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Non-compete clauses have become a legal and economic topic of debate in the United States over the past several years. These sections restrict the employees from entering businesses or rival companies or establishing other similar enterprises during a given time after quitting the job. Critics say that these provisions are harmful to mobility and innovation in labor. Read on if you want to fully understand the debate regarding their legitimacy, purposefulness, and effect on the economy.
The Expansion of Non-Compete Agreements Across Industries
Historically, high-level executives or specialized professionals who had access to proprietary information or maintained critical client relationships benefited from non-compete agreements.
However, in the last twenty years, they have been expanded to low-level and middle employees across industries, which may not pose much of a threat to former employers after leaving the company. That’s raised a lot of eyebrows among workers’ rights groups and lawmakers who argue these agreements do more harm than good and discourage labor mobility, depress wages, and inhibit innovation.
Despite these debates, employment restrictions are still valid tools for firms to protect their interests from unfair competition under federal law. Even though two federal agencies tried to ban them in 2024. However, many states passed laws in 2024 that limit how these clauses are interpreted for low-wage workers and healthcare professionals. More and more state courts are also pushing back on overly broad agreements that don’t offer employees much in return.
The Federal Trade Commission’s Attempted Ban and Its Legal Setback
On April 23, 2023, the commission introduced a notable rule called the “Proposed Rule,” which aims to ban non-compete clauses nationwide and categorize them as an unfair competitive practice. If enacted, this rule would render nearly all non-compete agreements unenforceable in the US, particularly for employees who do not hold senior executive positions with annual earnings exceeding $151,164. Basically, most workers wouldn’t have to worry about these restrictions anymore.
The Federal Trade Commission (FTC) tried to ban these trade restraint clauses but failed. In April 2024, the institution proposed a rule to stop new non-compete contracts and limit the enforcement of existing ones. They did this out of concern that workers were being boxed in and losing out on better job opportunities.
On August 20, 2024, Judge Ada Brown from the US District Court for the Northern District of Texas ruled against the ban, stating that the institution did not have the authority to enforce it. This ruling temporarily confirms that well-written non-compete agreements can be enforced under state law. The Federal Trade Commission fired back by appealing the decision, and now it’s a waiting game to see what higher courts decide.
National Labor Relations Board Leadership and Policy Shifts
Under the Trump administration, efforts to eliminate non-compete agreements will likely be strenuous. In other words, employers will probably hang on to these contracts as long as they can.
Jennifer Abruzzo, the former General Counsel of the National Labor Relations Board, criticized non-compete clauses. She believed they broke the National Labor Relations Act, except in some instances. On October 7, 2024, she called for “make whole relief” for workers affected by illegal non-competes. However, President Trump dismissed her on January 27, 2025, and her guidelines are expected to be canceled.
Key Arguments For and Against a Federal Ban
The Proposed Rule aims to improve fair competition and create better job opportunities by removing non-compete agreements. Supporters believe this will increase job movement, raise wages, and encourage innovation. On the flip side, opponents argue these agreements are a smart way to protect valuable business information and client relationships.
State-Level Action on Non-Competes
Four states ban employment restrictions completely, and 33 states and Washington, DC, have laws limiting their use. A growing number of states are also tying these agreements to salary thresholds so lower-paid workers aren’t caught up in them unnecessarily.
For example, in Colorado, non-compete agreements are only allowed for employees who earn more than $123,750. Here are the current salary requirements in some other states:
Washington, DC: $154,200.
Illinois: $75,000.
Maryland: $46,800.
Maine: $60,240.
New Hampshire: $30,160.
Oregon: $113,241.
Rhode Island: $37,650.
Virginia: $73,320.
Washington: $120,559.
New Restrictions for Healthcare Professionals
In 2025, Louisiana, Maryland, and Pennsylvania are fighting to limit or ban non-compete agreements for healthcare professionals. These states will join 17 others, including Colorado, Indiana, Kentucky, Tennessee, and Texas, that have already placed restrictions on employment for healthcare workers. For example, Pennsylvania’s new law allows trade restraint clauses for healthcare workers to last no longer than one year and voids them for healthcare workers who lose their jobs. More states are expected to continue to impose restrictions on non-compete agreements in 2025.
Recent Court Decisions Increase Scrutiny on Non-Competes
Many state judiciaries increasingly rule that non-compete clauses in employment and business sale contracts are unenforceable unless they are reasonable in scope and duration and include fair compensation.
In Sunder Energy, LLC v. Tyler Jackson, the Delaware Supreme Court invalidated a broad non-compete agreement presented to a minority member. The judiciary cited its complexity, indefinite restrictions, minimal compensation, and lack of negotiation involvement.
Similarly, in Rullex Co., LLC v. Tel-Stream, Inc., the Pennsylvania Supreme Court ruled that non-compete agreements must be signed at the start of employment to be valid. A deal was signed two months after employment was rejected due to a lack of compensation at the time of signing.
These cases highlight a trend of courts scrutinizing and often invalidating employment restrictions.
Practical Guidance for Employers
Non-compete clauses are valuable tools for protecting an employer’s legitimate business interests in most states. Employers should consider the following strategies for using trade restraint clauses:
Review the terms to ascertain that they match the state laws in the area where the employee operates, including the required minimum salary.
Understand that non-compete agreements cannot be a blanket approach; they must be narrowed down to the job responsibilities or the geographical location where the workers perform their functions or deal with customers or clients.
When you want employees to sign the non-compete deal, make sure that they are given sufficient benefits to help them through it.
Provide your new hires with a decent heads-up on matters regarding non-competes before they report to work, and ensure they know precisely what they are digging their own graves to make it into.
Examine to determine whether non-solicitation provisions (that permit former employees to practice in the same profession but disallow them to contact and solicit the old clients and the previous co-workers) are a sufficient safeguard for some jobs.
Create exit programs that remind the leaving employees of your expectations of them, even though they will have left the organization. This can be especially effective by offering them a copy of the non-compete or non-solicitation agreement.
Be swift, use cease and desist letters, and sue once an employee breaches his/her non-compete agreement.
Looking Forward: A Shifting Legal Environment
Employers can use non-competition agreements to offer or extend jobs to certain employees, according to state law. However, business owners should review their job restrictions to make sure they comply with state regulations. It’s smart business to keep these agreements reasonable, clearly written, and in line with what your state allows.
Now is also a good time for firms to review their confidentiality, non-disclosure, and non-solicitation agreements and how they protect their intellectual property and trade secrets. These alternatives can help prevent unfair competition without greatly limiting an employee’s chances of finding new jobs.
The future of non-compete agreements in the US is uncertain, and changes are expected. Employers should stay attentive and adaptable to protect their interests as the legal environment evolves.
