Non-Compete Agreements: State Enforceability Guide [2026]

Quick Answer: Are Non-Competes Still Enforceable in 2026?

It depends entirely on where the employee works. Non-compete agreements remain enforceable in most US states, but enforceability varies dramatically. California, Minnesota, North Dakota, and Oklahoma ban them almost entirely. A growing number of states restrict them for low-wage workers. The FTC proposed a near-total federal ban in 2024, but a federal court blocked it before it took effect.

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The FTC Proposed Ban: What Happened

In April 2024, the Federal Trade Commission issued a final rule that would have banned nearly all non-compete agreements nationwide, affecting an estimated 30 million workers. The rule was scheduled to take effect on September 4, 2024.

The Legal Challenge

Before the effective date, two federal court challenges emerged:

• Ryan LLC v. FTC (Northern District of Texas): In August 2024, Judge Ada Brown issued a nationwide injunction blocking the rule, finding that the FTC likely exceeded its statutory authority under Section 6(g) of the FTC Act and that the rule was "arbitrary and capricious" under the Administrative Procedure Act.
• ATS Tree Services v. FTC (Eastern District of Pennsylvania): A separate challenge reached a different conclusion, finding the FTC did have rulemaking authority, but this was overtaken by the Texas ruling.

Current Status (2026)

The FTC has appealed the Texas decision to the Fifth Circuit Court of Appeals. As of early 2026, the appeal remains pending. The practical effect is that the federal ban is not in effect and employers remain subject to state law. If the appeal fails, the FTC would need either a favourable Supreme Court ruling or congressional legislation to implement a nationwide ban.

Bottom line for employers: Do not assume a federal ban is coming. Continue to comply with the specific laws of each state where your employees work.

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States That Ban Non-Competes Entirely

California

California has the strongest prohibition in the country. Business and Professions Code Section 16600 voids any contract that restrains anyone from engaging in a lawful profession, trade, or business. This has been interpreted to prohibit:

• Traditional non-compete clauses
• Clauses that function as non-competes even if not labelled as such
• Choice-of-law provisions attempting to apply another state's law to a California worker

In 2023, California passed two additional laws (AB 1076 and SB 699) that:

• Required employers to notify current and former employees (employed after January 1, 2022) by February 14, 2024, that any non-compete clause in their agreements is void
• Extended California's ban to employees who work in other states but are based in California
• Made it an actionable unfair business practice to enter into or enforce a non-compete with a California employee
• Allowed employees to recover actual damages, injunctive relief, and attorney fees

Practical impact: Any non-compete presented to a California-based employee is void, regardless of where the agreement was signed or what law it claims to be governed by.

Minnesota

Effective July 1, 2023, Minnesota banned all post-employment non-compete agreements. The law applies to:

• Agreements entered into on or after July 1, 2023
• All employees and independent contractors performing services in Minnesota
• Choice-of-law provisions cannot be used to circumvent the ban

Minnesota still allows non-compete agreements entered into before July 1, 2023, in connection with the sale of a business, and as part of a dissolution of a business.

North Dakota and Oklahoma

Both states have long-standing statutory prohibitions against non-competes:

• North Dakota (N.D. Century Code 9-08-06): Voids any agreement that restrains a person from exercising a lawful profession, trade, or business, with narrow exceptions for the sale of a business or dissolution of a partnership.
• Oklahoma (Title 15, Section 219A): Prohibits non-compete agreements but allows reasonable restrictions on soliciting existing customers of the former employer.

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States With Income-Threshold Bans

A growing trend is to ban non-competes for workers earning below a certain amount, on the theory that high-earning executives have more bargaining power and access to trade secrets.

Colorado

Colorado's Non-Compete Act (effective August 10, 2022) prohibits non-competes except for:

• Workers earning at least $123,750 annually (adjusted for inflation, 2026 figure) who have access to trade secrets
• Non-solicitation agreements for workers earning at least $61,875 annually
• Agreements in connection with the purchase or sale of a business

Employers must provide clear and conspicuous notice of a non-compete to the worker and the agreement must be signed separately from the employment contract. Violations subject the employer to a penalty of $5,000 per worker, plus actual damages and attorney fees.

Illinois

The Illinois Freedom to Work Act (effective January 1, 2022) prohibits:

• Non-compete agreements for employees earning $75,000 or less (increasing $5,000 every five years)
• Non-solicitation agreements for employees earning $45,000 or less (increasing $2,500 every five years)

Employers must advise the employee in writing to consult an attorney and provide at least 14 calendar days to review the agreement before signing.

Oregon

Oregon restricts non-competes under ORS 653.295:

• Maximum duration of 12 months (reduced from 18 months in 2021)
• Only enforceable for employees earning at least the median family income for a four-person family ($113,241 in 2026)
• Employer must provide written notice of the non-compete in a written employment offer received two weeks before the start of employment or enter it at the time of a bona fide promotion with additional compensation

Washington

Washington (RCW 49.62) restricts non-competes:

• Prohibited for employees earning less than $116,594.18 annually (adjusted annually for inflation)
• Prohibited for independent contractors earning less than $291,485.45 annually
• Maximum duration of 18 months
• Employer must disclose the terms of the non-compete in writing no later than the time of acceptance of the offer of employment

Other States With Income or Duration Restrictions

• Maine: Banned for workers earning at or below 400% of the federal poverty level ($54,200 for single individuals in 2026), and prohibited for the first year of employment
• Maryland: Banned for employees earning $19.50/hour or less (equal to or less than 150% of the state minimum wage)
• New Hampshire: Banned for employees earning at or below 200% of the federal poverty level ($32,568 for single individuals in 2026); also banned for low-wage employees who are non-exempt under the FLSA
• Rhode Island: Banned for employees under 18, non-exempt workers, undergraduate or graduate students in internships, and employees terminated without cause
• Virginia: Banned for employees earning less than the average weekly wage ($73,320 annualized in 2026) and for independent contractors earning less than that threshold

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Blue-Pencil vs Red-Pencil States

When a court finds that a non-compete agreement is overbroad, states take different approaches:

Blue-Pencil States (Majority)

A court will modify (narrow) the unreasonable terms to make the agreement enforceable. For example, if a non-compete restricts competition for 5 years across the entire country, a blue-pencil court might reduce it to 1 year within 50 miles.

Blue-pencil states include: Texas, Florida, Georgia, Ohio, Michigan, Pennsylvania, New Jersey, and many others.

Advantage for employers: Even an overbroad agreement has a chance of being partially enforced. Risk for employers: Courts in some blue-pencil states (notably Texas) have expressed frustration with employers who intentionally draft overreaching covenants, relying on courts to fix them.

Red-Pencil States (Minority)

A court will void the entire agreement if any provision is unreasonable. The court will not rewrite it.

Red-pencil states include: Wisconsin, Nebraska, and Virginia (in most circumstances).

Impact: Employers in red-pencil states must draft conservatively. Any overreach voids the whole restriction.

Hybrid Approaches

Some states take a middle ground:

• Georgia: Will blue-pencil but only if the agreement contains a severability clause
• Massachusetts: The 2018 non-compete reform act allows reformation but sets strict requirements for enforceability (garden leave of at least 50% of base salary, or other mutually agreed consideration)
• Indiana: Courts may blue-pencil but are reluctant to do so if the agreement appears to have been drafted in bad faith

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What Makes a Non-Compete "Reasonable"?

In states where non-competes are enforceable, courts apply a reasonableness test that generally examines three factors:

1. Time (Duration)

Some states cap duration by statute:

• Oregon: 12 months maximum
• Washington: 18 months maximum
• Massachusetts: 12 months maximum (24 months if the employee has breached a fiduciary duty or stolen property)
• Maine: 12 months maximum

2. Geographic Scope

Courts expect the geographic restriction to match the territory where the employee actually worked or had customer relationships:

• Local businesses: A radius of 10-50 miles is typical
• Regional businesses: A state-wide or multi-state restriction may be appropriate if the employee served that territory
• National/global businesses: For employees with truly national responsibilities, broader restrictions may be upheld, but employers should consider whether a customer non-solicitation is more appropriate

3. Scope of Activity

The restricted activities must be narrowly defined:

• Enforceable: "May not provide payroll processing services to clients of [Employer] that the employee personally serviced"
• Likely unenforceable: "May not work in any capacity in the human resources industry"

The restriction should protect a legitimate business interest such as:

• Trade secrets or confidential information
• Customer relationships developed during employment
• Specialized training provided at the employer's expense
• Investment in the employee's professional development

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Alternatives to Non-Competes

Given the trend toward restriction and outright bans, employers should build a broader restrictive covenant strategy:

Non-Solicitation Agreements

Restrict the departing employee from soliciting specific customers or employees, without preventing them from working in the industry. These are enforceable in nearly all states (including California, with some caveats around enforceability of customer non-solicits).

Key drafting points:

• Limit to customers the employee actually had a relationship with
• Set a reasonable duration (12-24 months is standard)
• Define "solicitation" clearly (active outreach, not passive acceptance of business)

Non-Disclosure Agreements (NDAs)

Protect specific confidential information and trade secrets. NDAs are enforceable in all 50 states under the Uniform Trade Secrets Act (adopted in 48 states) and the federal Defend Trade Secrets Act of 2016.

Key drafting points:

• Define "confidential information" specifically (not everything is a trade secret)
• Include carve-outs for information that becomes publicly available
• Note the DTSA whistleblower immunity provision (employees cannot be held liable for disclosing trade secrets to a government official or attorney for the purpose of reporting a suspected violation of law)

Garden Leave Clauses

Pay the departing employee their salary during the restricted period in exchange for their agreement not to compete. This approach is well-established in the UK and is gaining traction in the US:

• Massachusetts requires garden leave compensation of at least 50% of the employee's highest base salary in the two years prior to termination (or other mutually agreed consideration) for non-competes to be enforceable
• Some employers offer garden leave voluntarily as a way to make non-competes more likely to be enforced

Invention Assignment Agreements

Require employees to assign to the employer any inventions or intellectual property created during employment and related to the employer's business. These are standard in technology companies and are enforceable in all states, subject to state-specific carve-outs for inventions created entirely on the employee's own time and without employer resources (California, Delaware, Illinois, Minnesota, North Carolina, Washington).

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Drafting Best Practices for Enforceable Restrictive Covenants

1. Know your state law: The enforceability rules of the state where the employee works govern, regardless of the choice-of-law clause in your agreement. If you have employees in multiple states, you may need state-specific versions.

2. Tie the restriction to a legitimate business interest: Courts will not enforce a restriction that exists simply to prevent competition. Document the specific trade secrets, customer relationships, or investment the restriction protects.

3. Use the narrowest reasonable scope: Draft for enforceability, not maximum coverage. A narrow restriction that a court upholds is worth more than a broad one that gets voided.

4. Provide adequate consideration: In many states, continued employment alone is not sufficient consideration for a non-compete signed after the start of employment. Provide a signing bonus, promotion, access to restricted information, or other tangible benefit.

5. Give advance notice: Illinois requires 14 days for review. Massachusetts requires the agreement to be provided at or before the offer of employment (or 10 business days before the effective date for existing employees). Even where not required, advance notice demonstrates good faith.

6. Include a severability clause: In blue-pencil states, a severability clause confirms the parties' intent that a court should modify rather than void an overbroad provision.

7. Review annually: State laws change frequently. What was enforceable when drafted may not be enforceable two years later.

8. Consider alternatives: In states trending toward restriction, a combination of non-solicitation, NDA, and invention assignment agreements may provide equivalent protection without triggering a non-compete statute.

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Enforcement Trends and Employer Risks

Increased Scrutiny

Courts and state legislatures are increasingly sceptical of non-competes, particularly for:

• Low-wage workers (fast food, retail, entry-level positions)
• Workers without access to genuine trade secrets
• Agreements that function as non-competes but are labelled differently

State Attorney General Enforcement

Several state AGs (notably New York, Illinois, and Washington) have taken enforcement action against employers who use non-competes in violation of state law. Penalties can include:

• Injunctive relief requiring the employer to release all workers from unenforceable agreements
• Civil penalties (Colorado: $5,000 per worker)
• Attorney fees and costs

Private Litigation Costs

Even if a non-compete is ultimately enforceable, litigating it is expensive. Employers should consider whether the cost of enforcement (typically $50,000-$200,000+ in legal fees) is justified by the business interest being protected.

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How Grove HR Helps

Grove HR helps employers manage restrictive covenant compliance across multiple states:

• Document management: Store non-compete, non-solicitation, and NDA agreements in each employee's digital file with version tracking
• State compliance alerts: Flag when employee relocations or new hires trigger different state non-compete rules
• Expiration tracking: Automated reminders when post-employment restrictions are approaching their end date
• Audit trail: Full history of when agreements were presented, signed, and any modifications made

Get started with Grove HR and centralise your employment agreement management.