A non-compete agreement is a contract in which an employee agrees not to work for a competitor or start a competing business for a set time and in a set area after leaving. Enforceability depends almost entirely on state law, since the FTC's nationwide ban was vacated and abandoned in 2025.
Key takeaways
- The FTC's 2024 rule banning most non-competes never took effect and was formally abandoned in September 2025.
- California, Minnesota, North Dakota, and Oklahoma ban most employee non-competes.
- Many other states limit them by salary threshold, notice rules, or reasonableness tests.
- The FTC still pursues individual cases it considers unfair, especially for lower-wage workers.
How non-compete agreement works
Non-competes are judged under state contract law. Most states that allow them require the restriction to protect a legitimate business interest, such as trade secrets or customer relationships, and to be reasonable in duration, geography, and scope. Many also require consideration, meaning something of value in exchange, and some say continued employment isn't enough.
At the federal level, a Texas court set aside the FTC's non-compete rule in August 2024, and on September 5, 2025, the FTC withdrew its appeal and accepted that decision. The agency has shifted to case-by-case enforcement, starting with a complaint against a pet cremation company over non-competes affecting about 1,800 employees (Squire Patton Boggs, the FTC's non-compete strategy after the rule).
Alternatives such as non-solicitation agreements, confidentiality agreements, and garden leave clauses often protect the same interests with less legal risk.
Non-compete agreement example
A Colorado medical device company wants all sales reps to sign a two-year non-compete. Colorado allows non-competes only for highly compensated workers above an annually adjusted earnings threshold, and only to protect trade secrets, with a separate notice. The company limits the agreement to senior reps above the threshold, adds the required notice, and uses a customer non-solicitation clause for everyone else.
Why non-compete agreement matters for employers
Overbroad non-competes create legal risk and can hurt recruiting. Candidates increasingly ask about them, and some states impose penalties for requiring unenforceable agreements. With employees staying a median of 3.9 years (BLS, median employee tenure, January 2024), most companies will see many employees leave for competitors, so it's worth getting the tool right.
Review agreements by state, role, and pay level. Keep copies in your HRIS tied to each employee, and remind departing employees of obligations they actually have in their exit paperwork.
Common non-compete agreement mistakes to avoid
Using one template nationwide
State law varies widely, and some states ban non-competes outright.
Requiring non-competes for low-wage roles
Several states prohibit them below salary thresholds, and the FTC targets them.
Skipping consideration or notice
Some states require advance notice and specific consideration.
Ignoring less restrictive options
Non-solicitation and confidentiality agreements are often enough.
Non-compete agreement: questions people also ask
Are non-compete agreements enforceable?
Did the FTC ban non-competes?
Which states ban non-compete agreements?
How long can a non-compete last?
What is the difference between a non-compete and a non-solicit?
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HRTally glossary entries are written by people who have run US payroll, benefits, and HR operations, then checked line by line against primary sources such as the IRS, Department of Labor, EEOC, and Bureau of Labor Statistics. Dollar limits and rates are for 2026 unless stated. We review every entry at least twice a year and whenever a rule changes. This page explains general rules and isn't legal or tax advice; state law can differ. Read our editorial standards.
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<blockquote>A non-compete agreement is a contract in which an employee agrees not to work for a competitor or start a competing business for a set time and in a set area after leaving. Enforceability depends almost entirely on state law, since the FTC's nationwide ban was vacated and abandoned in 2025.</blockquote><p>Source: <a href="https://www.hrtally.com/hr-glossary/non-compete-agreement/">HRTally HR Glossary, Non-compete agreement</a></p>
Written by the HRTally Research Team
Our guides are written and reviewed by people with hands-on US HR, payroll, and HR technology experience. Legal and tax facts are checked against primary sources, such as the Department of Labor, IRS, EEOC, and USCIS, and linked at the end of each guide. Vendors never review or pay for our editorial content.