The State of Non-Compete Bans: Legislation Trends to Watch

Non-compete agreements have long been a contentious issue in employment law, and the debate surrounding their regulation continues to intensify. With businesses seeking to safeguard their intellectual property and employees advocating for their labor mobility, the landscape of non-compete legislation remains in flux.

As debates grow, states across the U.S. continue to push their own legislation, reshaping the non-compete landscape each time—and increasing the chances other states follow suit.

So far this year, over 70 non-compete bills have been proposed across more than half of the states. There has also been movement at the federal level, the most prominent being the FTC’s proposed rule banning non-competes nationwide, with a final rule to be released later this year. For now, let’s delve into some of the new non-compete regulations at the state level.

Following California’s lead: Three states to watch

In the wake of California’s historically strict complete ban on non-competes—including a requirement to provide new notice to employees, with per-violation penalties for failing to do so—a second wave of states are pursuing similarly wide-reaching regulations.

Depending on how these bills are received, we could expect the popularity of similar legislation to snowball across the country. Here are three states in particular to keep an eye on:

Illinois

Illinois is considering HB 5385, which would replace its 2022 non-compete law overhaul with a complete ban. Following California’s lead, this bill would void non-competes with all current employees and some former employees, regardless of where they were signed or maintained.

Once again echoing California, the bill introduces individualized notice requirements to ensure that affected employees and ex-employees who were employed after January 1, 2023, are informed that their non-competes are void.

Maine

Maine’s HB 1496 is sitting at the one-yard line, awaiting the Governor’s signature. This bill would replace the state’s previous wage threshold restriction with a complete ban on non-compete agreements with Maine residents. The bill would also require employers to post and maintain a notice of the ban and impose a $5,000 minimum fine for employers who require or permit their employees to sign a non-compete.

Luckily for employers, this ban would only apply to agreements made after the bill’s effective date, leaving any non-competes executed before that date unaffected.

Washington

Signed by Governor Inslee on March 13, 2024, SB 5935 expands the definition of non-competition covenants and limits the use of non-solicitation agreements to only those that prohibit employees from soliciting business from current customers. Any non-solicitation agreement that prohibits employees from soliciting business from past or future customers or from accepting business from current customers is considered a void non-competition agreement.

This bill also invalidates any provision in a non-compete that applies laws from jurisdictions outside of Washington, in order to prevent employers from circumventing Washington’s stricter non-compete laws by opting for the laws of states with more lenient regulations.

Other legislative trends around non-compete agreements

Here are some additional trends gaining momentum at the state and city level:

Complete bans

Eight proposed bills from Illinois, Maine, Massachusetts, Michigan, Rhode Island, Virginia, and Wisconsin (two separate bills) have proposed a complete ban on non-compete agreements. At a more local level, New York City has proposed its own non-compete ban, despite Governor Hochul’s veto of a proposed statewide ban at the end of last year.

Focus on low-wage criteria

New York City and five states—Iowa, Michigan, Missouri, Nebraska, and Pennsylvania—have included low-wage criteria in their proposed legislation. These proposals would ban non-competes for employees who don’t meet certain wage thresholds set by the laws.

They underscore the disproportionate impact non-compete agreements can have on vulnerable workers and the importance of strictly examining whether a non-compete is necessary for each individual employee.

Specific regulations for veterinarians

Massachusetts, New Mexico, and Maryland (with two bills) have introduced bills specifically targeting non-compete agreements within the veterinary industry. These bills are designed to ensure that the states’ residents have adequate access to veterinary services.

Emphasis on the healthcare industry

Twenty-seven proposed bills relate to the healthcare industry, highlighting concerns about the potential impact of non-compete agreements on patient care and access to medical services in this sector.

These bills span Arizona, Colorado, Connecticut, Florida, Illinois, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Missouri, Nebraska, New Jersey, Ohio, Oregon, Pennsylvania, Rhode Island, and Tennessee—with many of these states having two or three separate bills in progress.

Inclusion of notice requirements

Thirteen states—including Illinois, Kentucky, Maine, Michigan, Virginia, Washington, Wisconsin, and New York (which has two bills at the legislature and one in NYC)—have proposed legislation that includes some form of notice requirements.

This type of provision aims to ensure transparency and give employees adequate time to consider the implications of non-compete agreements.

Inclusion of fines or penalties

Fifteen bills have included fines or penalties in their proposed legislation. These punitive measures are intended to deter employers from imposing unfair or overly restrictive non-compete agreements.

These states include California (which did not pass), Illinois, Iowa, Kentucky, Maine, Michigan, Pennsylvania, Virginia, and New York (which has three bills at the legislature and one in NYC).

Implications and strategies for businesses

For businesses, the evolving landscape of non-compete agreement legislation carries significant implications that warrant careful consideration and strategic planning.

Here’s what this information means for companies looking to hire and grow in multiple states—especially general counsel and HR teams, and individual HR and PEO consultants:

• Adaptation to changing regulations: Businesses must keep abreast of proposed non-compete agreement bills in every state where they have employees and understand how potential legislative changes could impact their operations.This includes tracking proposed bans, wage thresholds, notice requirements, fines, and other regulatory provisions that may affect their ability to enforce non-compete agreements.
• Risk assessment: As states consider more stringent regulations or outright bans on non-compete agreements, businesses must assess the potential risks of such changes. This includes evaluating the extent to which non-compete agreements currently protect their intellectual property, trade secrets, and competitive advantage, and identifying alternative strategies for safeguarding these assets.
• Review of existing contracts: Businesses should review their existing non-compete agreements to ensure compliance with current laws and assess their enforceability under potential future regulations. This may involve revising contract language, adjusting terms and conditions, or exploring alternative methods of protecting proprietary information (such as non-disclosure agreements).

• Navigating legal challenges: In all jurisdictions, non-competes are already notoriously difficult to enforce—and with new non-compete regulations, employees have even more avenues to challenge those agreements. Businesses should be prepared to face legal challenges related to their use of non-competes. Companies must balance the possible costs of litigation against the value of using non-competes to protect company secrets.
• Strategic talent management: The shifting regulatory landscape surrounding non-compete agreements may influence businesses’ talent management strategies, including recruitment, retention, and employee mobility. Businesses may need to reevaluate their talent acquisition and retention approach to ensure compliance with evolving legal requirements while remaining competitive in attracting skilled professionals.
• Consideration of ethical and social implications: Beyond legal compliance, businesses should consider the ethical and social implications of non-compete agreements, including their impact on employee rights, mobility, and economic opportunity. Adopting policies that prioritize fairness, transparency, and respect for employee rights can enhance corporate reputation and foster positive relationships with employees and the broader community.

Stay compliant with SixFifty’s employment law platform

The state of non-compete agreement bills in the U.S. remains uncertain, with a variety of implications for businesses, workers, and the broader economy all still on the table.

This uncertainty requires businesses to proactively monitor legislative developments, assess their legal and operational risk factors, and adapt their practices and policies accordingly.

SixFifty’s employment law platform helps you navigate the complexities of non-compete agreement legislation, mitigate risks, and maximize your businesses’ growth and success opportunities. Contact us to learn more about how our tools can help you create compliant non-compete agreements.