Despite the Federal Trade Commission (FTC) proposing a year ago a nationwide prohibition on all employment noncompetes, states continue to independently chart their course on this matter. The final rule issued on April 23 would ban all past, present, and future non-competition agreements in the US, with exceptions for existing noncompetes with senior executives earning more than $151,164.
Resisting this sweeping approach, some states have enacted new laws restricting noncompetes, whilst others still allow courts to decide enforcement on a case-by-case basis. As a consequence, state-specific noncompete initiatives fall into three categories: those banning noncompetes like California, those legislating salary-based thresholds, and others which rely on long-established court restrictions on noncompetes.
The notorious California ban on noncompetes reached new heights with a law forbidding the transfer of an employee’s noncompete agreements under laws of other states, if the employee resides or works in California. Minnesota joined California, Oklahoma, and North Dakota last year, enacting its own state law banning noncompetes. However, all states enforce certain exemptions for specific professions like law, health care, and broadcasting, with Iowa and Kentucky specifically enacting professional exemptions for health-care workers.
This inconsistent approach is emblematic of the tensions between state sovereignty and national regulation. States like New York might soon join others such as Colorado, Illinois, and Maine, in enforcing statutory restrictions such as salary thresholds that prevent the enforcement of noncompetes for low-earning employees. The District of Columbia, originally adopting California’s outright ban, also shifted its position to enforce salary thresholds and other limitations. These fluctuating stances represent further rejection of the FTC’s uniform rule.
Aside from legislation, courts in many states have often adopted restrictions on noncompetes, basing their decisions on the duration and geographical scope of the agreements, and on whether the employer had a ‘legitimate protectible interest.’ This tradition of court-made law underlies the continued existence of state-law restrictions and has often been used as an argument against federal courts restricting enforcement under federal antitrust law.
While the FTC endeavors to impose a nationwide prohibition on noncompetes, asserting that such agreements between employers and employees violate federal antitrust law and the Federal Trade Commission Act, most states remain resolute on their rules. Whether through new laws or by permitting courts to define boundaries, states continue to create their own responses to noncompetes.
Given the current landscape, it remains to be seen whether the FTC’s nationwide ban becomes effective. For now, states seem intent on navigating their courses through court decision-making and state legislative action.