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

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1. Feature: Using Non-Compete Clauses in LLC Operating Agreements: A 2025 Guide for SMB Owners (5 min read)

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Non-compete clauses (NTCs) are a double-edged sword for small and medium-sized business (SMB) owners. Done right, they protect trade secrets and hard-won client lists. Done wrong, they land in court and fall apart. And in 2025, they’re under heavier scrutiny than ever.

We break down the latest developments—federal and state—that every SMB owner should understand before using an NTC in their LLC operating agreement.

The Federal Crackdown: What Happened and What Didn't

On April 23, 2024, the Federal Trade Commission (FTC) issued its Non-Compete Clause Rule (16 C.F.R. Part 910), aiming to ban nearly all post-employment non-competes nationwide. The rule barred new NTCs and declared most existing ones unenforceable after September 4, 2024—except for senior executives making over $151,164 annually in policy-making roles.

The FTC said the move would increase new business formation by 2.7% and boost average wages by $524 per year. But business groups pushed back.

On August 20, 2024, in Ryan LLC v. FTC, No. 3:24-cv-00986-E (N.D. Tex.), a federal court vacated and permanently enjoined the rule. The court held the FTC had overstepped its authority under Section 6(g) of the FTC Act (15 U.S.C. § 46(g)) and violated the Administrative Procedure Act (5 U.S.C. § 706). The FTC has appealed, but for now, the rule is dead.

Bottom line: As of June 2025, non-compete enforceability remains a state-law issue. The failed federal ban signals that courts and regulators are watching closely. Draft with precision.

Florida: Statutory Muscle with Judicial Teeth

Statute: Fla. Stat. § 542.335 (2024) allows non-competes if they’re:

• In writing

• Supported by a legitimate business interest (e.g., trade secrets, client relationships)

• Reasonable in time, geography, and scope

Courts presume six-month restrictions are reasonable for employees, and two years for business sellers or owners. Longer durations are presumed unreasonable unless justified.

Key case insights:

• Courts judge validity at time of enforcement, not execution.

• Overbroad NTCs with vague or limitless geographic scopes are often voided.

Tip: Align your NTC’s scope with the LLC's actual market area. Courts won’t save sloppy drafting. Your Compliance Checklist: Five Steps to Stay Ahead

Texas: Reform, Not Rejection

Statute: Tex. Bus. & Com. Code § 15.50 (2024) permits NTCs if:

• They're part of an otherwise enforceable agreement (e.g., operating agreement)

• They protect legitimate interests like confidential info or goodwill

• They are reasonable in duration, geography, and scope

Key case insights:

• Goodwill alone can justify an NTC.

• Courts will reform overbroad clauses, not strike them entirely.

Tip: Precision pays. Texas gives you second chances via reformation—but weaker protections often follow.

Delaware: Contractual Freedom with a Chancery Check

Statute: Delaware’s LLC Act (6 Del. C. § 18-101 et seq., 2024) doesn’t directly regulate NTCs. Instead, courts apply general contract and common law.

Key case insights:

• A one-year NTC in an LLC agreement to protect client relationships is reasonable.

• An NTC can be invalidated for being unreasonably broad in scope and geography.

Tip: Delaware allows a lot—until you overreach. Stick to well-defined interests and a realistic radius.

Nevada: Trim the Fat or the Court Will

Statute: Nev. Rev. Stat. § 613.195 (2024) requires:

• Reasonableness in duration, geography, and scope

• Valuable consideration

• Carve-outs: NTCs can’t prevent employees from working with clients they never solicited

Key case insights:

• Geographic overreach can kill an otherwise valid NTC.

• LLC agreements must respect statutory limits or face modification.

Tip: Nevada courts must modify overbroad terms. But you’ll get less than you bargained for.

Wyoming: From Silent to Sweeping Ban

Statute: Wyo. Stat. Ann. § 40-31-101 (2024), effective July 1, 2025, bans most non-competes except for:

• Executives and management

• Their professional staff

• Physicians treating rare disorders (with notice to patients)

Pre-existing NTCs are grandfathered in until expiration.

Key case insights: Pre-statute NTCs aimed at protecting goodwill can be valid if properly structured. Post-2025, Wyoming courts may look to Colorado for interpretive guidance, per legislative commentary.

Tip: Starting July 2025, only the C-suite gets NTCs.

Drafting Guide: Get It Right the First Time

1. Be narrow and specific:

• Identify what you’re protecting—trade secrets, client lists, goodwill, proprietary systems

• Choose a reasonable duration (1–2 years is the norm)

• Limit the geographic scope to where your LLC actually operates

2. Tie it to value:

• Make sure the agreement includes valid consideration (e.g., equity, salary, promotion)

• For employees, "continued employment" may not always suffice—check state law

3. Customize by role:

• Members: NTCs usually protect goodwill or business continuity

• Employees: States like Nevada restrict clauses that are too broad or penalize innocent client contacts

4. Avoid blanket bans:

• Courts dislike "no competition anywhere, forever" clauses

• Define activities you're restricting and why

5. Monitor changes:

• FTC’s appeal in Ryan LLC could revive the federal rule

• Wyoming’s sweeping ban may inspire similar efforts elsewhere

Final Word

Non-compete clauses aren’t dead—but they’re on life support in many states. Florida and Texas offer solid ground if you draft carefully. Delaware demands clarity. Nevada trims what you overreach. Wyoming is nearly closed for NTC use.

As 2025 unfolds, SMB owners must balance protecting their business with honoring worker mobility. A tailored, enforceable NTC can do both—but only if you respect the law, the facts, and your state’s boundaries.

Legal Note: This article is for general educational purposes and does not constitute legal advice. Consult with a licensed, qualified attorney before adding or enforcing a non-compete clause in your operating agreement, employment offer, or employee contract.

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