The FTC Non-Compete Ban Is Dead: What Founders Need to Know

A non-compete clause is a contractual restriction that prevents someone from joining or starting a competing business for a specified period after leaving a company. In September 2025, the FTC officially abandoned its attempt to ban these agreements nationwide.

For about 18 months, there was real uncertainty about whether non-competes would exist at all. The FTC proposed a blanket ban, courts blocked it, and the startup world waited to see what would happen.

Now we know. The federal ban is dead. State law controls. And if you’re a founder, you need to understand what that means for your co-founder agreements, your employee contracts, and your own equity arrangements.

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What Happened: The Timeline

Here’s how the FTC non-compete ban played out:

April 2024: The FTC voted 3-2 to finalize a rule banning virtually all non-compete agreements nationwide. The rule would have invalidated existing non-competes for most workers and prohibited new ones entirely. It was scheduled to take effect in September 2024.

August 2024: A federal judge in Texas (Ryan LLC v. FTC) issued a nationwide injunction blocking the rule before it could take effect. The court ruled the FTC likely exceeded its statutory authority in issuing such a broad regulation.

September 2025: The FTC formally withdrew the rule. Under new leadership, the commission acknowledged that defending the rule in court was no longer a priority. The nationwide ban was officially dead.

The FTC hasn’t completely abandoned enforcement. It still pursues non-compete issues on a case-by-case basis, particularly in situations that look like anticompetitive behavior. But the sweeping, automatic ban that would have invalidated millions of agreements? That’s not happening.

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What “Dead” Actually Means

The withdrawal of the federal ban doesn’t mean non-competes are universally enforceable. It means there’s no single federal rule. Instead, enforceability depends entirely on where you are.

Federal level: No ban. No blanket rule. The FTC can still challenge specific non-compete practices it views as unfair methods of competition, but it has to do so one case at a time.

State level: This is where the action is. Every state has its own rules, and they vary enormously.

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The State-by-State Reality

States fall into roughly three categories when it comes to non-competes.

States Where Non-Competes Are Unenforceable

These states have effectively banned non-competes through legislation or judicial precedent:

• California. Non-competes are void under Business and Professions Code Section 16600. This has been the law for decades and isn’t changing.
• Oklahoma. Statutory prohibition.
• North Dakota. Statutory prohibition.
• Minnesota. Banned non-competes for all workers effective July 2023.
• Colorado. Banned for workers earning under a specified threshold (adjusted annually). Highly restricted for higher earners.

If you’re in one of these states, non-compete clauses in your agreements are effectively unenforceable regardless of what the FTC does or doesn’t do.

States With Significant Restrictions

Many states allow non-competes but have added guardrails, particularly for lower-wage workers:

• Illinois, Maine, Maryland, New Hampshire, Oregon, Rhode Island, Virginia, Washington: All have income thresholds below which non-competes are unenforceable.
• Massachusetts: Non-competes limited to 12 months. Garden leave (continued pay during the restricted period) is generally required.

States Where Non-Competes Are Generally Enforceable

Most other states allow non-competes as long as they’re “reasonable.” Courts in these states typically evaluate:

• Duration. One to two years is common. Anything beyond two years faces heavy scrutiny.
• Geographic scope. Must be limited to where the company actually does business.
• Activity scope. Must be narrowly tailored to protect legitimate business interests (trade secrets, client relationships), not just prevent competition broadly.

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Why Founders Should Care

This isn’t just an HR policy question. For startup founders, non-competes touch three critical areas.

Co-Founder Departures

What happens when a co-founder leaves? Can they immediately start a competing company using everything they learned? A non-compete in your founder agreement can provide a window of protection, but only if you’re in a state where it’s enforceable and the terms are reasonable.

Founder Agreements: What to Include

Advisor and Contractor Agreements

If you’re bringing on advisors who have deep knowledge of your market or technology, a non-compete might seem attractive. But advisors are often independent contractors, and courts are less willing to enforce non-competes against people who aren’t employees.

Employee Equity Tied to Restrictions

Some startups tie equity vesting or acceleration clauses to non-compete compliance. For example: “Your shares continue to vest during the non-compete period” or “Violation of the non-compete triggers a clawback.” These arrangements need to be structured carefully, and their enforceability depends heavily on state law.

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What to Put in Your Founder Agreement Instead

Even if you’re in a state where non-competes are enforceable, they’re often not the best tool for protecting your startup. Here’s what usually works better.

Non-Solicitation Clauses

A non-solicitation clause prevents a departing co-founder or employee from poaching your team or contacting your customers. Courts enforce these far more consistently than non-competes because they’re narrower. You’re not preventing someone from working. You’re preventing them from raiding your business.

A typical non-solicitation clause covers:

• Employees and contractors. The departing person can’t recruit your team for 12 to 24 months.
• Customers and clients. They can’t actively solicit your existing customers for the same period.

Confidentiality and IP Assignment

A strong confidentiality agreement combined with proper IP assignment often does more to protect your startup than a non-compete ever could. If your departing co-founder can’t use your trade secrets, proprietary technology, or customer data, their ability to compete effectively is already limited.

Vesting and Equity Clawbacks

Your equity structure is itself a powerful retention and protection tool. Standard four-year vesting with a one-year cliff means a co-founder who leaves early walks away from most of their equity. That’s a significant disincentive to leave, without any non-compete required.

Garden Leave

If you do include a non-compete, consider pairing it with a garden leave provision. This means you continue paying the person during the restricted period. Courts are much more likely to enforce a non-compete when the restricted person is still being compensated. Massachusetts requires this by statute. Other states view it favorably even when not required.

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The Practical Takeaway

Non-competes are still a legal tool, but they’re an unreliable one. Enforceability varies wildly by state, courts frequently narrow or void them, and they can create ill will with departing team members who might otherwise leave on good terms.

For most startups, the combination of a non-solicitation clause, a confidentiality agreement, proper IP assignment, and a well-structured equity plan provides better protection with fewer downsides.

If you do use non-competes:

• Keep the duration to 12 months or less.
• Limit the scope to direct competitors, not the entire industry.
• Include garden leave if your budget allows it.
• Make sure you’re compliant with the specific state laws that apply (and remember, the applicable state is usually where the employee works, not where the company is headquartered).

The FTC ban is dead, but the trend toward restricting non-competes isn’t. More states are adding limitations every year. Build your agreements to work without relying on non-competes, and you’ll be better positioned regardless of what happens next.

Equity Matrix helps you build founder agreements with the right equity structure from day one, so your cap table is the protection mechanism, not a clause that might not hold up in court.

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FAQ

Are non-competes enforceable in my state?

It depends entirely on your state. California, Oklahoma, North Dakota, and Minnesota effectively prohibit them. Colorado, Illinois, and several others restrict them based on worker income. Most other states allow them if they’re “reasonable” in duration, geographic scope, and activity scope. Check your specific state’s statutes, or consult an employment attorney.

Should I still include a non-compete in my founder agreement?

For most startups, a non-solicitation clause is more practical and more enforceable. If you do include a non-compete, keep it short (12 months or less), narrowly scoped, and consider pairing it with garden leave. Always pair it with confidentiality and IP assignment clauses, which are your real protection.

What about non-solicitation agreements? Are those different?

Yes. A non-solicitation agreement only prevents someone from actively recruiting your employees or contacting your customers. It doesn’t prevent them from working in your industry or starting a competing business. Courts enforce non-solicitation clauses far more consistently because they’re narrower and less restrictive. For most early-stage startups, this is the better tool.