The Federal Non-Compete Ban Never Took Effect. The State Version Is Well Underway.

Virginia and Tennessee rewrote their non-compete rules on July 1, Washington’s ban arrives next year and reaches many agreements already signed, and the FTC is pursuing companies one at a time. If you rely on non-competes to protect key people, or you are buying or selling a business that does, the map has changed. 

The FTC’s nationwide non-compete ban never took effect. A federal court set it aside in August 2024, and in September 2025 the Commission voted to drop its appeal. If you filed that story under “problem solved,” it may be time to reopen the file. 

The states kept going, one or two at a time. By one practitioner’s count, more than fifteen new state non-compete laws had been enacted in 2026 by mid-June, many of them industry-specific. And the FTC swapped its rule for something harder to plan around: enforcement against individual companies. 

This does not mean your non-competes are void. It does mean a covenant signed, renewed, or amended this year may be governed by rules that did not exist when your template was written. And if you are buying or selling a business, the same rules may now reach the covenants the buyer is paying for. What follows is a general summary; the details depend on the state, the agreement, and the facts. 

What Virginia and Tennessee did on July 1 

Virginia added a rule that, as we read it, applies to employees regardless of pay. A non-compete is generally unenforceable against an employee you let go without cause, unless you pay the severance or other money that was disclosed when the employee signed. The statute sets no minimum amount and does not define “cause.” The new rule does not appear to reach employees who quit or are fired for cause (the existing ban for lower-paid employees still applies to them). Confidentiality agreements are expressly protected, and customer non-solicits limited to employee-initiated contact appear to fall outside the statute, but Virginia case law has treated employee non-solicits as non-competes, so it would be a mistake to assume they are safe. The lower-paid employee ban continues, with the 2026 line at $1,507.01 a week, or $78,364.52 a year. Violations can carry a $10,000 civil penalty each, employees have two years to sue, and employers must post a notice. The law is not retroactive: it applies to agreements entered into, amended, or renewed on or after July 1, 2026. Companion bills the same day banned non-competes for licensed healthcare professionals and banned post-term non-competes in new franchise agreements. 

Tennessee voided non-competes for employees earning under $70,000 and set rebuttable presumptions on duration, with anything longer presumed unreasonable: two years or less for employees and contractors, three years or less for distributors, dealers, and franchisees, and, for covenants tied to the sale of all or a material part of a business or ownership interest, the longer of five years or however long the seller is still being paid. Courts may trim an overbroad covenant instead of throwing it out. Confidentiality, customer non-solicit, and employee non-solicit agreements are not prohibited. The law applies to agreements entered into, renewed, or amended on or after July 1, and also to “proceedings occurring” after that date, language some practitioners read as reaching older agreements once they land in court. How courts will apply it remains to be seen. 

Why this matters now 

The renewal and amendment triggers are the part most likely to catch you. A routine re-papering of employment agreements, including the one that often happens at a change of control, could pull an old covenant into the new regime without anyone noticing. 

And Virginia and Tennessee are not alone. Washington passed a broad ban that takes effect June 30, 2027 and, as written, applies regardless of when the covenant was signed, which makes existing Washington non-competes a live diligence item today; its sale-of-business exception is limited to holders of at least a one percent interest. Utah banned non-competes for healthcare workers effective May 6, 2026. Wyoming voided most employee non-competes in 2025, keeping exceptions for executives and for the sale of a business. The pay floors in states that already restrict non-competes keep rising: $130,014 in Colorado, $126,858.83 in Washington, $119,541 in Oregon for 2026. The one notable move in the other direction is Florida, whose 2025 CHOICE Act permits covenants of up to four years for higher earners and directs courts to enjoin violations unless the employee clears a high bar. 

The FTC, for its part, has shifted from rulemaking to picking targets. In September 2025 it brought an action against Gateway Services, a pet cremation company with non-competes covering roughly 1,800 employees, resolved by consent order. In April 2026 it went after Rollins, the parent of Orkin, and in June approved a consent order under which the company agreed to stop enforcing non-competes against more than 18,000 current and former workers. It has sent warning letters to healthcare employers, staffing firms, 13 pest-control companies, and a mortgage-services company. Practitioners caution that complying with state law does not by itself protect a company from an FTC claim. 

Where this may reach a sale 

Most states, including California, Wyoming, Washington, and Minnesota, still generally allow a selling owner to give a non-compete as part of the sale, and Tennessee’s new law presumes those covenants reasonable for up to five years. The logic is that a buyer paying for goodwill gets to protect it. Seller covenants of three to five years after closing remain common. Two things to watch. 

First, the exception has edges. Virginia’s new discharge rule has no sale-of-business carve-out (the only one in the amended statute appears to be limited to healthcare professionals), which leaves an open question for a seller who stays on as an employee and is later let go without cause. Washington limits the exception to one percent holders. A 2024 California appellate decision judges a covenant tied to a partial sale of an ownership interest under a reasonableness standard, because the statutory sale exception covers only a sale of the seller’s entire interest. If you hold a small stake and sign a broad non-compete, it would be unwise to assume the sale exception will carry it. 

Second, the covenants a buyer cares about most are often not the seller’s. They tend to belong to the sales leaders, engineers, and managers whose relationships and know-how are what the buyer is actually paying for. Those are employee non-competes, and they are exactly what the new laws reach. Buyers increasingly check enforceability state by state, and where the covenants look weak, deals tend to shift toward retention bonuses, equity that vests over time, rollover equity conditioned on covenant compliance, and well-drafted confidentiality and non-solicit terms, which remain broadly enforceable in most states, though Washington’s 2027 law caps customer non-solicits at 18 months and Virginia treats employee non-solicits as non-competes. Sellers who know before the LOI which key-employee covenants are likely to hold tend to negotiate from a better position than sellers who learn it from the buyer’s markup. 

Questions worth asking 

• Which states your employees work in, and which of those changed the rules in 2025 or 2026 

• Whether any template has been renewed or amended since July 1 

• Whether your Washington non-competes will survive June 30, 2027 (under the new law, most employee non-competes will not; the one-percent sale-of-business and franchise exceptions are narrow, and affected employees are owed written notice by October 1, 2027) 

• If you are contemplating a sale, whether the covenants on your key people would hold up to a buyer’s review 

• Whether your confidentiality and non-solicit agreements are doing the work you assume they are 

The state law summary above is current as of September 10, 2026, is a general description rather than a complete statement of any state’s law, and is not exhaustive; several states have industry-specific restrictions not described here, and courts have not yet interpreted most of the 2026 statutes. 

How CGL can help 

CGL advises companies on employee and owner restrictive covenants in financings, sales, and day-to-day operations, and we review key-employee agreements as part of getting a company ready to sell. 

Not sure whether the 2026 changes reached your agreements? Book a short call to find out.