To date, two federal agencies’ attempts to ban or deem non-compete agreements invalid have failed and it is expected that any further attempts by these agencies to invalidate non-compete agreements will fail under the Trump administration, leaving non-compete agreements a legitimate way to protect an employer’s interests from unfair competition under federal law. However, more states have adopted laws restricting the use of non-competes for lower-paid employees and medical professionals, with state courts issuing decisions invalidating non-compete agreements that were found to be overly broad or not supported by adequate consideration.
By way of background, in April of 2024, the Federal Trade Commission (“FTC”) adopted a rule banning new non-competes and prohibited enforcement of already executed agreements, with limited exceptions, for all employees because such restrictions limit workers’ mobility and lead to lower pay. The rule was set to take effect on September 4, 2024 but failed, as two federal courts (one in Texas and one in Florida) issued injunctions blocking the rule before it could become effective. Although the FT has filed appeals, the likelihood that the FTC will try to enforce this ban under the Trump administration is minimal.
The other federal agency, the National Labor Relations Board (“NLRB”), issued a memo via its then-General Counsel, Jennifer Abruzzo, in 2023 to all NLRB Regional Directors, Officers-in-Charge, and Resident Officers stating her position that non-compete provisions in employment contracts and severance agreements violate the National Labor Relations Act, except in limited circumstances, and later took the position that an employee should be entitled to “make whole relief” if the NLRB determines an employer utilized an unlawful non-compete. In practice, this would mean employees could pursue monetary damages against their former employer for alleged lost wages related to missed job opportunities they had not pursued because of the purported unlawful non-compete. However, Ms. Abruzzo was terminated by President Trump on January 27, 2025 and it is expected that these NLRB directives will likely be rescinded by the new Trump-appointed NLRB General Counsel.
Currently, four states ban the use of non-competes entirely and 33 states, plus Washington, D.C., have legislation restricting their use. In 2025, Louisiana, Maryland and Pennsylvania will prohibit or limit the use of non-competes for various types of health care professionals, joining 17 other states, including Colorado, Indiana, Kentucky, Tennessee and Texas, which have some limits on non-competes for health care professionals. For example, Pennsylvania’s new law limits non-competes for health care practitioners to one year and voids non-competes for health care practitioners who are dismissed by their employers. States have continued to adopt salary-level thresholds for the use of non-competes, and increased limits on non-competes at the state level are expected to continue in 2025.
In New York State, Governor Hochul vetoed a proposed law banning noncompete agreements in 2024 which would have covered all individuals, i.e., individuals performing work or services for an organization who are in a position of economic dependence on that organization and provided them with the right to bring a civil action against their employer. At the time, Governor Hochul indicated that she would support a bill that allows noncompete agreements for high earners. Most recently, a bill introduced in the New York State Senate on February 10, 2025, would prohibit nearly all non-compete agreements arising in employment, and consistent with a national trend, non-competes for healthcare professionals would be banned. The proposed bill defines “highly compensated individual” as “any individual who is compensated at an average annualized rate of cash compensation … equivalent to or greater than [$500,000] per year” and “health related professional” includes physicians, physician assistants, chiropractors, dentists, perfusionists, veterinarians, physical therapists, pharmacists, nurses, podiatrists, optometrists, psychologists, occupational therapists, speech pathologists, audiologists, and mental health practitioners, all as licensed under New York law. If the legislature passes the bill and it is sent to the governor for signature, Governor Hochul can sign it, veto it, or secure changes through a chapter amendment process. Employers should stay apprised of pending legislation, and in the meantime, should review the terms of their non-compete provisions to ensure that their non-compete language is reasonable in geographic scope and duration and supported by sufficient (and not nominal) consideration and ensure that the terms are compliant with state law where the employee is working, including any applicable salary threshold requirements. Employers should also consider strengthening their non-solicitation provisions and confidentiality provisions. If you have any questions about the subject of this article and its implications for your business, please contact Forework.