After the Ban That Was Not: Negotiating Executive Non-Competes and Restrictive Covenants After the FTC Rule

The regulatory position: no federal ban

There is no federal ban on non-compete agreements in the United States. In April 2024, the Federal Trade Commission issued a rule that would have prohibited almost all non-competes nationwide. Existing agreements with senior executives would have survived, but new ones would not. The rule never took effect. In Ryan, LLC v Federal Trade Commission, 746 F. Supp. 3d 369, 389-90 (N.D. Tex. 2024), the United States District Court for the Northern District of Texas held that the Commission had exceeded its statutory authority and acted arbitrarily and capriciously. The court set the rule aside nationwide.

The rule then disappeared in stages. On 5 September 2025, the Commission voted by three votes to one to dismiss its appeals in Ryan, No 24-10951 (5th Cir. 2025), and Properties of the Villages, Inc. v Federal Trade Commission, No 24-13102 (11th Cir. 2025). On 12 February 2026, it formally removed the rule, codified as Part 910, from Title 16 of the Code of Federal Regulations. See 91 Fed. Reg. 6507 (12 February 2026).

Executives now face a state-by-state system. State statutes govern non-competition, non-solicitation and forfeiture provisions, while the Commission may still bring individual enforcement actions to challenge unfair or deceptive commercial acts or practices under Section 5 of the Federal Trade Commission Act. 15 U.S.C. § 45. The federal protection proposed in 2024 does not exist. As a result, the terms negotiated when an executive joins or leaves a company are often decisive.

Section 5 enforcement, one case at a time

The Commission did not abandon enforcement when it withdrew the rule. Under Chair Andrew Ferguson, it has used Section 5 to challenge particular restrictive covenants. Its Joint Labor Task Force also investigates unfair conduct in labour markets, including overly broad non-competes and agreements not to recruit another employer’s workers, and in September 2025, the Commission sought public information about non-compete practices.

Two consent orders illustrate the approach. In In Re Gateway Services, Inc., the Commission alleged that a pet cremation business required nearly all employees to accept one-year, nationwide non-competes regardless of their jobs. Complaint, In Re Gateway Pet Memorial Servs., FTC Matter No 2210170 (Sept. 4, 2025). The final order, issued on  25 November 2025, prevents enforcement against nearly 1,800 workers and requires notices and compliance measures for ten years. In Re Gateway Services, Inc., FTC Docket No. C-4825 (2025). In In Re Rollins, Inc., FTC Docket No C-4835 (2026), the pest-control company Rollins, Inc. agreed to stop enforcing its standard two-year covenants, which typically covered a 75-mile radius from any Rollins location. The consent order was estimated to release more than 18,000 current and former employees. The Commission announced the proposed settlement on 15 April 2026 and issued its final decision and order on 22 June 2026. It also sent warning letters to 13 other pest control companies. Similar letters went to healthcare employers and staffing companies in September 2025. See FTC Takes Action Against Noncompete Agreements, Securing Protections for Workers, Fed. Trade Comm’n (15 Apr. 2026).

The Gateway order does not cover non-competes entered into with a director, officer, or senior employee in connection with an equity grant. The Rollins order similarly excludes directors, officers and other senior leaders who exercise significant policy authority and are eligible for equity grants. The Commission has focused on standard covenants imposed on workers with little bargaining power, not individually negotiated agreements for senior leaders. Executives should not expect federal enforcement to release them from their own agreements. Employers, however, face real risk if they impose broad restrictions throughout the workforce.

The state law patchwork from 2025 to 2027

Which states banned non-competes in 2026?

Wyoming enacted a broad prohibition that took effect on 1 July 2025. Washington adopted a still broader law that will take effect on 30 June 2027. Tennessee, Virginia and the District of Columbia use compensation thresholds or other conditions. California, North Dakota, Oklahoma and Minnesota already had broad prohibitions. See Cal. Bus. & Prof. Code § 16600; N.D. Cent. Code § 9-08-06; Okla. Stat. tit. 15, § 219A; Minn. Stat. § 181.988. The controlling law usually depends on where the employee works, so the result can change across state lines.

• Washington – Engrossed Substitute House Bill 1155 became Chapter 149 of the 2026 Washington Laws and amended Chapter 49.62 of the Revised Code of Washington. It takes effect on 30 June 2027 and makes all non-competition covenants void, regardless of when they were signed. It also covers forfeiture and repayment terms that effectively restrain lawful competition. By 1 October 2027, employers must make reasonable efforts to notify affected current and former workers. A person may recover the greater of actual damages or a statutory penalty of USD5,000, together with legal fees and costs. See RCW 49.62.020, 49.62.080 and 49.62.100, effective 30 June 2027. Confidentiality terms, certain business sale provisions and properly limited non-solicitation agreements remain available. A customer non-solicitation agreement may cover only a customer, client, patient or prospective customer with whom the worker had a direct relationship through work, and it may last no more than 18 months.
• Virginia – Senate Bill 170 became Chapter 1040 of the 2026 Virginia Acts and amended Virginia Code § 40.1-28.7:8, effective 1 July 2026. A non-compete is unenforceable when an employer dismisses an employee without cause unless the employer provides severance or another monetary payment. The payment must be disclosed when the covenant is signed. Separate protections apply to employees below the statewide average weekly wage, employees entitled to overtime and licensed healthcare professionals. The official 2026 weekly figure of USD1,507.01 produces an annual threshold of approximately USD78,365.
• Tennessee – Public Chapter 934 of the 2026 Tennessee Acts added Tennessee Code Annotated §§ 50-1-210 and 50-1-211, effective 1 July 2026. It prohibits non-competes for employees with annualised compensation below USD70,000. For employees above that amount, a restriction lasting two years or less is presumed reasonable. The law applies to agreements entered into, renewed or amended on or after the effective date. Confidentiality and non-solicitation agreements remain permissible.
• Wyoming – Senate File 107 became Chapter 170 of the 2025 Wyoming Session Laws and created Wyoming Statutes § 1-23-108. It applies to agreements made on or after 1 July 2025. The statute generally makes non-competes void, but permits specified agreements involving the sale of a business, trade secrets, recovery of certain expenses, and executive or management personnel. Senior executives therefore remain exposed to enforceable restrictions.

• District of Columbia – As of 1 January 2026, employers generally may not impose non-competes on employees earning less than USD162,164 a year, or on medical specialists earning less than USD270,274. Higher paid employees may be subject to non-compete agreements, provided the agreement is supplied in writing at least 14 days before employment begins or, for an existing employee, at least 14 days before the employee must execute the agreement. The maximum period is 365 days for most employees and 730 days for medical specialists. See D.C. Code §§ 32-581.01 and 32-581.03.
• Massachusetts – The Massachusetts Noncompetition Agreement Act, Mass. Gen. Laws ch. 149, § 24L, generally limits a covenant to 12 months. The agreement must include garden leave or other mutually agreed consideration. Statutory garden leave requires payments equal to at least half of the employee’s highest annualised base salary during the two years before termination, paid proportionately throughout the restricted period.
• Healthcare – Separate statutes increasingly regulate non-competes for healthcare practitioners. Pennsylvania’s Fair Contracting for Health Care Practitioners Act, Act 74 of 2024, took effect on 1 January 2025. Maine enacted Public Law 2025, Chapter 718 in April 2026. Utah Code § 58-90-101 separately restricts non-competes imposed by a healthcare services platform. The coverage and exceptions differ substantially by profession and state.

Florida has moved in the opposite direction. The 2025 CHOICE Act, Fla. Stat. §§ 542.41 to 542.45, permits qualifying non-competes lasting as long as four years for covered employees or contractors whose expected salary exceeds twice the annual mean wage in the relevant county. Healthcare practitioners are excluded from the Act’s definition of a covered employee. A compliant agreement is fully enforceable, and the statute requires a court, upon application by the covered employer, to preliminarily enjoin the employee from providing services to another business during the non-compete period, subject to limited exceptions. Florida’s approach makes governing law and forum provisions especially important. Even so, a court may apply the law of the state where the employee works when that state has a strong public policy against restrictions.

A negotiation framework for executives

Can executives negotiate out of a non-compete?

Often, yes. The best opportunities arise when the executive joins the company and when the executive leaves. Many state laws exclude senior executives, officers or owners from their broadest protections. For that reason, the language of the agreement often matters more than the general statutory trend. That language is negotiable.

The definition of “cause” is critical. A broad definition that includes subjective performance concerns or general policy breaches lets an employer describe many departures as dismissals for cause. The employer may then deny severance while continuing to assert the covenant. Executives should seek a definition limited to wilful misconduct, a material breach that remains uncured after notice, or conviction of a serious offence. Virginia now makes the relationship explicit. If an employer dismisses an employee without cause, the non-compete is unenforceable unless the employer provides the payment disclosed when the covenant was signed.

A narrower restriction is the next option. A non-compete prevents work for a competitor. A non-solicitation agreement instead limits contact with identified clients or recruitment of former colleagues. Courts and legislatures usually treat the narrower restriction more favourably. An executive may therefore offer a precise non-solicitation agreement in exchange for removing the non-compete. Scope still matters. Washington’s new law, for example, limits customer restrictions to people or entities with whom the employee developed a substantial direct relationship. A restriction covering the entire customer base may function as an unlawful non-compete.

What is garden leave, and when does it help an executive?

Garden leave keeps a departing executive on the payroll, with salary and benefits continuing while duties are suspended, for a defined period before employment ends. The employer pays for the time away from the market. The arrangement is common in finance and technology, and Massachusetts requires compensated garden leave or other agreed consideration for an enforceable non-compete. The executive should negotiate the duration, whether the leave replaces or reduces any later restriction, and whether equity continues to vest.

Three other terms require attention. First, the agreement should identify the consideration supporting the restriction because continued employment alone is insufficient in several states. Second, the geography, activities and duration should be narrow. Tennessee’s presumption for periods of two years or less is not a guarantee of enforcement. Third, the governing law and forum clauses should account for the law of the employee’s work state. Washington expressly invalidates provisions that deprive a Washington-based worker of the protections of Chapter 49.62 RCW. See RCW 49.62.050. This can decide the result when, for example, an executive in Washington reports to an employer based in Florida. Massachusetts imposes a similar limit. See Mass. Gen. Laws ch. 149, § 24L(e).

Severance during the current reduction cycle

The restructuring wave that began in technology continued through 2026. Negotiations at departure now determine many disputes over restrictive covenants. Oracle’s Annual Report on Form 10-K for the fiscal year ended 31 May 2026 reported 141,000 employees, down from 162,000 one year earlier, and approximately USD1.84 billion in expenses related to the company’s 2026 Restructuring Plan. The company estimated combined costs under its fiscal 2025 and 2026 Restructuring Plans at approximately USD2.2 billion. The fall in headcount includes both dismissals and attrition, so it should not be described simply as 21,000 layoffs. For an executive, the separation agreement is the transaction in which compensation, equity and future freedom are priced together.

How much severance can an executive negotiate in a 2026 reduction?

Senior executive packages often seek 12 to 24 months of base salary, a proportionate bonus for the year of separation and negotiated treatment of outstanding equity. There is no universal market entitlement, and the result depends on contract terms, seniority, leverage and the circumstances of the departure. In some situations, equity may matter more than salary continuation. Possible terms include full or partial acceleration of restricted stock units and performance awards, continued vesting during garden leave or an advisory period, and a longer period to exercise options. The parties should also address forfeiture and clawback provisions.

Federal law supplies time for review. Under the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act, a worker aged 40 or older generally must receive at least 21 days to consider a waiver of federal age claims. The period is at least 45 days when the waiver is requested in connection with an exit incentive or another termination programme offered to a group or class. The employee then has seven days to revoke after signing. An employee may choose to sign earlier, but the employer may not improperly pressure that decision. See 29 C.F.R. § 1625.22(e)(6). Counsel can use the review period to negotiate compensation and narrow restrictive covenants.

The covenant and severance belong in the same negotiation. Separation agreements often reaffirm existing restrictions or add new ones. The release therefore creates another opportunity to revise terms accepted years earlier. Virginia now links enforceability after a dismissal without cause to the payment disclosed when the covenant was signed. The broader negotiating point is simple. An employer seeking both a release and a restriction is asking for two valuable promises and should expect to provide value for each. A properly priced package also gives the employer certainty, an orderly transition and protection for client relationships.

Clawbacks and equity forfeiture

For a senior executive of a public company, restrictive covenants are only part of the compensation risk. A company may recover compensation already paid or cancel equity that has not vested. Two mechanisms are especially important: mandatory recovery under Securities and Exchange Commission Rule 10D-1, 17 C.F.R. § 240.10D-1, and forfeiture for competition provisions in incentive plans.

How does SEC Rule 10D-1 affect severance negotiations?

Rule 10D-1 and the related exchange listing standards require listed companies to recover incentive-based compensation awarded because of misstated financial reporting measures. Recovery does not depend on the officer’s fault. It generally reaches compensation received during the three completed fiscal years before the company is required to prepare a qualifying accounting restatement. The recoverable amount is calculated without regard to taxes paid, so it may exceed the officer’s net proceeds. A company may not indemnify an executive officer against the required recovery. See 17 C.F.R. § 240.10D-1(b)(1)(i)(D), (b)(1)(iii) and (b)(1)(v).

The structure of future compensation remains negotiable. Awards based only on continued service, or on strategic goals that are not financial reporting measures, generally fall outside Rule 10D-1. The same may be true of goals such as a product launch or regulatory approval, depending on the award terms. Deferring payment does not remove an award from the rule because compensation is treated as received when the relevant financial reporting measure is attained. An unpaid balance may nevertheless provide a practical source of recovery. Performance awards tied to financial measures of a company’s performance, like stock price or total shareholder return, may be subject to clawbacks if a revised accounting restatement affects the underlying financial measures by which they were calculated. See 17 C.F.R. § 240.10D-1(b)(1)(i)(A) and (b)(1)(iii).

Forfeiture for competition creates a different risk. The executive may keep the freedom to compete but lose equity or deferred compensation by exercising it. Under New York’s employee choice doctrine, a court may enforce that choice without reviewing the restriction for reasonableness when the employee leaves voluntarily and the employer conditions postemployment benefits on compliance. See Morris v Schroder Capital Management International, 7 N.Y.3d 616, 620-21 (2006). The doctrine generally does not protect an employer that dismisses the employee without cause. An incentive plan may also be interpreted separately from the employment agreement, so defeating a non-compete does not necessarily preserve the equity.

Washington’s new law directly addresses this issue by treating certain forfeiture and repayment terms as non-competition covenants when they restrain lawful competition. Wyoming, by contrast, preserves restrictions for executive and management personnel. The central lesson remains the same. For senior leaders, the incentive plan can matter as much as the statute.

The cost of getting it wrong

An executive who accepts a broad restriction gives up mobility. A two-year covenant can remove a senior leader from the market for an entire hiring cycle or significant career opportunities, especially in fast-paced industries such as high-tech, with a potential loss measured in seven figures or more. The problem becomes more serious at departure if the employer uses severance to obtain renewed promises. An agreement that was not priced when signed may be paid for later through reduced severance, a delayed start or forfeited equity.

Employers face the opposite risk: overreach. An excessive covenant may be void, and some courts will not revise it to a narrower form. Statutes may add direct liability. Washington requires the greater of actual damages or a USD5,000 statutory penalty, plus legal fees, expenses and costs. RCW 49.62.080, effective 30 June 2027. Virginia permits a civil penalty of USD10,000 for each violation involving a protected employee, together with costs and reasonable legal fees. Va. Code § 40.1-28.7:8(E) and (F). The Gateway and Rollins orders also show that targeted federal enforcement can produce long compliance periods and mandatory notices to affected workers.

The commercial loss may be larger than the statutory one. An unenforceable covenant protects neither trade secrets nor clients, while litigation may reveal the defect and encourage other challenges. A single agreement used in every state is now a compliance risk. Both sides benefit from a narrow, compensated restriction tied to the employee’s work state and to a legitimate business interest.

The employer’s perspective: proportionate protection

Employers still have effective ways to protect legitimate interests. The recent statutes preserve confidentiality and trade secret obligations. They also preserve properly limited non-solicitation agreements and restrictions connected with the sale of a business. The target is a restraint broader than the interest it protects.

The right tool depends on the risk. Trade secrets justify confidentiality obligations. Client relationships may justify a non-solicitation agreement limited to relationships the employee actually developed. A non-compete should be reserved for senior roles where the employer can identify genuine competitive harm, and compensation for the restriction makes it more defensible. Garden leave is effective because the employer pays for the restraint. Massachusetts makes that payment, or other agreed consideration, a statutory condition.

Employers operating in several states need a structural response. They should review agreements under the law of each employee’s work state, not merely the state of incorporation. Compensation thresholds in the District of Columbia, Virginia and other jurisdictions change over time. Washington requires notice to affected current and former workers by 1 October 2027. Governing law clauses cannot always displace a state’s strong public policy. A sensible system uses confidentiality obligations broadly, tailored non-solicitation agreements for client-facing roles, and individual, compensated non-competes only for executives whose positions justify them.

Outlook for 2026 and 2027

The next phase will be driven by statutory dates, not a new federal rule. Washington’s prohibition takes effect on 30 June 2027, followed by the notice deadline on 1 October 2027. Because the law applies regardless of when a covenant was signed, employers must review existing agreements. Courts will also begin interpreting Tennessee’s new presumption and Virginia’s rule for dismissals without cause, both effective from 1 July 2026.

State laws are moving towards three recurring devices: compensation thresholds, payment for restrictions after a dismissal without cause, and direct regulation of forfeiture provisions. They are not becoming uniform. Some states’ contrary approach, such as that in Florida, means disputes over governing law and forum are likely to increase.

A new federal prohibition appears unlikely under the Commission’s present leadership. Individual Section 5 cases will probably continue, with attention focused on standard covenants imposed broadly on workers below the executive level. Senior leaders should not rely on federal action. Their practical protection comes from careful negotiation when they join a company and again when they leave.