Trade Secrets & Employee Mobility

We recently reported that Kansas was in a minority of states to enact employer-friendly restrictive covenant legislation.  Florida is on the verge of joining Kansas following the introduction of House Bill 1219 (“HB 1219”), which creates, in part, the “Florida Contracts Honoring Opportunity, Investment, Confidentiality, and Economic Growth (CHOICE) Act”. If enacted, HB 1219 will provide a framework for the use of permissible noncompete and garden leave agreements between a covered employer and covered employee. If passed, the bill would strengthen the enforceability of noncompete and/or garden leave agreements.

HB 1219 outlines certain noncompete and garden leave agreement requirements, such as confidentiality access and notice periods, to accept such agreements as enforceable. So long as the requirements are met, noncompete and garden leave agreements will not be considered a restraint of trade or an attempt to monopolize trade or commerce in violation of public policy. On April 23, 2025, the House voted 91-21 to pass HB 1219, and a day later, the Senate voted 28-9 to pass BH 1219. As of April 24, 2025, the bill was ordered and enrolled.

After the nationwide injunction barring the Federal Trade Commission (FTC) Noncompete ban, we reported that “employers can expect that states will continue to introduce legislation aimed at restricting the use of noncompetes.”  In the first few months of 2025, Virginia and Wyoming passed legislation restricting noncompetes, and Arkansas, Louisiana, and Maryland passed legislation restricting physician noncompetes.  We also reported on pending legislation in New York, Ohio, Texas, and Washington aimed at limiting noncompetes and other restrictive covenants. We are a third of the way through the calendar year, and July 1 (the date many laws go into effect) is approaching.  This post addresses legislation pending in seven other states that also seek to limit the use of noncompetes.

States Seeking To Ban All Noncompetes Both Retroactively And Prospectively

Michigan

In January 2025, Michigan introduced House Bill 4040 (HB4040) that if enacted, would prohibit businesses from entering into, enforcing, or representing the existence of noncompetes with any workers.  The only exceptions under the HB4040 are for a worker who sells their ownership stake in a business or a worker who is responsible for selling substantially all of the business’s assets.  If passed, Michigan would join California, Minnesota, North Dakota, and Oklahoma as the only states that broadly prohibit noncompetes between employers and employees.

After the nationwide injunction barring the Federal Trade Commission (FTC) Noncompete ban, we reported our anticipation that state legislatures would likely introduce legislation restricting the use of noncompetes. As expected New York, Washington, Virginia, Ohio, and Wyoming have all introduced—or enacted—legislation in 2025 aimed at limiting noncompetes and other restrictive covenants. On March 7, 2025, Texas joined this growing list of states when the Texas legislature introduced Texas House Bill 4067 (the “Bill”). If enacted, the Bill would amend Texas’s Business & Commerce Code by adding sections 15.501, 15.502, and 15.503 to broadly prohibit noncompetes against all “workers” and would prohibit noncompetes with “senior executives” after September 1, 2025.  If passed, the law would take effect on September 1, 2025.

The Bill prohibits a person (an undefined term under the Bill) from entering into or enforcing a noncompete with a “worker,” regardless of when such covenants were entered into.  The Bill broadly defines a “worker” as “an individual who works or previously worked, without regard to whether the individual was paid, to the worker’s title, or to the worker’s status under any other state or federal laws, including whether the worker is an employee, independent contractor, extern, intern, volunteer, apprentice, or sole proprietor who provides a service to a person.”

As anticipated, following the end of the Federal Trade Commission’s proposed rule prohibiting employer noncompetes, states have ramped up their efforts toward limiting noncompete agreements, including some states that have specifically focused on health care noncompetes. We previously reported in 2024 that Pennsylvania passed The Fair Contracting for Health Care Practitioners Act that prohibited the enforcement of certain noncompete covenants entered into by health care practitioners and employers. Now, Louisiana, Maryland, and Indiana join the list of states limiting, or attempting to limit, the use of noncompete agreements in the health care industry.

Louisiana

On January 1, 2025, Act No. 273 (f/k/a Senate Bill 165) (the “Act”) became effective following Governor Jeff Landry’s approval. The Act enacts three subsections to Section 23:921, M, N, and O, which, as discussed further below, generally limit the timeframe and geographical scope of noncompetes for primary care and specialty physicians.

On January 3, 2025, the Washington State Legislature introduced HB1155 (the “Bill”) that, if passed, would broaden the definition of a “noncompetition covenant” and prohibit all employer-employee noncompete agreements.  The Bill would also seek to clarify the definition of “non-solicitation agreement” under Washington law. On January 13, 2025, the Bill was referred to the House Labor & Workplace Standards Committee where it remains pending.

Washington’s statute restricting the use of noncompetition covenants took effect in 2020, and it was amended in important ways last year.  The current Bill proposes yet more amendments.

If passed, the Bill would amend Revised Code of Washington (RCW) Sections 49.62.005 and 49.62.010 to expand upon the definition of “noncompetition covenant” and notes that the provisions protecting employees and independent contractors must be construed liberally. Under the Bill, a “noncompetition covenant” includes:

With the Federal Trade Commission’s Noncompete ban essentially dead, state legislatures, as expected, are taking restrictive covenant lawmaking into their own hands. We previously reported that in 2023, while the FTC Noncompete ban was pending, New York Governor Kathy Hochul vetoed a bill that sought to ban all noncompetes in the State of New York, stating that a “balance” was needed instead of a strict ban on all noncompetes. On January 9, 2025, the New York State Assembly introduced NY A01361 (the “Bill”) to the Assembly Labor Committee that, if passed, would allow “employers to request or require a prospective or current employee to execute a restrictive covenant not to engage in specified acts in competition with the employer after termination of the employment relationship as a condition of employment, continued employment, or with respect to severance pay,” but only subject to certain requirements (discussed below).

The Bill would amend New York Labor Law to add Section 191-d: “Restrictive covenants.” Under this section, an Employee is defined as “any person employed for hire by an employer in any employment,” including “in a supervisory, managerial, or confidential position.” An Employer includes “any person, corporation, limited liability company, or association” as well as “the state[,] . . . political subdivisions, governmental agencies, public corporations, and charitable organizations.” The Bill also defines restrictive covenant as an agreement between an employee and an employer concerning existing or prospective employment, or an agreement between employee and employer with respect to severance pay.

The Bill outlines that for a restrictive covenant to be enforceable it must meet the following requirements:

We previously reported that Ryan LLC (“Plaintiff”) and the United States Chamber of Commerce (“Plaintiff-Intervenor”), in anticipation of the Northern District of Texas’s merits disposition, would likely seek nationwide application of the preliminary injunction staying the Federal Trade Commission’s (“FTC”) Noncompete Rule, or alternatively, that the preliminary injunction be expanded to apply to all of Plaintiff-Intervenor’s members under the associational standing doctrine.

On July 19, 2024, Plaintiff and Plaintiff-Intervenor filed motions seeking exactly that type of relief. 

We previously reported that the U.S. District Court for the Northern District of Texas in Ryan LLC v. Federal Trade Comm’n, Case No. 3:24-cv-00986-E, granted a preliminary injunction staying the Federal Trade Commission’s (“FTC”) final rule banning almost all post-employment noncompetes (the “Noncompete Rule”), but limited the scope of its ruling to only those parties in that case. Following that ruling, on July 10, 2024, the Plaintiff and Plaintiff-intervenors (“Plaintiffs”) filed an Expedited Motion for Limited Reconsideration of the Scope of Preliminary Relief on the issue of associational standing.

On July 11, the court promptly denied Plaintiffs’ motion. In a one-paragraph order, the court held that Plaintiffs had “not shown themselves entitled to the respective relief requested.” Separately, the court entered an “amended briefing schedule for the merits disposition” (the “Briefing Schedule”) that will likely address many of the issues argued in Plaintiffs’ motion for reconsideration. The Briefing Schedule requires that the matter be fully briefed by August 16, 2024, and the court is scheduled to issue a disposition on the merits by August 30, 2024.     

On June 26, 2024, Rhode Island Governor Dan McKee vetoed a bill that would have banned nearly all noncompetes and customer non-solicits in the State of Rhode Island.

The Rhode Island legislature passed 2024-H8059 Substitute A, “An Act Relating to Labor and Labor Relations Rhode Island Noncompetition Agreement Act” (the “Bill”), that if enacted, would have banned all new and existing noncompetes except for those “made in connection with the sale of a business.” If the Bill had been passed, it also would have banned all customer non-solicits, although employee non-solicits would have remained enforceable.

This is the final installment of our three-part series discussing employers’ most frequently asked questions in response to the Federal Trade Commission’s (FTC) Final Noncompete Rule (the “Noncompete Rule”).

As reported in Part 2, there are continued attempts at both the federal and state level to ban or restrict the use of noncompetes.  As a result of this ongoing attack on noncompetes, employers have asked a third – and most important – question: “In light of the Noncompete Rule and push by many states to restrict the use of noncompetes, what should we be doing now to best protect our business interests?”

The answer to this often-asked question is to ensure that the company’s trade secret and confidential information is protected to the fullest extent possible through the use of a Trade Secret Assessment, or as we have referred to it: a “Trade Secret Tune-Up."

This is the second installment of our three-part blog series that is intended to respond to employers’ three most frequently asked questions in response to the Federal Trade Commission’s (FTC) Final Noncompete Rule (the “Noncompete Rule”). Part 1 addressed whether employers can seek to enforce their noncompetes pending the anticipated effective date of the Noncompete Rule. 

A second frequently asked question is: “Can we continue to enter into noncompetes with newly hired, or existing, employees?”  The short answer is “yes”, but employers should be aware of some pitfalls.

This three-part blog series is intended to identify and respond to three of the most frequently posed questions by employers in response to the Federal Trade Commission’s (FTC) Final Noncompete Rule (the “Noncompete Rule”).

We previously reported on the Federal Trade Commission’s (FTC) Noncompete Rule and the currently pending litigation challenging the Noncompete Rule.  In one of those cases, which was brought in the United States District Court for the Northern District of Texas and consolidated with the lawsuit filed by the United States Chamber of Commerce, the plaintiffs filed a Motion for Stay and Preliminary Injunction. The court has indicated that it intends to rule on that motion by July 3, 2024.