Non-Compete Clauses After the FTC Ban: What’s Enforceable in 2026?

The FTC’s federal non-compete ban is dead. On September 8, 2025, the Fifth Circuit officially dismissed the FTC’s appeal in Ryan, LLC v. FTC, ending the agency’s attempt to ban non-competes nationwide. The rule that was supposed to void an estimated 30 million non-compete agreements never took effect.

But here’s what matters for the lawyers reviewing employment agreements right now: the legal landscape shifted anyway. At least four states now ban non-competes almost entirely. More than a dozen impose income thresholds, notice requirements, or durational limits. And the FTC is still enforcing against individual non-competes it considers unfair under Section 5 of the FTC Act — case by case, employer by employer.

If you review employment agreements for clients, the question is no longer “Are non-competes legal?” It’s “Is this specific non-compete enforceable in this specific state for this specific employee?” This guide maps the current landscape. Try Clause Labs Free to upload any employment agreement and get instant AI analysis of restrictive covenant issues — including jurisdiction-specific flags.

What Happened: The FTC Rule Timeline

Understanding the current state requires knowing how we got here.

April 23, 2024: The FTC issues a final rule banning most non-compete agreements nationwide, with an effective date of September 4, 2024. The rule would have voided existing non-competes for most workers and banned new ones entirely, with narrow exceptions for senior executives and business sale agreements.

August 20, 2024: A federal judge in the Northern District of Texas (in Ryan, LLC v. FTC) sets aside the rule nationwide, holding that the FTC exceeded its statutory authority. A separate challenge in Florida reached a similar conclusion.

September 2025: The FTC officially abandons its appeal, accepting the vacatur. The federal non-compete ban is permanently dead.

January 2026: At a public workshop, the FTC clarifies it will no longer pursue a categorical ban. Instead, it retains authority to challenge specific non-competes under Section 5 of the FTC Act as unfair methods of competition — particularly those targeting low-wage workers or imposing exceptionally broad restrictions.

The net result: no federal ban, but a significantly heightened enforcement environment and a patchwork of state laws that have only gotten more aggressive.

State-by-State Non-Compete Enforceability in 2026

The real action on non-competes is now entirely at the state level. Here’s where things stand, organized by restriction level.

States That Ban Non-Competes Almost Entirely

Four states effectively prohibit non-compete agreements for employees in most or all circumstances:

California: The broadest ban. Cal. Bus. & Prof. Code § 16600 voids non-competes in nearly all employment contexts. Recent legislation strengthened the ban by voiding out-of-state non-competes applied to California workers — meaning a Texas employer can’t enforce a Texas non-compete against an employee who moves to California.

Minnesota: Non-competes entered into on or after July 1, 2023, are prohibited for most workers, with limited statutory exceptions for the sale of a business or dissolution of a partnership.

Oklahoma: Title 15, § 219A generally voids non-competes, with exceptions for the sale of a business and dissolution of a partnership. This has been Oklahoma law for decades.

North Dakota: N.D. Cent. Code § 9-08-06 broadly prohibits non-competes, with the standard business-sale exception.

States with Income Threshold Restrictions

A growing number of states tie non-compete enforceability to how much the employee earns. As of 2026, these income thresholds have been updated:

State	2026 Non-Compete Income Threshold	Notes
Colorado	$127,091 (non-compete); $76,254 (non-solicit)	Must protect trade secrets; penalties for violations
Illinois	$75,000 (non-compete); $45,000 (non-solicit)	Next increase in 2027
Washington	$126,858.83 (employee); $317,147.09 (contractor)	Annual adjustment
Oregon	$119,541	Bureau of Labor and Industries sets annual threshold
Massachusetts	Hourly employees exempt; requires garden leave or other consideration	12-month maximum duration
Virginia	Low-wage employees exempt (below median state wage)	Applies to non-competes and non-solicits
Rhode Island	Non-exempt employees exempt	Additional protections for healthcare workers

What this means in practice: If your client employs a marketing coordinator in Illinois earning $60,000/year, a non-compete in that employee’s agreement is void as a matter of law. The same non-compete for an Illinois sales director earning $200,000/year could be enforceable — subject to reasonableness analysis on scope, duration, and geography.

States with Significant Restrictions (But Not Bans)

These states allow non-competes but impose meaningful procedural or substantive limits:

Massachusetts: Non-competes cannot exceed 12 months. The employer must provide either garden leave pay (at least 50% of base salary during the restricted period) or “other mutually-agreed upon consideration.” Non-competes are void for hourly workers, undergraduate or graduate students in internships, and employees terminated without cause.

Washington: Beyond the income threshold, non-competes exceeding 18 months are presumptively unreasonable. Employers must disclose the non-compete terms before or at the time of the job offer.

Oregon: Non-competes are limited to 12 months, must be provided in writing at the time of offer or at least two weeks before the start date, and the employee must be given a copy. Only employees earning above the threshold are covered.

Colorado: Beyond the income threshold, employers must notify the worker of the non-compete “in a separate document” and provide the non-compete terms before the worker accepts the offer. Colorado imposes civil penalties of up to $5,000 per violation for non-competes that don’t meet statutory requirements.

States Where Non-Competes Are Generally Enforceable

In the remaining states, non-competes are permitted subject to the traditional common-law reasonableness test:

• Duration: Typically 6-24 months. Courts in most states view anything over 2 years skeptically.
• Geographic scope: Must be tied to the employer’s actual business footprint or the employee’s territory.
• Activity scope: Must be limited to competitive activities, not all employment.
• Consideration: Most states require independent consideration for existing employees (not just continued employment).

States like Texas, Florida, Georgia, and Ohio generally enforce non-competes that meet these reasonableness standards — but even in these states, judicial scrutiny has increased since the FTC attempted its ban.

Non-Compete Red Flags to Catch in Every Employment Agreement

For lawyers reviewing contracts containing non-competes — whether reviewing for red flags generally or specifically evaluating restrictive covenants — here are the issues that should trigger immediate attention.

Duration Exceeding State Limits

The most common enforceable window is 12-24 months. A 36-month non-compete is likely unreasonable in most jurisdictions. Several states cap duration by statute: Massachusetts and Oregon at 12 months, Washington at 18 months (presumptive). Any non-compete exceeding these limits is either unenforceable or requires modification.

Employee Below Income Thresholds

If the employee earns less than the applicable state threshold — $75,000 in Illinois, roughly $127,000 in Colorado, roughly $127,000 in Washington — the non-compete is likely void. Review compensation details before analyzing the non-compete itself.

Independent Contractor Non-Competes

Non-competes for independent contractors are almost always unenforceable, and in states like Washington (which sets the contractor threshold at $317,147), they face even more scrutiny. Worker misclassification compounds the risk: if the “contractor” is actually an employee under state law, the non-compete analysis shifts entirely.

Geographic Scope That’s Unreasonable

A nationwide non-compete for a regional sales representative is overbroad. A non-compete covering “anywhere the Company does business” when the company operates globally is almost certainly unenforceable. Geographic scope must be proportional to the employee’s actual territory or the employer’s legitimate business interests.

Non-Solicitation Disguised as Non-Compete

Some agreements label a broad restriction as a “non-solicitation” to avoid non-compete scrutiny. If the non-solicitation effectively prevents the employee from working in their field — for example, by prohibiting contact with any current or former customer of a company with thousands of customers — it may be analyzed as a de facto non-compete.

Forum Selection Clauses That Forum-Shop

Watch for a Texas employer with California employees specifying Texas law and Texas courts for non-compete enforcement. California’s strong anti-non-compete policy may override the contractual choice of law — but the employee would have to litigate that point, which costs money and time. Flag these provisions for your clients.

Missing Adequate Consideration

In many states, an existing employee signing a non-compete must receive independent consideration beyond continued employment. A new bonus, promotion, stock grant, or similar benefit may be required. If the non-compete is presented to an existing employee with no new consideration, it may be unenforceable.

Alternatives to Non-Competes That Actually Work

When advising clients who want to protect business interests without the enforceability risk of non-competes, recommend these alternatives:

Non-Solicitation Agreements

Prohibit the departing employee from soliciting specific clients, customers, or employees — but don’t prohibit competitive employment itself. Non-solicitation agreements are enforceable in almost every state, including California (with limitations), because they restrict a specific behavior rather than the ability to earn a living.

Drafting tip: Limit the non-solicitation to clients the employee actually worked with during their last 12-24 months of employment. Restrictions covering all company clients (including those the employee never met) face enforceability challenges.

Enhanced Confidentiality / NDA Agreements

Protect specific trade secrets and confidential information through robust NDAs with clearly defined protected information. When properly drafted, confidentiality agreements protect the employer’s most valuable information without restricting where the employee can work.

Drafting tip: Define confidential information by category (customer lists, pricing algorithms, strategic plans) rather than using catch-all language. Include the five standard exclusions and a reasonable duration.

Garden Leave Provisions

Require the employer to continue paying the employee during the restricted period in exchange for the employee not competing. This approach is gaining traction because it provides the employee with compensation during the restriction, making enforceability far more likely.

Drafting tip: Specify the percentage of base salary (50-100%) and duration. Massachusetts now requires garden leave as consideration for non-competes. Other states are likely to follow.

Intellectual Property Assignment Agreements

Protect company innovations by requiring employees to assign work-related IP to the employer. This doesn’t restrict where the employee works — it restricts what they can take with them.

Drafting tip: Always include a “prior inventions” schedule so employees can document pre-existing IP. Many states — including California, Delaware, Illinois, Minnesota, and Washington — have statutes limiting the scope of invention assignment agreements.

Clawback Provisions

Tie bonuses, equity vesting, or deferred compensation to post-employment behavior. If the employee competes within a specified period, they forfeit unvested benefits. This is functionally a non-compete with an economic enforcement mechanism rather than a judicial one.

Drafting tip: Ensure the clawback amount is proportional and doesn’t function as a penalty. Courts may analyze excessive clawbacks as non-competes subject to the same enforceability standards.

How to Review Non-Compete Clauses: A 7-Step Process

When a client brings you an employment agreement with a non-compete, follow this process:

1. Identify the governing jurisdiction: Which state’s law controls? Is the employee located in a different state from the employer? If the employee works remotely from a ban state (California, Minnesota), the non-compete may be void regardless of the contract’s choice-of-law clause.

2. Check if non-competes are enforceable in that state: Refer to the state-by-state table above. If the state bans non-competes, your analysis is short.

3. Verify income threshold compliance: For states with income thresholds (Colorado, Illinois, Washington, Oregon, Virginia), confirm the employee’s compensation exceeds the applicable limit.

4. Evaluate reasonableness: Duration (over 24 months is suspect), geographic scope (proportional to the employee’s actual territory), and activity scope (limited to competitive activities, not all employment).

5. Check for adequate consideration: Is the non-compete part of the initial offer, or is it being imposed on an existing employee? If the latter, what independent consideration is being provided?

6. Assess blue-pencil doctrine applicability: Some states allow courts to modify overbroad non-competes to make them reasonable. Others strike them entirely. Knowing whether your jurisdiction blue-pencils affects your risk assessment and negotiation strategy.

7. Review interaction with other restrictive covenants: Does the agreement also contain a non-solicitation, NDA, and IP assignment? Together, these may provide the protection the employer needs without the non-compete — which gives you a negotiation argument for striking it.

For a broader framework on reviewing employment agreements for all types of red flags, see our complete contract red flags checklist.

Industry-Specific Non-Compete Considerations

Technology and Software

Tech non-competes face the most scrutiny. California’s ban covers virtually all tech workers. In other states, courts are increasingly skeptical of non-competes for software engineers because the “confidential information” at issue (coding skills, general technology knowledge) is difficult to distinguish from general professional competence.

Healthcare

Multiple states — including Colorado (effective August 2025) — have specific statutes restricting non-competes for physicians, nurses, dentists, and other healthcare providers. The concern is patient access: if a physician can’t practice within 50 miles, patients lose access to care.

Financial Services

FINRA-registered representatives are subject to industry-specific rules. FINRA’s Protocol for Broker Recruiting allows registered representatives to take certain client information (names, addresses, phone numbers, account types) when switching firms, which limits the practical impact of non-compete and non-solicitation restrictions.

Sales and Business Development

Sales non-competes are among the most commonly litigated. Courts evaluate them based on whether the salesperson had access to proprietary customer relationships, pricing data, or strategic plans — not just whether they “know the clients.” Account-based restrictions (prohibiting solicitation of specific named accounts) are more enforceable than blanket geographic restrictions.

Executive Employment

Senior executives face the fewest protections. Most state restrictions and income thresholds don’t apply at executive compensation levels. Courts generally enforce reasonable non-competes for C-suite executives and senior officers, particularly when tied to significant equity or severance packages. That said, even executive non-competes must meet reasonableness standards on duration, scope, and geography.

How Clause Labs Handles Non-Compete Analysis

When you upload an employment agreement to Clause Labs, the AI automatically identifies non-compete, non-solicitation, non-disclosure, and other restrictive covenant provisions. It flags potential enforceability issues based on the governing jurisdiction, highlights overbroad restrictions on duration, geography, and activity scope, and identifies missing consideration provisions.

For employment agreements specifically, Clause Labs’s employment playbook covers all the restrictive covenant issues discussed in this article — plus compensation risks, termination traps, and IP assignment problems. See our free employment agreement review tool for details on the full employment agreement analysis.

Frequently Asked Questions

Are non-competes banned federally in 2026?

No. The FTC’s federal non-compete rule was struck down by a Texas federal court in August 2024 and the FTC abandoned its appeal in September 2025. There is no federal ban. However, the FTC retains authority to challenge specific non-competes it considers unfair under Section 5 of the FTC Act — particularly those targeting low-wage workers or imposing unreasonably broad restrictions.

Can my client’s employer enforce their non-compete in 2026?

It depends entirely on the state, the employee’s compensation level, and the specific terms of the non-compete. In California, Minnesota, Oklahoma, and North Dakota, the answer is almost certainly no. In states with income thresholds (Colorado, Illinois, Washington, Oregon), it depends on whether the employee earns above the threshold. In all other states, enforceability requires meeting the traditional reasonableness test on duration, geography, and scope.

What happens to non-competes already signed before state bans took effect?

This varies by state. Minnesota’s ban applies only to non-competes entered into on or after July 1, 2023 — pre-existing non-competes remain enforceable if otherwise valid. California’s strengthened law, by contrast, voids non-competes regardless of when they were signed because the state’s underlying prohibition (§ 16600) has existed for over a century.

Can a non-compete be enforced across state lines?

Potentially, but it’s complicated. If a Texas employer sues in Texas to enforce a non-compete against a former employee now working in California, the California court may refuse to enforce it under California’s strong public policy against non-competes. Choice-of-law provisions in the agreement don’t always control — courts apply their own state’s public policy when it conflicts with the contractual choice of law.

How do I advise a client who already signed a non-compete?

First, determine the governing jurisdiction and whether the non-compete is enforceable under current law. Second, assess whether the specific terms (duration, geography, scope) are reasonable. Third, evaluate the practical enforcement risk — would the employer actually sue, given the cost and uncertainty? Many non-competes that are technically enforceable are never enforced because the economics don’t justify litigation. Finally, if the client wants to compete, consider whether negotiating a release or buyout is possible.

Have an employment agreement with a non-compete you need to evaluate? Upload it to Clause Labs free — the AI flags jurisdiction-specific enforceability issues, overbroad restrictions, and missing consideration provisions in under 60 seconds. Start with 3 free reviews per month, no credit card required.

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This article is for informational purposes only and does not constitute legal advice. Non-compete enforceability varies significantly by jurisdiction, and state laws change frequently. The information in this article reflects the legal landscape as of February 2026. Consult a qualified attorney in the relevant jurisdiction for advice specific to your situation.