Home | Updates On Federal Approach To Non-Compete Agreements
Updates On Federal Approach To Non-Compete Agreements
UPDATES ON FEDERAL APPROACH TO NON-COMPETE AGREEMENTS
Published September 15, 2025
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The federal regulatory landscape for non-compete clauses in employment contracts continues to evolve. Two weeks ago, the Federal Trade Commission announced that it would no longer defend a federal regulation that banned non-competes in most employment contracts. Then last week the FTC sent letters to several health care employers and staffing companies encouraging them to review any noncompete agreements to make sure “they are appropriately tailored and comply with the law.”
Background. Decades ago, non-compete covenants were mostly used to stop scientists, inventors, and top executives from usurping confidential information or inventions of a company. But the use of non-competes exploded in the last decade. As of a few years ago, an estimated 30 million Americans—or 1 in 5 employees—were bound by noncompete clauses. Dog sitters, tree trimmers, trash haulers, laborers, hair stylists, day care workers, doctors, salespersons, mid-level financial professionals, sandwich shop makers and warehouse workers have all been required to sign noncompete clauses that limit their ability to work for competing businesses.
In 2023 the state of Minnesota enacted a law to largely curtain the use of non-compete provisions in employment contracts. And in 2024, the Federal Trade Commission promulgated a federal regulation to sharply limit employment non-competes. The federal and state rules were similar but not identical. Generally speaking, the laws prohibited most employers from entering into non-compete clauses with most employees.
The Federal Regulation. The federal regulation purported to ban most contracts in which employees agreed not to work for their employer’s competitor after termination of employment. The FTC’s regulation was challenged in the courts by employers who wanted the rule rescinded.
The FTC announced two weeks ago that, while the legal challenge to the rule was pending in the courts, the FTC would stop defending the validity of the rule. Andrew Ferguson, the Chairman of the FTC, issued a statement which asserted that the proposed rule was an illegal overreach by the previous administration. Nonetheless, Chairman Ferguson stated that the FTC would take action against unlawful noncompete agreements, although he did not define in his announcement what noncompete agreements are unlawful.
The FTC sent a letter to large health care employers and staffing agencies encouraging them to review any non-compete provisions to ensure they are “appropriately tailored” and “comply with the law.” The announcement stated that: “Many healthcare employers and staffing companies may include unreasonable noncompete agreements in employment contracts for vital roles like nurses, physicians, and other medical professionals. These restrictions can unreasonably limit healthcare professionals’ employment options and thereby limit patients’ choices over who provides their medical care—including, critically, in rural areas where medical services are already stretched thin.”
On September 4, the FTC ordered a large pet cremation company to stop enforcing non-compete provisions against their employees. The FTC’s complaint alleged that the company required non-compete agreements for “nearly all newly hired employees, regardless of their position or responsibilities.” According to the FTC, the agreements typically prohibited an employee from working in the pet cremation service industry anywhere in the United States for one year after termination of employment. The FTC argued that the company’s non-compete agreements impeded competition by limiting the expansion of competing pet cremation businesses.
Minnesota Noncompete statute. The FTC’s recent actions are expected to have less impact on companies that only do business in Minnesota vs. those that do business nationwide. This is because the existing Minnesota statute applies to employment non-compete provisions adopted after July 1, 2023. The Minnesota statute also applies to independent contractors. In addition to the employment non-compete laws, in 2024, the Minnesota Legislature enacted a provision prohibiting service contract providers from prohibiting most customers from soliciting or hiring its employees.
Under Minnesota law, employers may still use carefully crafted contractual provisions to protect the confidentiality of their proprietary information and the solicitation of their customers by former employees. A well-written confidentiality agreement can help to protect an employer’s bona fide confidential information and trade secrets. Similarly, a well-constructed non-solicitation agreement can prohibit an ex-employee from soliciting the employer’s customers after employment ends where the ex-employee dealt with those customers during employment. Minnesota law also does not prohibit non-compete provisions that are negotiated as part of the sale of a business.
Lori Swanson and Mike Hatch practice law at Swanson Hatch, P.A. They sequentially represented Minnesota as Attorney General for 20 years. Mr. Hatch also served as Minnesota Commissioner of Commerce, where he regulated the insurance, real estate, securities, banking, and financial services industry. Ms. Swanson was Chair of the Federal Reserve Board’s Consumer Advisory Council. Ms. Swanson and Mr. Hatch have been involved in dozens of matters involving restrictive competition agreements.
www.swansonhatch.com
431 S Seventh Street, Suite 2545
Minneapolis, MN 55415 612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
The federal regulatory landscape for non-compete clauses in employment contracts continues to evolve. Two weeks ago, the Federal Trade Commission announced that it would no longer defend a federal regulation that banned non-competes in most employment contracts. Then last week the FTC sent letters to several health care employers and staffing companies encouraging them to review any noncompete agreements to make sure “they are appropriately tailored and comply with the law.”
Background. Decades ago, non-compete covenants were mostly used to stop scientists, inventors, and top executives from usurping confidential information or inventions of a company. But the use of non-competes exploded in the last decade. As of a few years ago, an estimated 30 million Americans—or 1 in 5 employees—were bound by noncompete clauses. Dog sitters, tree trimmers, trash haulers, laborers, hair stylists, day care workers, doctors, salespersons, mid-level financial professionals, sandwich shop makers and warehouse workers have all been required to sign noncompete clauses that limit their ability to work for competing businesses.
In 2023 the state of Minnesota enacted a law to largely curtain the use of non-compete provisions in employment contracts. And in 2024, the Federal Trade Commission promulgated a federal regulation to sharply limit employment non-competes. The federal and state rules were similar but not identical. Generally speaking, the laws prohibited most employers from entering into non-compete clauses with most employees.
The Federal Regulation. The federal regulation purported to ban most contracts in which employees agreed not to work for their employer’s competitor after termination of employment. The FTC’s regulation was challenged in the courts by employers who wanted the rule rescinded.
The FTC announced two weeks ago that, while the legal challenge to the rule was pending in the courts, the FTC would stop defending the validity of the rule. Andrew Ferguson, the Chairman of the FTC, issued a statement which asserted that the proposed rule was an illegal overreach by the previous administration. Nonetheless, Chairman Ferguson stated that the FTC would take action against unlawful noncompete agreements, although he did not define in his announcement what noncompete agreements are unlawful.
The FTC sent a letter to large health care employers and staffing agencies encouraging them to review any non-compete provisions to ensure they are “appropriately tailored” and “comply with the law.” The announcement stated that: “Many healthcare employers and staffing companies may include unreasonable noncompete agreements in employment contracts for vital roles like nurses, physicians, and other medical professionals. These restrictions can unreasonably limit healthcare professionals’ employment options and thereby limit patients’ choices over who provides their medical care—including, critically, in rural areas where medical services are already stretched thin.”
On September 4, the FTC ordered a large pet cremation company to stop enforcing non-compete provisions against their employees. The FTC’s complaint alleged that the company required non-compete agreements for “nearly all newly hired employees, regardless of their position or responsibilities.” According to the FTC, the agreements typically prohibited an employee from working in the pet cremation service industry anywhere in the United States for one year after termination of employment. The FTC argued that the company’s non-compete agreements impeded competition by limiting the expansion of competing pet cremation businesses.
Minnesota Noncompete statute. The FTC’s recent actions are expected to have less impact on companies that only do business in Minnesota vs. those that do business nationwide. This is because the existing Minnesota statute applies to employment non-compete provisions adopted after July 1, 2023. The Minnesota statute also applies to independent contractors. In addition to the employment non-compete laws, in 2024, the Minnesota Legislature enacted a provision prohibiting service contract providers from prohibiting most customers from soliciting or hiring its employees.
Under Minnesota law, employers may still use carefully crafted contractual provisions to protect the confidentiality of their proprietary information and the solicitation of their customers by former employees. A well-written confidentiality agreement can help to protect an employer’s bona fide confidential information and trade secrets. Similarly, a well-constructed non-solicitation agreement can prohibit an ex-employee from soliciting the employer’s customers after employment ends where the ex-employee dealt with those customers during employment. Minnesota law also does not prohibit non-compete provisions that are negotiated as part of the sale of a business.
Lori Swanson can be reached at lswanson@swansonhatch.com, or at 612-315-3037. Mike Hatch can be reached at mhatch@swansonhatch.com, or at 612-315-3037. The firm’s website is www.swansonhatch.com.
www.swansonhatch.com
431 S Seventh Street, Suite 2545
Minneapolis, MN 55415
612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
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Swanson | Hatch, P.A.
431 S. 7th Street, Suite #2545
Minneapolis, MN 55415
612-315-3037
www.swansonhatch.com