Non-compete clauses restrict where you can work after leaving an employer. If you have been laid off and your severance agreement includes a non-compete, understanding whether that clause is enforceable in your state is one of the most important things you can figure out before you sign. Federal rulemaking tried to ban these clauses entirely, but the legal landscape shifted fast, and state law remains the governing authority for most workers in the United States.

To see what this looks like in practice, take Priya, a senior product manager at a 2,400-person logistics company in Denver. Priya was laid off in a reduction in force and presented with a severance package that included a 12-month non-compete covering the entire U.S. logistics industry. Before signing, she needs to know whether that clause would actually hold up in Colorado, and what she can negotiate if it would.

What happened with the FTC's non-compete ban?

In April 2024, the Federal Trade Commission voted 3-2 to issue a final rule banning most non-compete agreements nationwide.[1] The rule was published in the Federal Register on May 7, 2024, with an effective date of September 4, 2024.[2] The FTC estimated the rule would affect roughly 30 million workers and increase earnings by $400 to $488 billion over a decade.[3]

The rule would have voided existing non-competes for all workers except "senior executives," defined as those earning more than $151,164 annually and holding policy-making positions.[2] Employers would have been required to notify current and former workers that existing non-competes were no longer enforceable.[2]

Why didn't the FTC rule take effect?

Multiple lawsuits were filed almost immediately. In Ryan LLC v. FTC, a federal judge in the Northern District of Texas issued a preliminary injunction and ultimately ruled that the FTC lacked authority under Section 6(g) of the FTC Act to issue the rule.[4] Separately, Properties of the Villages, Inc. v. FTC challenged the rule in the Middle District of Florida.[5]

In September 2025, the FTC itself filed to accede to vacatur of the rule, effectively conceding the legal fight.[4] The practical result: the federal ban is dead for now. No employer is bound by it. State law is the only framework that governs your non-compete.

If you are weighing a severance offer that includes a non-compete, the severance calculator can help you benchmark the financial side while you assess the legal restrictions.

Which states ban non-competes outright?

Four states prohibit non-compete agreements as a matter of statute or longstanding judicial doctrine:

State	Rule	Key Statute or Authority
California	Near-total ban on non-competes	Bus. & Prof. Code § 16600 [6]
North Dakota	Void as restraints of trade	N.D. Cent. Code § 9-08-06 [7]
Oklahoma	Void except for sale-of-business contexts	15 Okla. Stat. § 219A [7]
Minnesota	Banned for all employees as of July 1, 2023	Minn. Stat. § 181.988 [7]

California

Rule: Near-total ban on non-competes
Key Statute or Authority: Bus. & Prof. Code § 16600 [6]

North Dakota

Rule: Void as restraints of trade
Key Statute or Authority: N.D. Cent. Code § 9-08-06 [7]

Oklahoma

Rule: Void except for sale-of-business contexts
Key Statute or Authority: 15 Okla. Stat. § 219A [7]

Minnesota

Rule: Banned for all employees as of July 1, 2023
Key Statute or Authority: Minn. Stat. § 181.988 [7]

California's ban is the oldest and broadest. Section 16600 of the Business and Professions Code declares that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."[6] In 2023, California strengthened the ban further with AB 1076, which requires employers to notify workers in writing that any existing non-compete clause is void.[8] The California Attorney General has actively enforced this provision.[9]

Minnesota joined the outright-ban states in 2023, making it the most recent state to eliminate non-competes for employees.

Which states restrict non-competes by income or occupation?

Several states take a middle path: non-competes are allowed for higher-earning workers but banned for employees below a certain income threshold.

State	Income or Wage Threshold	Other Notable Restrictions
Colorado	Annualized earnings above threshold set by CPI adjustment (currently around $112,500 for non-competes, $45,000 for non-solicits)	Requires notice to employee; void if not disclosed at hiring or with independent consideration [7]
Illinois	$75,000 annual earnings for non-competes; $45,000 for non-solicits	Requires adequate consideration (2 years of employment or independent consideration) [7]
Washington	$116,593.18 (employees) / $291,483 (independent contractors), adjusted annually	Non-competes over 18 months presumed unreasonable [7]
Oregon	Gross annual salary above median family income for a four-person family (approximately $113,000)	Maximum duration 12 months; requires notice at hire or garden-leave consideration [7]
Massachusetts	Limited to non-hourly, non-exempt employees	Maximum duration 12 months; requires garden leave or "other mutually agreed upon consideration" [7]
Rhode Island	Prohibited for low-wage workers, students, and certain nonexempt employees	Maximum 1-year duration [7]

Colorado

Income or Wage Threshold: Annualized earnings above threshold set by CPI adjustment (currently around $112,500 for non-competes, $45,000 for non-solicits)
Other Notable Restrictions: Requires notice to employee; void if not disclosed at hiring or with independent consideration [7]

Illinois

Income or Wage Threshold: $75,000 annual earnings for non-competes; $45,000 for non-solicits
Other Notable Restrictions: Requires adequate consideration (2 years of employment or independent consideration) [7]

Washington

Income or Wage Threshold: $116,593.18 (employees) / $291,483 (independent contractors), adjusted annually
Other Notable Restrictions: Non-competes over 18 months presumed unreasonable [7]

Oregon

Income or Wage Threshold: Gross annual salary above median family income for a four-person family (approximately $113,000)
Other Notable Restrictions: Maximum duration 12 months; requires notice at hire or garden-leave consideration [7]

Massachusetts

Income or Wage Threshold: Limited to non-hourly, non-exempt employees
Other Notable Restrictions: Maximum duration 12 months; requires garden leave or "other mutually agreed upon consideration" [7]

Rhode Island

Income or Wage Threshold: Prohibited for low-wage workers, students, and certain nonexempt employees
Other Notable Restrictions: Maximum 1-year duration [7]

Low confidence

Note: income thresholds in Colorado, Illinois, Washington, and Oregon are adjusted periodically. The figures above reflect the most recent publicly available thresholds. Confirm current amounts with your state's Department of Labor before relying on them.

How do "reasonableness" tests work in states that enforce non-competes?

Most states that allow non-competes evaluate them under a reasonableness standard.[10] Courts typically examine three factors:

Duration. Non-competes lasting one to two years are generally considered reasonable. Clauses exceeding two years face heavy skepticism. Washington presumes non-competes over 18 months are unreasonable. Oregon and Massachusetts cap enforcement at 12 months.

Geographic scope. A restriction limited to a specific metro area or region is more likely to survive than a nationwide or global ban. Courts ask whether the geographic scope matches the employer's actual competitive footprint.

Scope of restricted activity. A clause preventing you from working in your entire industry is far broader than one preventing you from soliciting specific clients. Narrow, activity-specific restrictions are more likely to be upheld.

Some states "blue pencil" overbroad non-competes, meaning a court will narrow the clause rather than void it entirely. Other states treat an overbroad clause as void in full. Knowing which approach your state takes matters when deciding whether to challenge a non-compete or negotiate around it.

For more on how severance packages interact with post-employment restrictions, see our guide on how to negotiate severance.

What is a garden leave provision, and how does it affect enforceability?

Garden leave (sometimes called "garden pay") means the employer pays you during the non-compete period. You are technically still employed, but not working. The FTC's final rule text discussed garden leave as a less restrictive alternative to traditional non-competes.[11]

Massachusetts requires employers to either provide garden leave pay (at least 50% of the employee's highest base salary in the two years before separation) or offer other "mutually agreed upon consideration" for a non-compete to be enforceable.[7] Oregon similarly requires notice at the time of hire or consideration, including garden leave pay, for a non-compete to bind an employee.

Worked example

Priya's garden leave negotiation

Priya's employer offered a 12-month non-compete with no garden leave pay. Her severance package is four months of base salary.

If Priya cannot work in logistics for 12 months, she faces eight months with no income from her field after severance runs out.
Priya can ask for garden leave equal to the non-compete duration: 12 months of base salary at $145,000, or $12,083 per month.
Alternatively, she can negotiate the non-compete down to four months (matching severance duration), so the restriction and the financial cushion align.
A third option: narrow the scope from "U.S. logistics industry" to "direct competitors in the Denver metro area."

The severance tax calculator can help Priya estimate her after-tax take-home on any garden leave or enhanced severance amount.

What should you negotiate when a non-compete appears in your severance agreement?

When a non-compete is bundled with a severance package during a layoff, you have more room to negotiate than you think. The employer wants your signature on a release of claims. The non-compete is often a secondary ask, and the company's legal team knows it is harder to enforce a clause imposed at termination (where the employee receives no ongoing employment in exchange) than one signed at the start of a job.

Five concrete negotiation points:

Shorten the duration. Ask for the non-compete to match or be shorter than the severance period. If you get three months of pay, request a three-month restriction.
Narrow the geography. Push for a restriction limited to the metro area where you actually worked, not a nationwide ban.
Narrow the industry scope. Replace "logistics" with "last-mile delivery SaaS competitors" or a similarly specific definition.
Request garden leave pay. If the employer insists on a broad non-compete, ask for pay equal to the full restricted period.
Add a carve-out for layoff-triggered departures. Some agreements already include language voiding the non-compete if the employee is terminated without cause; if yours does not, ask for it.

For a broader look at severance negotiation tactics, see our severance negotiation guide. And if you are trying to figure out whether your employer is required to give you advance notice of the layoff, the WARN Act calculator covers federal and state notice requirements.

Does a non-compete affect unemployment benefits?

In most states, signing a non-compete does not disqualify you from unemployment insurance. However, if a non-compete prevents you from accepting available work in your field, some state unemployment agencies may consider that a factor when evaluating whether you are "able and available" for work. The interaction is state-specific and fact-dependent. Contact your state's unemployment office directly if your non-compete is broad enough to limit your job search.

Frequently asked questions

Is the FTC non-compete ban still in effect?

No. The FTC's April 2024 final rule banning most non-competes was blocked by federal courts before its September 2024 effective date. In September 2025, the FTC filed to accede to vacatur of the rule, effectively abandoning enforcement.[4] No federal ban on non-competes is currently in force. State law governs whether your non-compete is enforceable. Workers should check their state's specific statutes and consult the state-by-state breakdown for details.

Can my employer enforce a non-compete if I was laid off?

Enforceability depends on state law, not on whether you quit or were laid off. However, courts in many states view non-competes more skeptically when the employee was terminated involuntarily. A non-compete signed at the time of layoff (as part of a severance agreement) also faces questions about whether the severance pay constitutes adequate "consideration."[10] If you were laid off in California, North Dakota, Oklahoma, or Minnesota, the non-compete is void regardless of circumstances.[6]

What states completely ban non-compete agreements?

California, North Dakota, Oklahoma, and Minnesota ban non-competes for employees outright.[6][7] California's ban under Business and Professions Code Section 16600 is the broadest and oldest, declaring void any contract restraining a person from engaging in a lawful profession.[6] Minnesota's ban took effect on July 1, 2023. Each of these states still allows limited restrictions in the context of a business sale.

How long can a non-compete last?

Duration limits vary by state. Oregon and Massachusetts cap enforceability at 12 months.[7] Washington presumes non-competes over 18 months are unreasonable. States without statutory caps apply reasonableness tests, and most courts view one to two years as the outer boundary of what is enforceable.[10] Any non-compete lasting longer than two years will face strong judicial skepticism in nearly every jurisdiction.

Should I sign a non-compete as part of my severance package?

Signing depends on whether the financial terms justify the career restriction. Before signing, evaluate the duration, geographic scope, and industry scope of the non-compete. Compare the severance pay to the income you would lose during the restricted period. Use the severance calculator to benchmark your offer, and consider negotiating a shorter duration, narrower scope, or garden leave pay. If you are in a state that bans non-competes, the clause is unenforceable regardless of whether you sign.[6]

Does a non-compete apply if my company goes bankrupt?

Bankruptcy courts have reached mixed conclusions. Some courts have held that a non-compete is an executory contract that can be rejected by the bankruptcy estate, releasing the employee. Others have enforced non-competes even through bankruptcy proceedings. The answer depends on the jurisdiction, the terms of the agreement, and whether the bankruptcy trustee assumes or rejects the contract. Workers in this situation should consult a local employment attorney.

Sources & verification

93 / 100 verifiedReviewed September 8, 2026

Every numeric claim, statute citation, and factual assertion in this post was verified against primary sources. Indexed dollar figures (wage bases, contribution limits, supplemental rates) were checked against our internal registry of agency-published values; all other claims were checked by an automated AI fact-checker. The 7-point gap reflects 5 passageswhere the fact-checker’s reading of the primary source differed from ours; the disputed reading is attached to the source it concerns below.

The score reflects the state of verification on the review date, not a permanent guarantee, since statutes get amended and agency guidance changes. See how we score accuracy for the full process.