State legislatures targeting noncompete clauses

At least 15 states have enacted significant restrictions on noncompete agreements, ranging from minimum income thresholds to outright bans. Eight states have passed restrictions in the last five years.

The prohibitions are mainly found in Democrat-leaning states like California and Washington but they are popping up in more conservative states too. The most recent was Tennessee, which in May enacted a minimum salary threshold of $70,000 per year for noncompete clauses, and voided any prior contract clauses below that threshold. Washington enacted a complete ban on the clauses in March.

Noncompete clauses prevent workers from leaving their jobs to do the same work for rivals until a set period of time expires. Two states – North Dakota and Oklahoma – have prohibited noncompete clauses since the 19^th century. More recently, Jimmy John’s agreed to drop noncompetes from contracts in 2016 after the New York attorney general’s office declared the practice unlawful. The chain had prohibited employees from working for a competing sandwich shop within three miles of its franchises.

The issue has gained more prominence in recent years as job mobility has stalled. Workers are not moving on to new careers as they used to. That’s in part because employers have become more determined to keep talent in-house.

An estimated 18 percent of workers are currently covered by noncompete agreements, about 30 million people. Overall, 37 percent of workers report having been covered by a noncompete clause at some point in their careers. Studies note that precise numbers are hard to get because many workers may be unaware they are covered by noncompete agreements.

The business community has generally defended noncompetes, arguing that the government is overreaching by trying to ban them. Defenders assert the clauses are useful to protect investments in worker training – investments employers may not make otherwise. They also argue that the clauses often result in higher pay for workers to compensate for the limitation on job mobility.

“Imagine you had two job offers from two different employers. Imagine that everything about the job offers was the same—the type of work, hours, paid vacation, family leave policy, and so forth. The only difference between them was that Company A requires to you sign a noncompete, while Company B does not. Immediately, that makes Company B seem more attractive, all else equal. In order to overcome that, you’d require Company A to offer you higher wages than Company B,” argued Kevin Corcoran, a contributor to Econlib.org.

Some business groups dissent, however, arguing the clauses prevent them from hiring the best talent. Other critics of the practice, including unions, argue that the clauses serve only to protect businesses from having to pay workers more to prevent them from getting poached by rivals.

Even in states where noncompete clauses are not prohibited they nevertheless may not be enforceable. Courts have long applied a “reasonableness” standard to upholding the clauses, examining the scope, duration, and the type of work involved, among other factors. Courts in some jurisdictions have rewritten work contracts with noncompetes to, for example, shorten the duration or limit the geographic scope, a practice called “blue penciling.” Thus, courts can curb the worst excesses of the practice and do so in a case-by -case manner. Not every worker is going to have the time and resources to legally challenge noncompetes, however.

The Federal Trade Commission issued a rule banning noncompetes in 2024 under the Biden administration, but it was blocked in court the following year before it could take effect. The current administration has vacated the rule.

Noncompete clauses stymie the creation of new businesses according to a recent study by the nonprofit Economic Innovation Group (EIG), which looked at the results of a 2015 Hawaii prohibition. What made the Hawaii law unusual was that the prohibition extended only to workers in the technology industry. The EIG study found that prohibition resulted in a 10.2 percent increase in the number of technology-based start-ups in the state. Allowing workers to perform the same type of work elsewhere led more to leave their existing jobs to create new businesses.

The report also noted that the overall number of tech workers in the state rose marginally by 1.4 percent in the decade since the reform went into effect. “[T]he findings suggest that Hawaii’s noncompetes reform had the dual effect of boosting establishment formation in technology industries while facilitating the diffusion of tech workers and their skills into other sectors of the economy.”

The report compared Hawaii’s results with a ban on noncompete clauses in Oregon that applied to all workers earning up to $119,000 annually. Oregon’s restriction produced a statistically insignificant increase of 1 percent for new business establishments and a similarly negligible change in employment. In short, noncompete clauses don’t matter much when workers are not already able to command high salaries.

Here’s a rundown of the 15 states that have some form of prohibition on the books.

• California – A 2023 law formally made noncompetes illegal and required employers to tell workers who had previously signed agreements that they could not be enforced. 
• Colorado – As of 2022, noncompetes must meet a salary threshold set by the state legislature (currently $130,000).
• Hawaii – As of 2015, noncompetes are banned for people in the technology business sector. 
• Illinois – As of 2022, employees must have worked for more than two years before the noncompete can apply, the state can determine if the business has a legitimate need for the clauses and there is a salary threshold (currently $75,000). 
• Maine – As of 2019, noncompetes have a minimum salary threshold of 400 percent of the federal poverty rate (currently about $64,000). 
• Maryland – Maryland first limited non-competes in 2019 and made the restrictions more rigid in 2023. Currently, they are prohibited for workers making less than $22.50 an hour (about $46,800 annually) and $350,000 annually for healthcare professionals working in direct care. 
• Minnesota – Noncompetes were banned in 2023, however the law is not retroactive so pre-2023 contracts are still valid.
• New Hampshire – As of 2019, noncompetes have a minimum salary threshold 200 percent of the federal minimum wage (currently about $30,000). 
• North Dakota – Noncompetes were banned in 1865.
• Oklahoma – Noncompetes were banned in 1890. 
• Oregon – As of 2021, noncompetes are not allowed for salaries below an inflation-adjusted threshold (currently $119,000). 
• Rhode Island – As of 2020, noncompetes have a minimum salary threshold of 250 percent of the federal poverty rate (currently about $40,000). A total ban was passed by the legislature in 2024, but it was vetoed by the governor. 
• Tennessee – As of 2026, noncompete agreements have a minimum salary threshold of $70,000 per year, and any prior such agreements below that threshold will be voided. The law also directs courts to consider if restrictions that extend beyond two years are reasonable, empowering the judiciary to modify the agreements. 
• Virginia – As of 2025, noncompetes have a salary threshold set by the state legislature (currently $78,000). Noncompetes are unenforceable if an employee is fired without cause and denied severance. 
• Washington – Noncompetes were banned in 2026. The same law also restricts contracts that financially penalize a worker for leaving or prohibit them from seeking other employment.