Introduction
Non-compete agreements have long been a staple of many employment contracts, used by companies to protect trade secrets, customer relationships, and competitive positioning. But as of 2025, the legal landscape is shifting dramatically. At the federal level, the Federal Trade Commission (FTC) attempted to implement a sweeping ban on non-compete clauses, and even though that rule has been blocked for now, its ripple effects are being felt across states and in employer strategy. Thomson Reuters Tax+4Federal Trade Commission+4Schneider Wallace Cottrell Kim LLP+4
For employers, the takeaway is clear: non-compete practices that were once quietly routine now face heightened scrutiny, evolving legal risk, and the need for proactive review and adaptation.
This article explains what the federal rule (and its blockade) means in 2025, what state-law changes employers must watch, and practical best practices to navigate the evolving environment.
1. What Happened at the Federal Level?
1.1 The FTC’s Rule
In April 2024, the FTC finalized a rule that declared non-compete agreements with workers to be an unfair method of competition under Section 5 of the FTC Act. DLA Piper GENIE+2Federal Trade Commission+2
Key features of the rule included:
- A ban on new non-compete agreements for virtually all workers. Federal Trade Commission+1
- Existing non-competes for non-senior workers would become unenforceable after the rule’s effective date; only senior executives’ existing non-competes would be allowed to remain. Federal Trade Commission+1
- The FTC estimated that non-competes were binding about 30 million U.S. workers and argued they suppressed wages and stifled competition. Federal Trade Commission+1
1.2 Legal Challenges and the Current Status
However, the rule never took full effect. Federal courts issued nationwide injunctions that blocked the rule’s enforcement. Cleary Gottlieb
By mid-2025, the FTC appears to have withdrawn appeals of some of these challenges, effectively signaling that the rule in its original form will not be enforced. White & Case+1
1.3 What That Means for Employers
- Existing non-compete agreements remain, for now, enforceable under federal law (subject to state law) because the federal ban is on hold. Tydings Law+2Frost Brown Todd+2
- But the FTC has made clear that it views overly broad or high-volume non-compete practices as unfair competition, and will bring individual enforcement actions under Section 5. Frost Brown Todd
- Employers cannot rely on a safe haven from federal rules: they must watch both state law and enforcement risk.
2. State-Level Activity: Where Things Stand in 2025
Because the federal rule is stalled, many states have stepped in (or accelerated) to regulate non-competes. Some key themes:
2.1 Bans or Heavy Restrictions
- Some states ban non-competes almost entirely for most employees (e.g., California, Oklahoma, Minnesota, North Dakota) or impose strict requirements. Schneider Wallace Cottrell Kim LLP
- New laws in 2025: Wyoming’s SF 107 (effective July 1, 2025) bans non-competes for most employees except limited categories (executives, trade-secret protections) and business-sale contexts. Cooley
- States like Maryland, Louisiana and Pennsylvania passed laws limiting non-competes for healthcare workers and other professionals. Jackson Lewis
2.2 Clarification of Enforceability Standards
- Some states are refining what makes a non-compete enforceable (e.g., salary thresholds, length, geographic scope, payment for consideration). Schneider Wallace Cottrell Kim LLP+1
- Example: Kansas’s SB 241 (effective July 1, 2025) presumes certain non-solicitation covenants enforceable if limited to two years and protect trade secrets. Cooley
2.3 State-by-State Complexity
- Because rules vary widely, employers operating across states face a patchwork landscape—what’s enforceable in one state may be void or heavily restricted in another. Frost Brown Todd+1
3. Implications for Employers in 2025
Given these developments, what should employers be thinking about?
3.1 Risk of Enforceability Being Challenged
- If a non-compete is overly broad (long duration, large geographic scope, low compensation threshold), it may be vulnerable to being struck down under state law or subject to FTC scrutiny.
- The FTC has flagged practices where non-competes apply to low-level employees, without individualized assessment, as particularly risky. Frost Brown Todd
3.2 Recruitment, Retention and Competitive Dynamics
- Non-competes affect how attractive an employer is to talent—especially in industries where mobility is common. With regulatory and market headwinds, companies may need to rethink their mobility strategy.
- A business relying heavily on non-competes to deter competitor transitions may face increased cost, risk or difficulty attracting talent if employees view restrictions as too burdensome.
3.3 Trade Secrets and Alternative Protection Mechanisms
- Given the shifting non-compete regime, protecting sensitive information may require greater reliance on confidentiality agreements, non-solicitation clauses, garden-leave arrangements, and other tools rather than sweeping non-competes.
- Employers should ensure that any restrictive covenant is ancillary to a valid relationship, reasonable in scope, and supported by consideration—traditional contract law staples.
3.4 Litigation and Enforcement Exposure
- Employers should anticipate increased litigation risk, both from employees challenging non-competes and from enforcement agencies (such as the FTC) targeting broad usage.
- Employers involved in acquisition transactions or mergers should pay particular attention to how non-competes are handled in sale-of-business contexts, as many state laws carve out exceptions for those. Cooley
3.5 Need for Audit and Review of Existing Agreements
- It is prudent for employers to audit their existing non-compete agreements, evaluate enforceability under current state law, and consider whether to revise future contracts.
- Employers should track where employees are located, which state law applies and how mobility risk is addressed in each jurisdiction.
4. Best Practice Strategies for Employers
Given the evolving landscape, employers should adopt a proactive compliance strategy. Some key steps:
4.1 Review and Revise Agreements
- Conduct an inventory of all non-compete and restrictive-covenant provisions across jurisdictions.
- Assess each for enforceability under applicable state law (duration, geography, role, compensation threshold).
- If enforcement risk is high, consider shifting toward non-solicitation, non-disclosure and garden-leave provisions.
- For new hires, provide sufficient review time, separate legal advice and perhaps consideration (e.g., bonus, promotion) to increase enforceability.
4.2 Tailor to Role and Reason
- Avoid one-size-fits-all non-competes for all employees. Limit to those whose roles truly involve access to trade secrets, customer relationships, or competitive risks.
- For less senior or lower-paid employees, consider alternative protections rather than full non-compete bans.
4.3 Consider Mobility-Friendly Policies
- Think strategically: would offering non-compete buy-outs, release incentives, or allowing mobility under certain conditions strengthen retention more than a prohibition?
- A market-friendly mobility policy may help attract talent in a competitive labor market.
4.4 Monitor Regulatory Activity
- Stay updated on state legislative changes (e.g., states banning non-competes, imposing salary thresholds or limiting duration). Tools such as state-law trackers help. Economic Innovation Group+1
- Watch for FTC enforcement actions—even if the rule is paused, the FTC has signaled that it will bring individual actions for unfair methods of competition. Frost Brown Todd
4.5 Train Internal Stakeholders
- Educate HR, hiring managers and legal teams on the changing legal environment, the risk of overbroad clauses and the importance of compliance.
- Ensure any non-compete discussion is documented, employees are fully informed and terms are clearly articulated.
5. Looking Ahead: What’s Likely in the Near Term
- Because the federal rule was blocked, state law will continue to be the primary battleground in 2025 and beyond. Employers with multi-state operations should anticipate variation and complexity.
- Some states may further restrict or ban non-competes, especially for lower-level employees or certain industries (e.g., healthcare). The trend is upward. Jackson Lewis+1
- The FTC, while not currently enforcing a broad ban, may increase targeted actions against employers whose non-competes appear unreasonable or over-broad, particularly if they impact large numbers of lower-wage employees.
- Employers may shift towards alternative mobility-friendly approaches, focusing on retention via culture, opportunity and competitive pay rather than relying solely on lock-in strategies.
- Litigation will likely increase as employees challenge non-competes under state statutes and as courts further define what is “reasonable” under the changing environment.
Conclusion
We are at a critical inflection point in the law of non-compete agreements. What was once routine has become risky. For employers the message is clear: review, revise, and refocus. While non-competes are not yet entirely banned at the federal level (and remain enforceable under existing state law in many jurisdictions), the regulatory headwinds and practical risks have grown substantially.
By auditing existing agreements, tailoring new contracts to justified roles, adopting alternative protective measures and closely monitoring both state and federal developments, employers can protect their competitive interests while respecting evolving legal-mobility norms.