DealLawyers.com Blog

All the words for uncertainty and inconsistency apply when discussing non-compete laws in 2025. On the federal level, the FTC’s rule prohibiting most non-competes remains blocked on a nationwide basis, still making its way through the courts. But, since that injunction just over a year ago, there’s been a lot of movement at the state level. This Morgan Lewis alert describes the “growing divergence” in how states regulate non-competes.

Some states, such as Minnesota, Oklahoma, and North Dakota, have joined California in effectively banning noncompetes, subject to limited exceptions.

Many states have adopted statutes that cap noncompete temporal durations. Colorado has taken a unique approach, setting a formula to calculate the permissive duration of noncompetes for individual minority owners in the sale-of-business context: the maximum duration of a noncompete is determined by the consideration the individual received from the sale divided by the average annual cash compensation received by the individual from the business (including income received on account of their ownership interest) during the prior two years or the period the individual was affiliated with the business if shorter.

California recently adopted anti-noncompete legislation that purports to extend with a broad reach across jurisdictions if there is some connection to California. Recent cases in non-California jurisdictions have severely limited this “long-arm” aspect of the law, finding it not enforceable in respect of agreements entered into outside of California. It remains to be seen how a California court might rule in a similar case brought inside of the state.

Other states, including Kansas and Florida, have gone the opposite direction, adopting legislation making it easier to enforce noncompetes. Florida’s new CHOICE Act, for example, expands the permissible duration of noncompetes to up to four years and requires that a court issue a preliminary injunction simply upon motion by a covered employer seeking enforcement of a covered agreement.

There have also been a number of important developments beyond federal rulemaking and state legislation surrounding sale- and equity-based noncompetes, some of which we’ve already blogged about. Here are some from the alert:

– Auction NDAs now regularly include nonsolicits of employees, and we have observed that the market practice in this area has been to increase the reach and duration of these restrictive covenants. Private equity professionals should note that these agreements have antitrust law implications; a potential buyer signing up to such a restrictive covenant could be exposing itself to liability.

– The Delaware Supreme Court has recently weighed in on forfeiture-for-competition provisions, finding that these provisions, which do not enjoin competition but rather require forfeiture of certain enumerated benefits (whether compensation or equity), are enforceable if they satisfy standard contract law principles and are not subject to the more rigorous “reasonableness” test that applies to traditional noncompetes.

– On the other hand, the Delaware Court of Chancery recently questioned, in striking down a noncompete, the adequacy of consideration to support a noncompete in certain equity-based noncompete contexts, albeit many practitioners would consider this a departure from historical and expected interpretations of the law (and so it is unclear as to whether this decision will be followed in future cases). In another case, the Delaware chancery court declined to reform and enforce what it deemed to be an overly broad noncompete.

Check out our “Antitrust” Practice Area for more. Lots more, in fact! Our section on State Non-Compete Legislation is lengthy and growing.

– Meredith Ervine