With the Federal Trade Commission's (FTC) proposed ban on noncompete agreements facing a nationwide injunction, states are stepping forward to enact their own laws.
In April 2024, the FTC issued a final ruling finding that noncompete agreements constitute an unfair method of competition in violation of Section 5 of the FTC Act, banning nearly all noncompetes.
The rule, set to take effect in September 2024, faced immediate challenges in multiple courts before a nationwide injunction halting its enforcement was issued.
In response, New York, Ohio, Texas, Virginia, Washington and Wyoming have all introduced or enacted legislation of their own, potentially joining California, Minnesota, North Dakota and Oklahoma to prohibit such agreements.
The Texas bill, House Bill 4067, would broadly prohibit noncompetes for all "workers," regardless of when the agreement was entered into, with a limited exception for "senior executives" (defined as someone in a "policy-making position" who earned at least $151,164 in total annual compensation in the previous year) if the agreement was entered into prior to Sept. 1, 2025, the effective date of the legislation.
Another limited exception would apply in the event of the sale of a business entity, its operating assets or the person's ownership in the business entity. If enacted, the Texas bill would require employers to provide affected workers with a "clear and conspicuous" notice by Jan. 1, 2026, that their noncompete agreement is no longer enforceable, identifying the parties subject to the agreement.
In Ohio, lawmakers introduced a measure in February that would ban employers from entering into, attempting to enter into, presenting or attempting to enforce an agreement that prohibits or penalizes a "worker" for competing. Senate Bill No. 11 broadly defines a worker to include employees, externs, interns, volunteers, apprentices and independent contractors.
The Ohio bill provides enforcement power to the state attorney general as well as a private right of action for workers, with costs and fees available, along with punitive damages of up to $5,000 and injunctive relief.
Last year, the New York legislature passed a ban on noncompete agreements that was subsequently vetoed by Gov. Kathy Hochul. The legislature is taking another swing this year with Senate Bill 4641.
The New York proposal would prohibit employers from requiring any "covered individual" to execute a noncompete, defined as "any agreement, or clause contained in any agreement, between an employer and a Covered Individual that prohibits or restricts such covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement."
Exceptions to the ban include a "highly compensated individual," an employee paid at least $500,000 per year, as well as for noncompetes entered in connection with the sale of a business.
The measure includes a private right of action for employees.
The Washington legislature is considering House Bill 1155, which would expand on the state's existing limits to prohibit all noncompete agreements and covenants, including those already in place, and provides that the provisions protecting employees and independent contractors must be construed liberally. If enacted, employers would be required to inform current and former employees or independent contractors by Oct. 1, 2025, that their agreements are no longer enforceable. The measure would also clarify the definition of "non-solicitation agreement."
Two states have already enacted prohibitions. Virginia's ban on noncompete agreements takes effect on July 1. The new law builds on an existing prohibition for "low-wage employees," previously defined as those who earn less than the average weekly wage in the state (for 2025, $1,463.10 or about $76,000 per year).
The Virginia law has now been expanded to cover workers eligible for overtime compensation, regardless of their earnings. It does include exceptions for workers whose earnings are derived (in whole or in predominant part) from commissions, incentives or bonuses. Importantly, the prohibition does not impact noncompete agreements with overtime-eligible employees entered into prior to July 1, 2025.
Similarly, Wyoming's new law will take effect on July 1, banning noncompetes with limited exceptions for agreements protecting trade secrets, the purchase and sale of a business and contracts binding "executive and management personnel" and "employees who constitute professional staff to executive and management personnel," terms not defined by Senate Bill 107.
Under the new law, employers are permitted to recover expenses for relocation, education and training; however, although the amount of recovery decreases based on the length of an employee's tenure, it does not have retroactive effect and only applies to agreements entered on or after July 1, 2025.
Why it matters: While the FTC's ban on noncompetes remains on hold—perhaps permanently, with the change in federal administration—employers should be aware that states are considering and enacting their own limits on noncompete agreements.
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