Restrictive covenants

At a glance

• Federal and state legislative and enforcement activities continue to target non-competes.

• In light of federal court decisions, the Federal Trade Commission took final action to remove its Non-Compete Clause Rule from the Code of Federal Regulations. It continues to take a case-by-case approach in limiting the use of non-compete agreements, with a focus on restricting company-wide or overly broad non-compete agreements.
• On March 23, 2026, Washington Governor Bob Ferguson signed into law a bill banning nearly all non-compete agreements for employees and independent contractors, effective June 30, 2027.
  • The law defines a 'non-competition covenant' as any written or oral agreement 'that prohibits or restrains an employee or independent contractor from engaging in a lawful profession, trade, or business of any kind.'
  • This definition includes a covenant, agreement, or contract: (1) that directly or indirectly prohibits the acceptance or transaction of business with a customer; or (2) that threatens, demands, requires, or otherwise effectuates that an individual return, repay, or forfeit any right, benefit, or compensation, as a consequence of the individual engaging in a lawful profession, trade, or business of any kind.
  • The law contains an exception for agreements made in connection with the sale of a business provided the person signing the non-compete purchases, sells, acquires, or disposes of an ownership interest representing one percent or more of the business.
  • Non-solicitation, confidentiality, and certain training repayment agreements are also allowed subject to certain limitations.
  • By October 1, 2027, employers must provide written notice to current and former employees and independent contractors who still have active non-competes that these agreements are no longer enforceable.
• On March 4, 2026, the Virginia General Assembly approved Senate Bill No. 170, which amends the existing non-compete statute to limit the enforceability of restrictive covenants for certain terminated employees. If signed by the Governor, the bill would invalidate non-competes for employees who are laid off without severance benefits or other monetary payment unless they are terminated for cause. The severance benefits or monetary payment would need to be disclosed to the employee upon execution of the restrictive covenant.
• New York and California have both enacted new training repayment agreement (TRAP) laws that broadly prohibit employers from entering into contracts with employees that include training repayment provisions, as well as other quit-fees or penalties tied to separation from employment (with limited exceptions). TRAP laws are pending in other states.