The FTC is Shaking Up Employment Law — Here’s How Entrepreneurs Can Adapt

The Federal Trade Commission (FTC) has triggered a seismic shift in U.S. labor policy, issuing a final rule that effectively bans new non-compete agreements. Long used to restrict worker mobility, these contracts are now in limbo after immediate legal challenges halted the rule.

This guide breaks down what you need to know to protect your business and turn disruption into advantage.

A deep dive into the FTC’s final rule

The FTC’s final rule declares that “non-compete clauses represent an unfair method of competition and therefore violate the FTC Act.” This sweeping protection extends beyond employees to interns, contractors, volunteers and sole proprietors, aiming to boost worker mobility and innovation. States are following suit — New York, for example, has proposed banning non-competes for lower-wage workers.

The key exception: Selling your business

The rule carves out an exception for founders and business owners: non-competes are still allowed in selling a business, ownership interest or substantial assets. This lets entrepreneurs include non-competes in exit deals, a common condition for preserving company value.

What about existing non-competes?

The FTC’s rule is retroactive: most existing non-compete agreements will become unenforceable. An exception applies to senior executives — policy-making employees earning over $151,164 annually — whose current agreements remain valid. However, no new non-competes may be created or enforced, ensuring future workers cannot be restricted.

Related: What to Know About These Tricky Employment Agreements

The court challenge halting the rule

Business groups, joined by the U.S. Chamber of Commerce, sued to block the FTC’s non-compete ban. In July 2024, a Texas federal court issued a nationwide injunction, finding the FTC likely lacked authority. The ban is on hold, leaving businesses under state laws like the Texas Covenants Not to Compete Act.

The FTC’s shifting stance adds uncertainty. With new leadership, the agency has asked for 60 more days to decide whether to defend the non-compete ban, signaling it could be withdrawn or altered. For entrepreneurs, the takeaway is clear: even if the federal rule stalls, cultural and state-level momentum against non-competes is growing — making it wise to prepare for fewer talent restrictions.

Shifting from restriction to proactive protection

This period of legal uncertainty offers entrepreneurs a chance to modernize HR and compliance strategies. Proactive business owners can strengthen defenses now rather than wait for final court rulings.

This is precisely why proactive businesses are shifting their focus. It’s no longer just about reacting to potential legal challenges; it’s about building a framework that makes your company an employer of choice, insulating you from disputes in the first place.

Failing to adapt is costly: defending and settling an employment claim averages $75,000, while jury awards can reach $217,000 — making proactive compliance a smart business investment.

Related: 5 Situations That Require a Non-Disclosure Agreement

Your new legal toolkit

With non-competes in doubt, entrepreneurs must turn to narrower, more enforceable tools that protect business interests without blocking former employees from making a living.

• Non-Disclosure Agreements (NDAs): Essential for protecting proprietary information; must clearly define trade secrets without being overly broad.
• Non-Solicitation Agreements: Help safeguard clients and staff by preventing ex-employees from poaching for a set period; some jurisdictions allow limited clauses.
• Trade Secret Policies: Written policies should define trade secrets and establish strict handling procedures, strengthening legal protection.
• Invention Assignment Agreements: Critical in tech, creative and R&D fields to ensure employee-created IP belongs to the company.

When to seek expert guidance

Navigating state laws, federal rulings and the uncertain FTC non-compete rule is complex. With high-profile challenges and specialized cases emerging, expert counsel is vital to ensure agreements are enforceable and safeguard your business against litigation.

The decline of non-competes is a major opportunity for entrepreneurs. Without restrictive agreements, startups and small businesses can finally recruit top talent, once locked into big corporations, leveling the playing field and fueling a new wave of innovation.

Related: This AI-Driven Scam Is Draining Retirement Funds—And No One Is Safe, According to the FBI

Winning the war for talent with culture, not contracts

Business owners must shift from restriction to retention. The best defense is a workplace where top people never want to leave — built on culture, loyalty, engagement and shared mission. Investing in your team is now your strongest competitive edge.

• Focus on culture: Create a positive, transparent and rewarding work environment where people feel valued and psychologically safe.
• Invest in growth: Offer clear career paths, mentorship programs and professional development opportunities that show employees you are invested in their future.
• Competitive compensation: Ensure salaries, benefits and equity packages are competitive for your industry and geographic location.
• Recognize and reward: Implement formal and informal systems to acknowledge hard work, celebrate wins and reward your team members’ valuable contributions.

Navigating the new frontier of employee mobility

Regardless of its final legal fate, the FTC’s non-compete ban has fundamentally altered the conversation around employee rights and corporate strategy. For savvy entrepreneurs, this isn’t a time for panic but for preparation.

You can position your business by strengthening your NDAs and other protective agreements, doubling down on a positive company culture that retains and attracts talent and viewing greater employee mobility as an opportunity rather than a risk. The era of locking in employees with restrictive contracts is ending; the era of winning their loyalty has begun.