End Non-Compete Clauses

Non-compete clauses, found in employment contracts throughout the economy, prevent workers from changing jobs within an industry or leaving to start their own competing firm, typically within the same region. Banning non-competes would spur job creation, startups, and economic growth. The FTC estimates that a nationwide ban on non-compete clauses would lead to more than 8,500 additional businesses opening every year.

Non-compete clauses are detrimental to smaller competitors and industry dynamism. Smaller and new businesses in industries where non-compete clauses are common struggle to hire workers with the industry experience and knowledge necessary to help their businesses survive and grow. Likewise, when non-competes bar workers from leaving to start a competing business, they stifle the pressure to innovate and lower prices that comes from a competitive playing field. 

Non-compete clauses are also bad for workers and competition in the U.S. labor market. Approximately one in every five workers, or 30 million Americans, work under a non-compete clause. By preventing workers from moving to better-paying jobs within their industry, they earn less on average than they would otherwise. Furthermore, when startups struggle or fail to launch due to non-competes, it narrows the number of employers hiring and stifles the labor market. These clauses often ensnare lower-income workers, such as nurses, hairdressers, and even fast-food workers. For higher-paid, executive-level workers who are privy to industry secrets, companies have effective alternatives to non-compete clauses to help protect their interests, including trade secret laws and non-disclosure agreements. 

In April 2024, the FTC finalized a rule banning the use of non-compete clauses in employment contracts nationwide. The FTC issued the rule after an exhaustive study that collected more than 25,000 public comments in favor of a ban on non-competes. That rule was set to take effect in September that year, but the U.S. Chamber of Commerce and others successfully persuaded a Texas federal judge to block it, and the Trump-era FTC has chosen not to appeal. 

Today, a hodgepodge of state laws and shifting federal priorities leaves the status of non-compete clauses in flux nationwide. State and federal policymakers can take important steps to support workers and small businesses by ending and preventing non-compete clauses in employment contracts. 

What federal lawmakers and enforcers can do to end non-compete agreements

• Introduce and pass federal legislation banning non-competes.
  Federal lawmakers in Congress should draft and pass a bill banning non-compete agreements nationwide. The law could be functionally similar to the FTC rule, which banned all non-competes except those already-existing non-compete agreements covering senior executives. Furthermore, Congress could create a law banning all non-compete agreements regardless of employee seniority or status.
  
• Enforce against non-competes under existing antitrust laws.
  While the FTC has declined to defend its rule against non-competes, current FTC chair Andrew Ferguson in February 2025 announced a Joint Labor Task Force within the FTC to seek out anti-competitive and unfair labor market practices and to bring enforcement actions against companies whose anti-competitive actions harm workers — including non-competes. Even without a federal rule banning non-competes, FTC enforcement against non-competes could act as a deterrent and help end and prevent employers from using non-compete clauses across the economy. A recent lawsuit against pet cremation business Gateway Services for using non-competes suggests the FTC is willing to use its enforcement powers to end unfair worker restrictions.
• Reinstate non-compete memoranda at the National Labor Relations Board (NLRB).
  In May 2023, former NLRB general counsel Jennifer Abruzzo issued a department-wide memorandum instructing the board to treat most non-compete agreements as potential unfair labor practices under the National Labor Relations Act. The Trump administration rescinded that memorandum in February 2025. The NLRB, in this administration or the next, should reinstate its ban on most non-compete agreements as harmful to workers and labor competition.
  

What state lawmakers and enforcers can do to end non-compete agreements

• Pass laws banning non-compete agreements.
  Today, several states ban non-compete agreements, either outright or for specific workers or industries. The four states that fully ban non-competes span the political spectrum: California, North Dakota, Oklahoma, and Minnesota. In 2024 and 2025, dozens of new bills have been introduced, and in some cases passed, restricting non-compete agreements in some form. State lawmakers should protect competition among workers and a level playing field for small businesses by passing laws that ban or restrict non-competes.  
• Enforcers and private plaintiffs should challenge non-compete agreements in state court.
  At least two state courts, in Delaware and Pennsylvania, have recently invalidated non-compete agreements for being overly broad or signed too late to be enforceable, respectively. With many states restricting non-compete agreements in some form, plaintiffs should ask state court judges to find those agreements unenforceable. 

What state small businesses and workers can do to end non-compete agreements

• Sue to challenge non-competes in federal court.
  Federal courts have frequently been hostile to non-compete agreements when they are found to be overly broad, harmful to competition, or otherwise against the public interest. Small businesses and workers harmed by non-competes should sue to challenge those agreements in court, and rely on the FTC’s extensive study of non-competes and the findings in its final rule banning non-competes to do so. 

ILSR Resources:

• Stacy Mitchell, “Statement on FTC Rule Banning Noncompete Agreements,” ILSR, 2024
• Ron Knox, The State(s) of Antitrust, ILSR, 2025
• Stacy Mitchell, “Fighting Monopoly Power: Small Business,” ILSR, 2020 (updated 2024)

External Resources:

• Federal Trade Commission, Non-Compete Clause Rule, 16 CFR Parts 910 & 912, RIN 3084–AB74, Federal Register 89, no. 89 (May 7, 2024): 38342. (The Federal Trade Commission’s final non-compete rule, approved in April 2024 but since rescinded.) 
• Marx, Matt, and Lee Fleming. “Non-Compete Agreements: Barriers to Entry … and Exit?” In Innovation Policy and the Economy, Vol. 12, edited by Josh Lerner and Scott Stern, 39-64. Chicago: University of Chicago Press, 2012.
• “Halting FTC’s Non-Compete Ban Will Hamper Entrepreneurship,” a statement by Small Business Majority, 2024.