States Step In To Fill Void Left by FTC Noncompete Rule

Key Takeaways

• The Federal Trade Commission’s (FTC or Commission) noncompete rule appears to be dying a slow death, with recent reports suggesting that FTC Chair Andrew Ferguson is reconsidering the agency’s defense of the rule.
• States across the country are stepping in to fill the void left by the FTC’s enjoined rule, with most, but notably not all, new legislative efforts focused on adding employee-friendly limits on the use of noncompetes.
• Nationwide employers should expect a further patchwork of obligations and considerations for protecting their sensitive business information.

The FTC’s noncompete rule, which proposed to ban nearly all noncompetes, was enjoined by a Texas District Court in August 2024. While the FTC has launched a Joint Labor Task Force focused on “rooting out and prosecuting unfair labor-market practices that harm American workers,” recent reporting suggests that FTC Chair Ferguson may abandon the Commission’s defense of the rule. As the rule fades from memory, states are redoubling their efforts to address the use of unfair noncompetes.

Over the past few months, dozens of states have introduced new laws targeting noncompetes. Although many of these bills will not make it through committee, at least five states have passed noncompete laws this year, and a few others are considering legislation that we believe would have a meaningful impact on businesses and employees. These states and the restrictions they have put in place are as follows:

• Arkansas: The Arkansas Legislature amended the state’s noncompete statute to “clarify” that a “covenant not to compete agreement that restricts the right of a physician to practice within the physician’s scope of practice is void.” The state defines “physician” to mean “a person authorized or licensed to practice medicine” or osteopathy under certain sections of the Arkansas Medical Practices Act.
• Colorado: Colorado’s current noncompete law includes an exception for “highly compensated employees” (approximately $130,000 per year in 2025) regardless of industry. However, on May 8, the Colorado Legislature sent a bill to the governor that would eliminate this exemption for noncompetes that restrict the practice of medicine, advanced practice registered nursing or dentistry within the state.
• Florida: Bucking the national trend with a pro-noncompete enhancement, the Florida Contracts Honoring Opportunity, Investment, Confidentiality, and Economic Growth (CHOICE) Act mandates that a court enter a preliminary injunction in favor of an employer if noncompete and garden leave agreements meet certain criteria. To invoke enforcement under the CHOICE Act, noncompete and paid garden leave agreements must (1) be in a signed document, (2) bind an employee who earns or is reasonably expected to earn a salary greater than twice the annual mean wage of (a) the county of the employer’s principal place of business if it is in Florida or (b) the employee’s county of residence if the employer’s principal place of business is not in Florida, and (3) otherwise comply with the CHOICE Act’s requirements for notice, scope and duration. The CHOICE Act explicitly excludes health care practitioners, as defined in Fla. Stat. § 456.001(4). The new law is currently awaiting signature by Gov. Ron DeSantis and is expected to take effect July 1.

• Kansas: Joining Florida with a pro-noncompete amendment, Kansas’ restraint of trade act now mandates that “[i]f a covenant is determined to be overbroad or otherwise not reasonably necessary to protect a business interest of the business entity seeking enforcement of the covenant, the court shall modify the covenant, enforce the covenant as modified and grant only the relief reasonably necessary to protect such interests.” Previously, it was already clear that the “act shall not be construed to apply to … any franchise agreements or covenants not to compete.”
• Utah:
  • Utah recently passed a law that prohibits a “health care services platform” from “requir[ing] a health care worker to enter into a non-compete agreement” or “restrict[ing] a health care worker from: (i) finding or accepting a shift using another platform; or (ii) finding or accepting a shift or employment with a health care provider or facility.”
  • Notably, this was introduced as a “preemptive” and “proactive” measure to ensure any future development of app- or platform-based services (i.e.,an “electronic program, system, or application through which a health care worker may accept a shift to perform a health care service or role, as an independent contractor, at a health care facility”), such as those that match independent contractors with end users, would not limit health care services within the state.
• Virginia:
  • Virginia already had a so-called low-wage restriction, which prohibited the use of noncompete provisions for employees earning “less than the average weekly wage of the Commonwealth,” approximately $76,000 per year in 2025. The restriction also applies to interns, students, apprentices and trainees employed in order to gain work or educational experience.Now, Virginia has expanded the restriction to capture any employee “who, regardless of his average weekly earnings, is entitled to overtime compensation under the provisions of 29 U.S.C. § 207 [the Fair Labor Standards Act] for any hours worked in excess of 40 hours in any one workweek.”
  • The updates do not alter any agreement entered into before July 1.
• Wyoming:
  • Wyoming has declared that effective July 1, “[a]ny covenant not to compete that restricts the right of any person to receive compensation for performance of skilled or unskilled labor shall be void.”However, this restriction is not as encompassing as it may seem because it does not apply to a noncompete:
    • Entered into as part of the sale of a business“[T]o the extent the covenant provides for the protection of trade secrets”“[P]roviding for the recovery of all or a portion of” relocation, education or training repayment obligations, subject to certain conditionsWith “[e]xecutive and management personnel and officers and employees who constitute professional staff to executive and management personnel”
  • The final carveout may be the exception that nearly swallows the rule, as conflicting understandings and interpretations of the terms “executive and management personnel and officers” may lead to significant litigation.

Additional restrictions are on the horizon, including the potential in New York for the highest low-wage threshold in the country:

• New York:
  • In December 2023, New York Gov. Kathy Hochul vetoed a near-total ban on noncompetes, at least in part due to the lack of a so-called low-wage restriction. Learning from that experience, the New York Legislature has introduced a bill that would ban the use of noncompetes for anyone earning less than $500,000 per year, as well as physicians and certain other medical and “health related” professionals. If the bill is passed, New York will have the highest low-wage threshold in the country. The bill, which was introduced in February, is still in committee.
  • Notably, the bill includes a proposed carveout for noncompetes entered in the context of the sale of a business, but only for individuals or entities “owning fifteen percent or more ownership interest in a business.”