In January of 2023, the Federal Trade Commission (FTC) proposed ending noncompete agreements. This proposal, which would affect 30 million Americans, would outlaw not only new agreements but also existing ones. Moreover, it would also cover some practice sales, which could dramatically impact values. This proposal will likely be voted on next year after potential changes are made in light of the public comments received.

While federal action has been delayed, many states are acting on their own. Since the FTC’s January proposal, Minnesota has joined the growing list of states with bans and restrictions on noncompete agreements, with a law that took effect on July 1, 2023. Additionally, the New York State Legislature hastily passed a blanket ban on noncompetes recently. Other states, including Colorado, Illinois, Maine, Massachusetts, Maryland, New Hampshire, Oregon, Rhode Island, Virginia, and Washington State prohibit noncompetes unless workers earn above a certain threshold (typically $100,000 and above), protecting lower earners’ job mobility. Another three states—California, North Dakota, and Oklahoma, as well as Washington DC—have had bans in place for many years, with only a few narrow exceptions.

Even in the remaining states, courts are hesitant to enforce covenants not to compete (and non-solicitation) agreements unless the employer can show a legitimate business purpose, such as protecting its trade secrets, confidential information, and patient and referring doctor relationships.