Beyond the Non-Compete: How Startups Can Protect Their IP in a Changing Legal Landscape

I. Overview

Non-compete agreements have long been used by businesses to limit employees’ ability to join competitors or establish competing businesses after leaving a job.[1] In 2024, the Federal Trade Commission (FTC) adopted a rule that would have prohibited new non-compete clauses and rendered most existing clauses unenforceable.[2] The rule never took effect due to intervening precedent.[3] The FTC Act nevertheless continues to prohibit unfair methods of competition, meaning that the failure of the nationwide rule does not foreclose all potential federal scrutiny of restrictive employment practices.[4] For startups that depend on proprietary technology, confidential business information, and specialized talent, the practical question is how to protect legitimate business interests without relying on questionable non-compete agreements.[5]

II. The Changing Federal Landscape

The FTC’s 2024 rule reflected the agency’s position that non-compete agreements can suppress competition, restrict worker mobility, and limit opportunities for entrepreneurship.[6] Before it took effect, a federal district court set the rule aside in Ryan, LLC v. Federal Trade Commission, and the FTC, following that case, dropped its legal defense, in September of 2025, by dismissing its federal appeals.[7] Finally, the FTC completed its administrative cleanup by formally removing the rules text from the Code of Federal Regulations.[8] Consequently, the FTC has pivoted from a sweeping regulatory ban to localized, individual challenges under its baseline statutory mandate.[9] 

III. State Laws Create a Patchwork

State law remains central to determining whether a non-compete agreement can be enforced against a particular employee.[10] California, Minnesota, North Dakota, and Oklahoma have enacted broad restrictions on employee non-compete agreements, although the scope and exceptions differ by jurisdiction.[11] Other states, including Washington, Colorado, Oregon, and Illinois, impose statutory conditions that can include compensation thresholds, notice requirements, or other limits on enforceability.[12] The District of Columbia also regulates non-compete provisions through its own statutory framework.[13] Florida’s CHOICE Act, enacted in 2025, introduced a distinct framework for certain covered non-compete agreements, subject to the statute’s specific requirements.[14]

These differences make a uniform national agreement dangerous for a startup whose employees work across multiple states.[15] A provision that may be permissible for one employee could be void, restricted, or subject to additional procedural requirements for another employee in a different jurisdiction.[16] Compensation thresholds and other statutory requirements may also change over times, so employers should confirm the current rules before issuing or enforcing an agreement.[17] Startups should therefore assess the employee’s work location, role, compensation, access to confidential information, and applicable state law before deciding whether a restrictive covenant is appropriate.[18]

IV. Practical Alternatives for Protecting Intellectual Property

Non-disclosure agreements (NDAs) can help protect confidential business information by defining what information is confidential, limiting permitted uses, and establishing obligations for handling and returning protected materials.[19] To be effective, these agreements should identify confidential information with reasonable specificity and avoid provisions so broad that they conflict with applicable law or improperly restrict lawful employee activities.[20] Startups should also use written invention assignment and intellectual property agreements to clarify ownership of work product, inventions, and other intellectual property created within the scope of applicable contractual and legal rules.[21]

Trade-secret protection offers another important toll for businesses that rely on valuable nonpublic information, including source code, customer information, and manufacturing processes.[22] Under the Defend Trade Secrets Act, qualifying information may receive protection when it derives independent economic value from not being generally known or readily ascertainable and when its owner takes reasonable measures to keep it secret.[23]  Startups can support those requirements through access controls, confidentiality training, documented offboarding procedures, and limits on access based on employees’ job responsibilities.[24] These measures can help preserve confidentiality while avoiding unnecessary restrictions on employees’ ability to use their general knowledge and skills.[25]

Furthermore, where permitted by law, carefully drafted non-solicitation provisions may protect certain customer or employee relationships without imposing a broad prohibition on working for a competitor.[26] Employers can also consider garden-leave arrangements, retention incentives, and transition plans that address legitimate business concerns through compensation or other methods rather than relying solely on post-employment restrictions.[27] Because each of these tools is subject to jurisdiction-specific requirements, startups should review the relevant law and tailor contractual language to the circumstances rather than treating any alternative as automatically enforceable.[28]

V. Conclusion

The uncertain future of federal non-compete regulation makes it especially important for startups to build an intellectual property protection strategy that does not depend on a single type of restrictive covenant.[29] Companies should reevaluate existing agreements, identify the confidential information and intellectual property they need to protect, and confirm that their contracts comply with the laws governing each employee.[30] By combining appropriate confidentiality and intellectual property assignment agreements with practical trade-secret safeguards and narrowly tailored restrictions where lawful, startups can protect valuable assets while respecting employee mobility and competition.[31] Regular legal reviews are also essential because both statutory requirements and enforcement priorities can change quickly.[32]

[1] See Non-Compete Clause Rule, 89 Fed. Reg. 38,342 (May 7, 2024).

[2] See id.

[3] See Ryan, LLC v. Federal Trade Commission, 746 F. Supp. 3d 369, 389 (N.D. Tex. 2024); Andrew Stauber, Post-Mortem on the FTC’s Blocked Non-Compete Rule, WilmerHale (Aug. 15, 2025), https://www.wilmerhale.com/en/insights/publications/20250815-post-mortem-on-the-ftcs-blocked-non-compete-rule.

[4] See 15 U.S.C. § 45(a).

[5] See Lindsay Calhoun, Alternative Ways to Protect Trade Secrets Given the Uncertainty Surrounding Noncompete Agreements, Phelps (Mar. 6, 2023), https://www.phelps.com/insights/alternative-ways-to-protect-trade-secrets-given-the-uncertainty-surrounding-noncompete-agreements.html.

[6] See Non-Compete Clause Rule, 89 Fed. Reg. 38,342 (May 7, 2024).

[7] See Press Release, Fed. Trade Comm’n, Federal Trade Commission Files to Accede to Vacatur of Non-Compete Clause Rule (Sept. 5, 2025), https://www.ftc.gov/news-events/news/press-releases/2025/09/federal-trade-commission-files-accede-vacatur-non-compete-clause-rule.

[8] See Stauber, supra note 3.

[9] See 15 U.S.C. § 45(a).

[10] See, e.g., Cal. Bus. & Prof. Code § 16600; Minn. Stat. § 181.988; Wash. Rev. Code ch. 49.62.

[11] See Cal. Bus. & Prof. Code § 16600; Minn. Stat. § 181.988; N.D. Cent. Code § 9-08-06; Okla. Stat. tit. 15, § 219A.

[12] See Wash. Rev. Code ch. 49.62; Colo. Rev. Stat. § 8-2-113; Or. Rev. Stat. § 653.295; 820 Ill. Comp. Stat. 90/10.

[13] See D.C. Code § 32-581.02 et seq.

[14] See Fla. Stat. §§ 542.335, 542.41–.45.

[15] See generally supra notes 10-14 and accompanying text.

[16] See, e.g., Cal. Bus. & Prof. Code § 16600; Wash. Rev. Code ch. 49.62; Colo. Rev. Stat. § 8-2-113.

[17] See Wash. Rev. Code ch. 49.62; Colo. Rev. Stat. § 8-2-113; Or. Rev. Stat. § 653.295; 820 Ill. Comp. Stat. 90/10.

[18] See Rachel Green, Noncompete Agreements: What’s the Status of Laws Restricting Them Nationwide? (March 2026 Update), Katz Banks Kumin, https://katzbanks.com/employment-law-blog/noncompete-agreements-whats-the-status-of-laws-restricting-them-nationwide-march-2026-update/.

[19] See Calhoun, supra note 5.

[20] See id.

[21] See id.

[22] See 18 U.S.C. § 1839(3).

[23] See id.; see also Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836.

[24] 18 U.S.C. § 1839(3); see Calhoun, supra note 5.

[25] See generally 18 U.S.C. § 1839(3).

[26] See Calhoun, supra note 5.

[27] See id.; see also Fla. Stat. §§ 542.41-.45.

[28] See generally supra notes 10-14 and accompanying text.

[29] See Non-Compete Clause Rule, 89 Fed. Reg. 38,342 (May 7, 2024); Ryan, 746 F. Supp. 3d at 389; see also Stauber, supra note 3.

[30] See Green, supra note 18; 18 U.S.C. §§ 1836, 1839(3).

[31] See 18 U.S.C. §§ 1836, 1839(3); see also Calhoun, supra note 5.

[32] See Green, supra note 18; Stauber, supra note 3.