For many businesses, noncompete agreements have traditionally served as one tool for protecting customer relationships, confidential information, workforce stability, and investments in employee development. Their use, however, has become increasingly complicated.
The Federal Trade Commission’s (FTC) attempted nationwide ban is not in effect, but federal scrutiny has not disappeared. At the same time, states continue to adopt materially different rules governing when noncompetes may be used, which employees may sign them, and what restrictions may be enforced.
For multistate employers in particular, the question is no longer simply whether a noncompete agreement is reasonable. Companies must also determine which state’s law applies, whether the employee is legally eligible to enter into the agreement, whether required notice and consideration were provided, and whether a less restrictive agreement would adequately protect the company.
Companies have legitimate reasons to protect information and relationships developed through their investment of time and resources. Employees may have access to critical information such as trade secrets and proprietary processes; pricing, financial, or strategic information; customer relationships and preferences; product-development plans; referral sources and prospective opportunities; and specialized training or institutional knowledge.
The departure of a key employee can therefore create risks extending beyond the loss of that individual’s services. Knowledge may leave the organization, customer relationships may become vulnerable, and competitors may gain insight into the company’s strategy.
A broadly drafted noncompete, however, can create its own business disadvantages. It may discourage qualified applicants, complicate hiring, undermine employee morale, or prove unenforceable when the company needs it most. The increasing legal scrutiny of noncompetes also means that an aggressive enforcement position can result in litigation, attorneys’ fees, regulatory attention, and reputational harm.
The goal should not be to restrict employees simply because the company can. It should be to identify the company’s legitimate business interests and select the narrowest practical tools for protecting them.
In 2024, the FTC adopted a rule that would have prohibited most employment-related noncompetes nationwide. A federal court subsequently vacated the rule, and the FTC dismissed its appeals in 2025. The FTC confirms that the nationwide rule is not in effect and is not enforceable.
That does not mean federal risk has disappeared. The FTC continues to challenge particular noncompete practices under federal competition law. In April 2026, for example, the agency announced an action seeking to prevent a national pest-control company from enforcing noncompetes against more than 18,000 employees. The FTC also warned other industry participants to review whether their agreements were appropriately tailored and legally compliant. The agency’s action focused in part on the broad use of noncompetes for employees with limited bargaining power and agreements that allegedly extended beyond what was reasonably necessary.
Employers should therefore avoid interpreting the defeat of the nationwide rule as unrestricted permission to use noncompetes. Federal enforcement has shifted toward case-specific challenges, particularly where restrictions are imposed broadly across a workforce or appear likely to suppress competition without protecting a legitimate business interest.
State law remains the primary source of noncompete regulation, and the differences are substantial.
California generally prohibits employment noncompetes and has expanded its law to address agreements signed outside the state. Employers that enter into or attempt to enforce agreements that are void under California law may face civil liability, including potential attorneys’ fees. California’s Attorney General has emphasized that these protections may apply even when an agreement was executed elsewhere.
Other states permit noncompetes but impose significant limitations. Massachusetts, for example, requires compliance with specific notice, timing, consideration, duration, and substantive requirements. Its statute also directs employers to consider whether confidentiality or nonsolicitation restrictions can adequately protect the business interest before relying on a noncompete.
The District of Columbia, Maryland, Virginia, Rhode Island, New Hampshire, Colorado, and several other jurisdictions restrict noncompetes based on compensation, employee classification, occupation, disclosure requirements, or the circumstances surrounding termination. Rhode Island, for example, prohibits enforcement against FLSA-nonexempt employees, low-wage employees, students, employees age eighteen or younger, physicians, and advanced practice registered nurses, subject to certain exceptions. New Hampshire prohibits noncompetes for low-wage employees and requires employers to provide a proposed noncompete to a prospective employee before the employee accepts an offer of employment. Virginia expanded its restrictions effective July 1, 2026, including a prohibition against enforcing a noncompete against an employee laid off without severance benefits.
These differences create several challenges for employers, especially those that operate in multiple states:
A single national template may therefore create more risk than protection.
The same restrictions a company uses to protect its workforce can make it more difficult to recruit experienced personnel from competitors. A candidate may be subject to a noncompete, customer nonsolicitation agreement, confidentiality obligation, or other restriction imposed by a prior employer.
Employers should also recognize that restrictive covenants are not a substitute for effective employee retention strategies. Although noncompetes may discourage some departures, employees are generally more likely to remain with an organization because they perceive opportunities for professional growth, competitive compensation, and a positive workplace culture.
Before hiring an experienced candidate, the new employer should understand those obligations. This may include reviewing the candidate’s agreements, identifying the states in which the employee lived and worked, and evaluating whether the proposed role could expose either party to a claim.
Companies should also establish clear onboarding safeguards. New employees should be instructed not to retain, disclose, or use a former employer’s confidential information. They should not bring customer lists, pricing materials, strategic plans, files, or other proprietary materials into the new workplace. In appropriate cases, the company may modify the employee’s initial responsibilities or customer coverage to reduce potential conflicts.
Ignoring a candidate’s existing restrictions can expose the hiring company to claims for tortious interference, trade-secret misappropriation, or participation in a contractual violation. Conversely, automatically declining qualified candidates because an agreement exists may unnecessarily restrict recruiting if the agreement is invalid or materially narrower than it appears.
The agreement should be evaluated; not simply assumed to be enforceable.
Companies should treat restrictive covenants as part of a broader protection strategy rather than as a standard provision included in every employment agreement.
A practical review should include the following:
Identify the Interest Being Protected: Determine whether the company is protecting trade secrets, confidential information, customer goodwill, workforce stability, or a specialized investment in training. A generalized desire to prevent competition is usually insufficient.
Match the Agreement to the Employee: A senior executive with access to strategic plans presents different risks than an employee without confidential information or meaningful customer relationships. Restrictions should reflect the individual’s actual duties and access.
Consider Narrower Alternatives: Depending on applicable law, confidentiality, invention-assignment, customer nonsolicitation, employee nonsolicitation, or narrowly tailored notice provisions may protect the company without prohibiting future employment. These alternatives are also subject to state-specific limitations and should not be treated as automatically enforceable.
Use State-Specific Agreements or Addenda: Employers should identify where employees live and work and tailor agreements accordingly. Choice-of-law language alone may not override the public policy of the employee’s state.
Review Agreements When Circumstances Change: Promotions, relocations, compensation changes, acquisitions, and changes in responsibilities may affect enforceability. Agreements should also be reviewed before an employee’s termination and before enforcement is threatened.
Coordinate Retention, Knowledge Management, and Legal Protection: The strongest approach combines enforceable agreements with compensation planning, documentation, cross-training, access controls, succession planning, and appropriate offboarding procedures.
Noncompetes have not disappeared, but their use has become more limited and significantly more complicated. The absence of an enforceable nationwide FTC rule does not eliminate federal scrutiny, and state laws increasingly determine whether a particular restriction is permissible.
For multistate employers, a standardized noncompete signed by every employee is unlikely to provide reliable protection. Companies should instead identify the interests that genuinely require protection, use agreements tailored to the employee and applicable state law, and invest in retention and knowledge-management practices that reduce dependence on contractual restrictions.
The most effective strategy allows a company to protect its confidential information and customer relationships while continuing to attract, develop, and retain experienced personnel.
Audrey Carter is an associate attorney at Lipresti Law. She advises businesses on contracts, employment-related matters, commercial transactions, and day-to-day legal issues, with a practical approach shaped by experience in both law firm and corporate settings.
This article is provided for educational and informational purposes only and does not constitute legal advice. Noncompete and other restrictive-covenant laws vary significantly by jurisdiction and change frequently. Companies should consult qualified legal counsel regarding their specific agreements, employees, and circumstances.