The Federal Trade Commission’s (FTC) recent Non-Compete Clause Final Rule has grabbed the attention of state legislatures and businesses across the country. The rule, finalized in April, bans all non-compete agreements for workers both proactively and retroactively, except under narrow circumstances. Following pressure from numerous state attorneys general over the proposal’s preemption of state laws, the final rule does not preempt state laws that provide increased protections. However, the rule is now partially blocked, following a July 3 preliminary injunction issued by a US District Court for the Northern District of Texas. The decision only applies to the named parties in the lawsuit, and it will stand as the Texas-based court considers the remainder of the case, with a final decision expected soon. Due to the legal uncertainty surrounding the FTC’s rule, attention regarding non-compete policy now shifts to the states.

At the moment, California, Oklahoma, North Dakota and Minnesota are the only states that currently ban all non-compete agreements. Numerous other states limit the enforcement of non-competes across specific professions. Since the FTC initially proposed the non-compete rule in 2023, states have zeroed in on the issue. In New York, the state legislature passed a bill in 2023 that would prohibit almost all non-compete agreements. Governor Kathy Hochul vetoed the legislation after negotiations seeking to narrow the scope of the bill fell through. Governors in Maine and Rhode Island also vetoed measures in the last year that would ban non-compete agreements for most employees. Also last year, Michigan state legislators introduced a measure that would expand non-compete restrictions, although it did not advance out of committee.