Legal Landscape of Non-Compete Agreements in 2025

The Legal Landscape of Non-Compete Agreements in 2025: National and Illinois Considerations

Non-compete agreements have long been a tool for employers to protect proprietary business interests and prevent unfair competition. However, in recent years, state and federal regulations have significantly altered the enforceability of such non-compete agreements. In 2025, employers must navigate a complex legal framework, particularly in light of new rules from the Federal Trade Commission (FTC) and evolving state laws, including the Illinois Freedom to Work Act (IFTWA).

The FTC’s Ban on Non-Compete Agreements

On April 23, 2024, the FTC issued a final rule banning most non-compete agreements between employers and employees. The rule, which was set to take effect on September 4, 2024, prohibits employers from entering into non-compete agreements with employees and mandates that existing non-competes, except for those involving senior executives, cannot be enforced. Employers must provide notice to affected employees that their non-compete agreements will no longer be valid.

The FTC’s rule allows employers to maintain pre-existing non-compete agreements with senior executives, defined as individuals earning more than $151,164 annually who also hold policymaking authority. However, after the rule takes effect, employers may not enter into new non-compete agreements with these executives.

However, legal challenges to the FTC’s rule have been widespread.  Before the rule could become effective, two federal courts, one in Texas and one in Florida, issued injunctions blocking the rule’s implementation. These injunctions effectively halted the FTC’s ability to enforce its ban, and under the Trump administration, it is unlikely that the rule will move forward. The FTC has appealed the rulings, but those appeals are expected to be withdrawn.

The National Labor Relations Board’s (NLRB) former-General Counsel, Jennifer Abruzzo, a Biden-appointee, was long critical of the use of non-competes. In 2023, Ms. Abruzzo issued a memo to all NLRB Regional Directors, Officers-in-Charge, and Resident Officers stating her position that non-compete provisions in employment contracts and severance agreements violate the National Labor Relations Act, except in limited circumstances. On October 7, 2024, Ms. Abruzzo went even further and took the position that an employee should be entitled to “make whole relief” if the NLRB determines an employer utilized an unlawful non-compete. This would mean employees could pursue monetary damages against their former employer for alleged lost wages related to missed job opportunities they had not pursued because of the purported unlawful non-compete. President Trump terminated Ms. Abruzzo on January 27, 2025. Therefore, these directives will very likely be rescinded by the NLRB’s new Trump-appointed General Counsel.

As a result, under the Trump administration, these federal agency attempts to invalidate non-compete agreements will fail, and non-competes will remain a valid way to protect an employer’s reasonable business interests under federal law.

Illinois and the Freedom to Work Act (IFTWA)

Illinois has its own stringent laws governing non-compete agreements. The Illinois Freedom to Work Act (IFTWA) has been in effect since 2022 and imposes strict limitations on the use of both non-compete and non-solicitation agreements.

Under the IFTWA:

• Employers cannot enter into non-compete agreements with employees earning less than $75,000 annually. This threshold will increase to $80,000 in 2027, $85,000 in 2032, and $90,000 in 2037.
• Employers cannot enter into non-solicitation agreements with employees earning less than $45,000 annually. This threshold will increase to $47,500 in 2027, $50,000 in 2032, and $52,500 in 2037.
• Employers cannot enforce non-compete or non-solicitation agreements against employees terminated due to business circumstances, governmental orders related to the COVID-19 pandemic, or similar crises unless the employer provides compensation equivalent to the employee’s base salary during the restricted period.
• Certain employees are categorically exempt from non-compete agreements, including those covered by collective bargaining agreements under the Illinois Public Labor Relations Act and the Illinois Educational Labor Relations Act, as well as most construction workers (with exceptions for management-level employees and owners).
• If an employer unsuccessfully attempts to enforce a non-compete or non-solicitation agreement in Illinois, the employee is entitled to recover attorneys’ fees and costs from the employer.

State-Level Trends in Non-Compete Restrictions

Many states have followed Illinois’ lead in restricting or banning non-compete agreements. Several states have set minimum salary thresholds for enforceable non-competes. Examples include:

• Washington, D.C. – $154,200
• Illinois – $75,000
• Maryland – $46,800
• Maine – $60,240
• New Hampshire – $30,160
• Oregon – $113,241
• Rhode Island – $37,650
• Virginia – $73,320
• Washington – $120,559

Additionally, Louisiana, Maryland, and Pennsylvania have enacted or will soon enact restrictions on non-competes for healthcare professionals. They join 17 other states, including Colorado, Indiana, Kentucky, Tennessee, and Texas, that already impose limitations on non-compete agreements in the healthcare industry.

Judicial Scrutiny of Non-Compete Agreements

Recent court decisions emphasize that non-compete agreements must be carefully drafted to be enforceable:

• Sunder Energy, LLC v. Tyler Jackson (Delaware Supreme Court, 2024) – The court refused to enforce a broadly worded non-compete in a business sale, ruling that the restrictions were unreasonable and that the agreement lacked adequate consideration.
• Rullex Co., LLC v. Tel-Stream, Inc. (Pennsylvania Supreme Court, 2024) – The court invalidated a non-compete agreement because it was not signed at the start of employment and was not accompanied by additional consideration.

These rulings highlight the increasing scrutiny courts are applying to non-competes, particularly regarding fairness, reasonableness, and proper consideration.

Best Practices for Employers

Non-compete agreements remain a viable tool for protecting business interests in many states, but they must be carefully drafted and enforced. Employers should:

• Review non-compete agreements to ensure compliance with applicable state laws and salary thresholds.
• Tailor agreements to specific job duties, geographic restrictions, and actual business needs.
• Ensure adequate consideration is provided when employees sign non-competes.
• Provide agreements before employment begins and secure signatures at the start of employment.
• Strengthen confidentiality agreement provisions to protect sensitive business information.
• Consider non-solicitation agreements as an alternative to broad non-compete restrictions.
• Communicate post-employment obligations to departing employees.
• Promptly enforce non-compete agreements when necessary through cease-and-desist letters or litigation.

Conclusion

The legal landscape surrounding non-compete agreements is in flux, with both federal and state regulations imposing significant restrictions. Employers, particularly those operating in Illinois, must carefully review their agreements to ensure compliance with new and existing laws. Given the increasing scrutiny of non-compete clauses by courts and legislatures, businesses should consult legal counsel to evaluate their agreements and enforcement strategies to avoid costly litigation and potential unenforceability.