Are Your Noncompete Agreements Still Enforceable?

But recently that changed. In April 2024, the Federal Trade Commission (FTC) issued a rule banning most noncompete agreements across the U.S. The rule applies to future contracts and, in many cases, to existing ones as well. 

What the FTC Rule Says

The new FTC rule blocks most noncompete agreements for employees at all levels, across nearly all industries. While there are exceptions for senior executives who earn more than $151,000 a year and have policy-making authority, the vast majority of workers will no longer be legally bound by these restrictions.

The FTC estimates this change could increase worker earnings by an average of $524 per year and lead to over 8,500 new businesses being created annually. However, several lawsuits have already been filed to stop the rule, and a federal court temporarily paused enforcement in July 2024. Despite this, legal experts advise businesses to start preparing now for if and when the rule goes into effect.

Why This Matters to SMBs

This matters because noncompetes have been a common tool—especially for small and growing businesses that want to protect what they’ve built. According to the FTC, about 1 in 5 U.S. workers—roughly 30 million people—are currently bound by a noncompete. Many small business owners may not even realize that these agreements are now unenforceable or could put them at legal risk if used improperly.

Even if you’re not in a highly competitive or technical industry, this rule could affect how you hire, retain, and protect talent. That’s especially true for growth-stage businesses where every employee carries a lot of responsibility—and every departure has an impact.

If your business currently uses noncompetes:

• You may need to stop including them in offer letters and contracts.
• You might be required to formally notify employees that their old noncompetes are no longer valid.
• If you try to enforce a banned agreement, you could face legal or financial penalties.

This is not just a legal compliance issue—it’s a business strategy issue. You’ll need new ways to protect your sensitive information, customer relationships, and team culture without relying on noncompetes.

What You Can Do Now

You can’t change the FTC’s rule—but you can prepare your business to stay compliant and protected.

• Review your contracts: Identify any noncompete language in current or past employee agreements.
• Replace with other tools: Use confidentiality agreements, NDAs, and non-solicitation clauses to protect sensitive data and client relationships.
• Update your onboarding process: Make sure new hire paperwork aligns with the rule.
• Focus on retention: Strengthen employee engagement, benefits, and company culture to reduce turnover risk.

If the rule is upheld in court, businesses may be required to send formal notices to affected employees—so it’s worth planning for that step now.

Questions You Should Be Asking About Noncompetes

Before you update your contracts or change how you hire, start by asking:

• Do we currently use noncompetes in our employee agreements?
• Which of those agreements would be banned under the new FTC rule?
• What are the penalties if we try to enforce one that’s no longer valid?
• How can we protect sensitive information without using noncompetes?
• Should we have our contracts reviewed by a Legal Pro?

What You Can Do Next

If you’re unsure where to start, begin by gathering your employment and contractor agreements. Look for any clauses that limit where employees can work after leaving. If you find noncompete language, you may need to update or remove it.

You can use a tool like Rocket Copilot to review agreements and get personalized guidance—or connect with a Legal Pro through our platform.

Even if the rule is still tied up in court, the message is clear: noncompetes are on their way out. By asking the right questions now, you’ll protect your business, your people, and your peace of mind.