The Hiring Process: Noncompete Clauses and the FTC

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1. Feature: The Hiring Process: Noncompete Clauses and the FTC (4 min)

2. From the Archive:

   • Product Price Increases Done Right

   • Turn January Chaos into Productivity

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Missed our last feature article? A Meeting Agenda Template for Your Business

Noncompete clauses for new hires are back in the spotlight. Here’s what SMB owners should know.

On January 27, 2026, the Federal Trade Commission is hosting a public workshop titled “Moving Forward: Protecting Workers from Anticompetitive Noncompete Agreements,” with FTC commissioners, workers, economists, and policy experts on the agenda. The event will be open to the public, including a livestream for remote attendees.

A workshop does not change the law. But it does tell you where regulators are looking.

For small business owners, this matters because noncompetes remain one of the most scrutinized tools in employment law, even after the nationwide rule that would have banned most employee noncompetes was struck down and abandoned. The issue has not gone away. It has simply changed form.

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Why the issue is resurfacing now

In 2024, the FTC adopted a rule that would have banned most employee noncompetes nationwide. Courts blocked the rule before it took effect, concluding that the agency had overstepped its authority.

On September 5, 2025, the FTC voted to dismiss its appeals and let those decisions stand, effectively vacating the rule and ending the attempt at a single federal ban. In plain terms, there is no federal ban on employee noncompetes today.

But the agency has made it clear that it still views certain noncompete practices as harmful to workers and competition. The January workshop is best understood as a way to gather evidence, elevate worker stories, and shape future enforcement priorities and guidance.

This is not about passing a new rule tomorrow. It is about setting expectations. For owners, that means revisiting your hiring approach now, while you still control the timing.

A brief look back at our June 15, 2025 article

We last covered noncompetes in our June 15, 2025 article, which you can find here:

Using Non-Compete Clauses in LLC Operating Agreements: A 2025 Guide for SMB Owners

That piece focused on three practical realities.

First, noncompetes are fragile. Broad restrictions that are not tied to a specific, legitimate business interest tend to fail in court or attract regulatory attention.

Second, enforcement remains largely a state law issue. Some states ban employee noncompetes outright, others prohibit them for lower-wage workers or under certain salary thresholds, and others allow them only under narrow, defined conditions. Remote work and multi-state teams complicate this further.

Third, the strongest protection strategy does not rely on noncompetes alone. Courts and regulators consistently favor employers who use targeted tools that match the risk they are trying to manage.

Those conclusions remain accurate. The FTC workshop will likely reinforce them.

What the FTC workshop is signaling

The workshop is not a rulemaking event. It does not create new obligations by itself.

What it does do is signal continued scrutiny. By focusing on worker experiences, labor-market effects, and economic analysis, the FTC is building a public record that can support future enforcement actions, guidance, or narrower policy initiatives.

For SMBs, the message is straightforward. Practices that look blunt, lazy, or overly restrictive — like asking every employee to sign the same broad, multi-year, multi-state noncompete — are more likely to attract attention. Practices that are precise, role specific, and well documented are more likely to be left alone.

The smarter way to protect your business

If your current approach is to require every employee to sign the same noncompete, this is a good time to rethink it.

A more durable approach relies on a layered set of protections that courts and regulators generally accept when they are tailored and reasonable.

Start with a strong confidentiality agreement

Confidentiality agreements should do most of the work.

A good agreement clearly defines what information is confidential, how it must be handled, and what happens at separation. It focuses on real business information — pricing, formulas, source code, product plans, customer lists — not everything the company touches.

Overly broad definitions are a common mistake. When everything is labeled confidential, the agreement starts to look like a disguised noncompete instead of a focused protection for information that truly matters.

Specificity signals legitimacy.

Use invention assignment where creation is part of the job

If an employee will create code, content, products, processes, or customer-facing materials, ownership should be clear from day one.

Invention assignment agreements are widely accepted when they are limited to work created in the scope of employment or using company resources and do not try to capture unrelated side projects. Many states give employees explicit protection for inventions developed entirely on their own time and equipment.

This is about clarity, not control.

Apply non-solicit clauses carefully and only where allowed

In many states, a narrow non-solicit provision can protect customer relationships and team stability without blocking someone from earning a living.

Restraint matters. Tie the restriction to customers the employee actually worked with or learned about through the job, and keep the duration reasonable. Avoid sweeping language that covers all prospects, future relationships, or every potential employee in your industry.

Some states treat non-solicit clauses much the same as noncompetes. Others do not. This is not an area for copy-and-paste drafting across every state and role.

Back it all up with a real trade secret policy

Agreements work best when your operations support them.

A trade secret policy should explain what your trade secrets are, where they live, who can access them, and how they are protected. It should also describe what happens when someone leaves; for example, returning devices, closing accounts, and reinforcing continuing obligations around confidentiality and non-solicit terms.

If you want to take a deeper dive into the protecting your company during the hiring process, read our prior articles:

-Hiring in a Side Hustle World 

-The Most Important New-Hire Document

A practical word of caution

Because noncompete law is still evolving, and because enforceability varies widely by state, income level, and role, it is always wise to pause before presenting an employee with a noncompete clause.

A brief conversation with an experienced employment lawyer can help you confirm whether a noncompete is appropriate at all, and if so, how to tailor it to your business, your state, and the employee’s responsibilities. That small step often prevents far larger problems later.

What to do next

Review your hiring documents role by role. If they are identical across the company, that is a warning sign.

Shift away from broad noncompetes toward a layered approach built around confidentiality, invention assignment, and narrow non-solicit provisions where they make sense and are enforceable.

Make onboarding educational, not just transactional. Employees should understand what they are signing and why.

The FTC workshop does not mean a new federal ban is coming tomorrow. But it does mean scrutiny is not going away.

For SMBs, the safest path is not to push harder during the hiring process. It is to use the alternative tools available to you and only use noncompete clauses when they are reasonable and align with state law.

Have an interesting business question and need a free bit of advice? Send your question to [email protected]. No confidential info, please!