example). Until June 30, 2027, RCW 49.62 voids a non-compete unless its terms were disclosed in writing by the time the offer was accepted (or, if signed later, the employer gave independent consideration) and the employee's annualized earnings exceed the threshold that the Department of Labor & Industries adjusts each year. Earnings mean Form W-2 box 1 compensation, or Form 1099-MISC payments for contractors. Durations over 18 months are presumed unreasonable. A violator owes the greater of actual damages or a $5,000 statutory penalty plus attorneys' fees. Under 2026 legislation, all non-competes become void on June 30, 2027 regardless of when signed, employers may not enforce, threaten to enforce or enter into one, and by October 1, 2027 employers must make reasonable efforts to notify current and former employees and contractors whose covenants are still in effect. Other states take other approaches, so check your state's legislature or labor department.

Worked example: Washington threshold. A Washington employee whose W-2 earnings annualize to $120,000 leaves in 2026. That is below the 2026 employee threshold of $126,858.83, so RCW 49.62.020 treats the non-compete as void and unenforceable. For January through June 2027, L&I has set the threshold at $131,326.59; from June 30, 2027, the threshold no longer matters because all non-competes are void.

Worked example: Washington layoff. Until June 30, 2027, a non-compete is void against an employee terminated in a layoff unless enforcement includes pay equal to base salary for the enforcement period, minus what the employee earns from new work during that period. For an employee laid off at a $150,000 base salary under a six-month covenant who earns $40,000 elsewhere in those six months, that is $75,000 minus $40,000, or $35,000.

Worked example: Minnesota timing. An employer hires a Minnesota employee in August 2023 with a two-year non-compete in the offer letter. Because the agreement was entered into after July 1, 2023 and does not involve a sale or dissolution of a business, section 181.988 makes it void, while the rest of the offer letter, such as a confidentiality clause, remains.

What employers typically review. The rules above point to a few practical checks: which agreements contain non-compete, non-solicitation or confidentiality terms, and where each worker lives and works; whether a state limits out-of-state choice of law or forum (Minnesota and Washington do, and California's law reaches agreements signed elsewhere); whether contractors are covered; and any notice duty or deadline. Washington thresholds change every January 1 and California's notice deadline has passed. Offboarding and the exit interview are where continuing obligations are usually restated, and restrictive covenant policies often appear in the employee handbook.

FAQ: Is there a federal non-compete ban in 2026? No. The FTC rule was set aside and removed from the CFR effective February 12, 2026. The FTC still brings Section 5 cases against specific agreements.

FAQ: Does at-will employment change the analysis? At-will employment concerns ending the job; whether a non-compete binds afterward depends on state law. Washington, for instance, requires independent consideration for a non-compete signed after employment starts, until June 30, 2027.

FAQ: Do state bans cover independent contractors? In some states. Minnesota's definition of employee includes independent contractors, and Washington sets a separate contractor threshold until its full ban takes effect.

FAQ: Can an agreement require arbitration in another state? Minnesota bars requiring an employee who primarily resides and works there to adjudicate, including by arbitration, a Minnesota claim elsewhere, and Washington voids clauses requiring a Washington-based employee or contractor to adjudicate a non-compete outside the state. See alternative dispute resolution (ADR).

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