General legal information, published for everyone. It does not apply the law to anyone’s particular situation and is not legal advice. Laws change and differ by place; check the primary sources below.
Quick summary
- There is no general federal ban on noncompetes. The FTC's 2024 rule was set aside by a federal court and the FTC withdrew its appeal in September 2025.
- California, Minnesota, North Dakota, and Oklahoma broadly prohibit employee noncompetes, with exceptions.
- Most other states enforce noncompetes only if they are reasonable in duration, geography, and scope and protect a legitimate business interest.
- Many states add income thresholds, notice requirements, or limits for particular professions.
- Noncompetes are different from nondisclosure and nonsolicitation agreements, which are more widely enforced.
What it means
A noncompete (or covenant not to compete) is a promise not to compete with a business for a period of time, usually within a geographic area or market. They appear in employment agreements, in agreements for the sale of a business, and in partnership or franchise agreements.
Courts have long treated employee noncompetes with suspicion because they restrict a person's ability to earn a living. Noncompetes signed as part of selling a business are treated more favorably, because the buyer is paying for the business's goodwill.
Key terms
- Noncompete (covenant not to compete)
- An agreement not to work for or operate a competing business for a period after the relationship ends.
- Nonsolicitation agreement
- An agreement not to solicit the former employer's customers or employees, without barring competition generally.
- Nondisclosure agreement (NDA)
- An agreement not to use or disclose confidential information.
- Legitimate business interest
- An interest courts will protect, such as trade secrets, confidential information, or customer goodwill, as opposed to simply avoiding competition.
- Blue-penciling / reformation
- Approaches some courts use to strike or narrow overbroad terms instead of voiding the whole covenant. States differ on whether they allow this.
- Consideration
- What a person receives in exchange for signing. Some states require more than continued employment for a noncompete signed mid-employment.
How the law works
The federal picture
In April 2024 the Federal Trade Commission adopted a rule that would have banned most noncompetes nationwide. In Ryan, LLC v. FTC (N.D. Tex. Aug. 20, 2024), a federal court set the rule aside before it took effect. In September 2025 the FTC withdrew its appeal and accepted that ruling, and said it would instead challenge particular noncompetes case by case under Section 5 of the FTC Act. The National Labor Relations Board's position on noncompetes has also shifted over time. As a result, enforceability is decided mainly by state law.
States that broadly prohibit employee noncompetes
- California — Business and Professions Code § 16600 voids contracts that restrain anyone from engaging in a lawful profession, trade, or business, with narrow exceptions such as the sale of a business. Section 16600.5 makes such agreements unenforceable regardless of where they were signed.
- Minnesota — Minn. Stat. § 181.988 bans employee noncompetes entered on or after July 1, 2023, with exceptions for the sale or dissolution of a business.
- North Dakota — N.D. Cent. Code § 9-08-06 voids contracts restraining a lawful profession, trade, or business, with sale-of-business exceptions.
- Oklahoma — 15 Okla. Stat. § 219A permits only agreements not to directly solicit established customers.
Other states have adopted narrower bans for certain workers or industries.
The reasonableness test in most states
Where noncompetes are permitted, courts generally ask whether the restriction (1) protects a legitimate business interest, (2) is reasonable in duration, geographic area, and the activities it covers, (3) does not impose undue hardship on the worker, and (4) is not contrary to the public interest. Restrictions of one or two years are common in enforced agreements, but there is no universal limit; what is reasonable depends on the industry and the role.
Income thresholds, notice, and profession-specific rules
Many states limit noncompetes to workers above an earnings threshold, require advance notice or a chance to consult a lawyer, or exclude certain professions. Examples include Washington (RCW 49.62), Illinois (820 ILCS 90), and Colorado (C.R.S. § 8-2-113). Several states restrict noncompetes for physicians and other healthcare workers. Thresholds are often adjusted annually, so the current figure should be confirmed in the state statute or agency guidance.
Choice of law and where disputes are heard
Agreements often say which state's law applies and where disputes must be brought. Courts do not always honor those clauses, especially when they would avoid a protective rule of the state where the employee lives and works. California and several other states restrict out-of-state choice-of-law clauses for their residents.
Examples
Hypothetical example
A software engineer in California
A California-based engineer signed an agreement barring work for competitors for one year. Under Business and Professions Code § 16600, an employee noncompete like this is generally void in California, although confidentiality obligations and trade-secret law still apply.
Hypothetical example
A business owner selling her bakery
A bakery owner sells her shop and agrees not to open a competing bakery within five miles for three years. Because the covenant protects the goodwill the buyer paid for, courts in most states, including California under its sale-of-business exception, are more likely to enforce a reasonable restriction of this kind.
Common questions
Did the FTC ban noncompetes?
The FTC adopted a ban in 2024, but a federal court set it aside before it took effect, and the FTC withdrew its appeal in September 2025. There is no general federal ban; the FTC says it will pursue specific cases instead.
Can a noncompete be enforced if the employee was fired?
It depends on the state. Some courts consider whether termination without cause makes enforcement unreasonable; others enforce the agreement regardless of how the job ended.
Is a nonsolicitation agreement a noncompete?
Usually not. Nonsolicitation agreements restrict contacting customers or employees rather than competing altogether, and courts enforce them more readily, although some state noncompete statutes also regulate them.
What happens if a noncompete is too broad?
States differ. Some courts strike the whole covenant, some strike only the overbroad terms ("blue pencil"), and some rewrite it to a reasonable scope.
Important distinctions
Noncompete vs. NDA vs. nonsolicit
A noncompete restricts working for competitors; an NDA restricts using or sharing confidential information; a nonsolicit restricts approaching customers or staff. An agreement can contain all three, and each is evaluated separately.
Employment noncompete vs. sale-of-business noncompete
Courts scrutinize employee noncompetes closely but are more willing to enforce reasonable noncompetes given by sellers of a business, because they protect purchased goodwill.
Primary sources
- CaseRyan, LLC v. FTC, No. 3:24-cv-00986-E (N.D. Tex. Aug. 20, 2024)United States (federal)Set aside the FTC Non-Compete Clause Rule.
- Agency guidanceFTC — Noncompete Clause RuleUnited States (federal)History and current status of the rule.
- StatuteCal. Bus. & Prof. Code § 16600California
- StatuteCal. Bus. & Prof. Code § 16600.5California
- StatuteMinn. Stat. § 181.988Minnesota
- StatuteN.D. Cent. Code § 9-08-06North Dakota
- Statute15 Okla. Stat. § 219AOklahoma
- StatuteRCW 49.62Washington noncompetition covenantsWashington
- Statute820 ILCS 90Illinois Freedom to Work ActIllinois
- StatuteC.R.S. § 8-2-113Colorado restrictive covenantsColorado
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- Last updated
- Oct 8, 2026
- Jurisdiction
- United States — governed mainly by state law
- Written by
- House Legal editorial (AI-assisted)