Noncompete ban stalls: small-business HR compliance moves to the states

For a moment, small businesses were preparing for a single, nationwide rule that would largely end employee noncompete agreements. That moment has passed, at least for now. As of 27/01/2026, the Federal Trade Commission (FTC) confirms its noncompete final rule is “not in effect and…not enforceable,” citing a court order that stopped enforcement.

The practical result is a familiar one for HR teams: compliance strategy is back to being state-first. With states tightening (and differing) limits, and with federal agencies sending mixed signals, small-business HR leaders need an operational plan that can flex across jurisdictions, job categories, and employee mobility scenarios.

1) Why the federal noncompete ban stalled, and what “not in effect” means

The FTC’s final rule to ban most noncompetes is currently stalled because it was blocked in federal court and has not taken effect. The FTC’s own materials state the rule is “not in effect and…not enforceable,” reflecting a court order that prevents enforcement as of 27/01/2026.

One key driver is the Texas federal court decision in Ryan LLC v. FTC, widely covered as setting aside the FTC rule nationwide and preventing it from taking effect on 09/04/2024. For employers, that date matters because it was when many organizations expected federal compliance deadlines to bite.

Equally important is what happened next: the FTC appealed on 10/18/2024, then later took steps to dismiss its appeal on 09/05/2025, an action documented on the FTC’s rule page. Whatever the underlying institutional and legal reasons, the effect for employers is straightforward: there is no enforceable federal noncompete ban to “comply with” today.

2) Compliance moves to the states: HR risk becomes a map, not a memo

With the FTC rule set aside, the compliance center of gravity shifts back to state law. Commentary from the Harvard Law School Forum highlights that different federal courts reached different interim outcomes along the way, reinforcing that employers should operate with a state-by-state posture rather than waiting for a single national answer.

That state-by-state reality is more than a legal nuance, it changes daily HR workflows. Recruiting, onboarding, equity grants, confidentiality policies, and exit processes all become jurisdiction-sensitive when employees can move, work remotely, or serve multiple markets.

For small businesses, this can feel like “big-company complexity” without big-company resources. But the playbook is manageable if you treat noncompete compliance like tax withholding: you standardize where you can and localize where you must, using clear triggers (state of work/residence, role type, income thresholds, and sale-of-business scenarios).

3) Federal pressure points still exist: the NLRB whiplash problem

Even without an FTC ban, federal activity can still influence risk. On 10/07/2024, the National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo outlined a view that “overbroad” noncompetes can be unlawful because they chill employees’ Section 7 rights, and she described enforcement and remedies priorities, including scrutiny of “stay-or-pay” provisions.

For HR teams, that stance mattered because it suggested noncompetes could trigger labor-law scrutiny even in workplaces that are not unionized. It also reinforced a broader compliance theme: restrictions that deter employees from job-switching or concerted activity can be attacked under theories other than traditional contract law.

Then came the reversal. On 02/14/2025, NLRB Acting General Counsel William Cowen issued GC 25-05 rescinding noncompete-related memos (GC 23-08 and GC 25-01). Cowen explained the rescission in resource-and-backlog terms: “The unfortunate truth is that if we attempt to accomplish everything, we risk accomplishing nothing.” The practical takeaway is not that risk disappears, but that federal enforcement posture can change quickly, so small businesses should avoid building programs that rely on any single agency’s current priorities.

4) Minnesota: a clear statutory anchor, noncompetes are generally void

Minnesota provides one of the clearest compliance anchors: state law states that “Any covenant not to compete contained in a contract or agreement is void and unenforceable,” with limited exceptions tied to the sale of a business or dissolution of a partnership/LLC. For HR teams, that turns the question from “how narrow is narrow enough?” into “why are we using a noncompete at all for Minnesota workers?”

Minnesota also restricts venue and choice-of-law provisions for employees who reside and work in Minnesota, limiting an employer’s ability to route disputes to another state’s courts or laws. That matters for small businesses that use a single national employment agreement template with a “home-state” governing law clause.

Operationally, the Minnesota approach pushes employers toward alternatives such as confidentiality, invention assignment, customer nonsolicitation (where permissible), and robust trade secret controls. It also highlights why HR should track where employees actually live and work, not merely where the company is incorporated.

5) California: expanded prohibitions, enforcement leverage, and notice duties

California has long limited employee noncompetes, but recent changes increased both the reach and the consequences. The California Attorney General describes SB 699 as making it generally illegal to enter into noncompetes with California employees, including agreements signed outside California, and as allowing employees to seek damages, injunctive relief, and attorneys’ fees for attempted enforcement.

Separately, AB 1076 codifies that existing noncompetes are void unless an exception applies. That is a compliance trap for small businesses that assume “we signed it years ago, so it’s fine.” In California, “old” restrictions can create “new” exposure if the employer tries to enforce or even relies on them in a way that affects employment decisions.

California also imposed a concrete HR task: AB 1076 required written individualized notice to current employees and certain former employees that the noncompete is void, delivered to the last known address and email, by 02/14/2024. Even if that deadline has passed, it demonstrates a key compliance lesson, states may impose active remediation duties (like notice) rather than merely changing enforceability going forward.

6) Washington State: thresholds and numbers you must update every year

Washington State illustrates another state compliance pattern: noncompetes can be enforceable, but only if statutory conditions are met, especially income thresholds that adjust over time. The Washington Department of Labor & Industries lists 2026 enforceability thresholds of $126,858.83 for employees and $317,147.09 for independent contractors.

For small-business HR, the challenge is not only drafting the clause but also maintaining a system that checks compensation against the current year’s threshold. A noncompete that looked enforceable when signed can drift into noncompliance if pay changes, status changes, or thresholds rise.

That makes Washington a strong argument for process over paper. HR should align offer letters, compensation bands, and contract templates with an annual “threshold refresh” calendar item, and ensure managers understand that promotions, reclassifications, and contractor conversions can change enforceability.

7) A practical small-business playbook for state-based noncompete compliance

When federal uniformity stalls, the goal is to build a compliance system that scales down well. Start by inventorying where your workers reside and work (including remote and hybrid patterns), then map those locations to a short set of rule categories: (1) bans/near-bans, (2) permissive with strict limits (thresholds, timing, notice), and (3) more traditional enforcement states.

Next, reduce reliance on noncompetes as a default retention tool. Use narrower and more defensible protections: confidentiality agreements tailored to real trade secrets, access controls, customer relationship documentation, and (where lawful) nonsolicitation provisions. This reduces the chance that a multi-state workforce triggers the strictest state’s penalties or remedies.

Finally, build an escalation workflow for departures. Before sending a demand letter or threatening enforcement, route the case through a checklist: worker’s state(s), role category (employee vs contractor), pay thresholds if relevant, whether the agreement was signed elsewhere, and whether the state permits damages/fees for attempted enforcement. In a state like California, an aggressive enforcement posture can turn into a claimant-friendly lawsuit.

8) The policy debate continues, even if the rule is stalled

The stalled rule does not mean the policy argument went away. FTC Chair Lina M. Khan framed the rationale as promoting freedom to “pursue a new job, start a new business, or bring a new idea to market,” and she referenced projections of “more than 8,500 new startups” per year if noncompetes were banned.

States appear to be responding to similar concerns, and many are experimenting with different approaches: outright bans, income thresholds, notice requirements, or expanded remedies. The common direction is tighter scrutiny of restraints that limit mobility, especially for workers who do not control strategic business assets.

For small businesses, the message is to plan for continued tightening, not a return to broad, one-size-fits-all restrictions. Contracts that rely on intimidation value rather than enforceability are increasingly risky, legally and reputationally, when states empower employees with damages, attorneys’ fees, and injunctive relief for attempted enforcement.

The FTC noncompete ban is not currently the rulebook small businesses must follow. It is “not in effect and…not enforceable,” and the nationwide block associated with Ryan LLC v. FTC, combined with the FTC’s move on 09/05/2025 to dismiss its appeal, leaves employers back where they started: navigating state-by-state constraints.

The compliance move now is to operationalize that reality. Treat noncompete use as an exception, maintain a state-driven template system, refresh Washington-style thresholds annually, and assume federal signals (like NLRB guidance) can shift again. With a disciplined process, small-business HR teams can protect legitimate business interests without stumbling into the growing patchwork of state enforcement and employee-friendly remedies.