States Continue to Refine Their Treatment of Non-Competition Agreements

The vast body of restrictive covenant law continues to develop across the country as states navigate refining their approach to non-compete and non-solicitation agreements with some expansions along with the general trend of more restrictions.

Below we outline recent developments regarding state non-compete and non-solicitation laws in Kansas, Virginia, Florida, New Jersey and Colorado.

Kansas

Kansas Senate Bill 241 will amend the Kansas Restraint of Trade Act (the RTA Act) to clarify the enforceability of employee and customer non-solicitation agreements. Senate Bill 241 will go into effect on July 1, 2025.

Under the RTA, contracts that are deemed a reasonable restraint of trade or commerce are valid and enforceable. While it was clear that the RTA applied to non-compete agreements, it was unclear whether it also applied to non-solicitation agreements.

Senate Bill 241 clarifies this point by establishing that a non-solicitation agreement is conclusively presumed enforceable when it meets specific criteria.

In the context of employee non-solicitation, the restriction must either:

1. Seek to protect the employer’s confidential or trade secret business information, customer or supplier relationships, goodwill or loyalty.
2. Be limited to a two-year term following the employee’s employment.

In the context of customer non-solicitation, the restriction must:

1. Be limited to a two-year term following the end of the employee’s employment with the employer.
2. Apply only to “material contact customers.”

The law defines a “material contact customer” as any “customer or prospective customer that is solicited, produced or serviced, directly or indirectly, by the employee or any customer or prospective customer about whom the employee, directly or indirectly, had confidential business or proprietary information or trade secrets in the course of the employee’s relationship with the customer.”

Additionally, under Senate Bill 241, Kansas courts are required to modify overly broad restrictive covenants. The court’s modification must “grant only the relief reasonably necessary” to protect the employer’s legitimate business interests.

Virginia

Virginia has also amended its existing restrictive covenant law, with Senate Bill 1218. Senate Bill 1218 will take effect on July 1, 2025. Under the amendment, employers are prohibited from entering non-compete agreements with employees that are non-exempt under the Fair Labor Standards Act. Prior to this amendment, Virginia only prohibited employers from entering non-compete agreements with low-wage employees, which included those who earned less than the average weekly wage in Virginia.

The amendment only applies to agreements entered on or after July 1, 2025.

Florida

In April 2025, the Contracts Honoring Opportunity, Investment, Confidentiality, and Economic Growth Act (the CHOICE Act) was passed in the Florida Legislature. The Choice Act will go into effect July 1, 2025, if Florida Governor Ron DeSantis signs it into law, as expected.

The CHOICE Act would create a presumption that garden leave agreements and non-compete agreements are enforceable and do not violate public policy, provided that the agreements meet the law’s requirements.

The CHOICE Act applies to “covered employees” and “covered employers.” Covered employees include employees, or individual contractors who earn more than twice the annual mean wage within the county where the employer has its principal place of business or the county where the employee lives if the employer’s principal place of business is not in Florida. Covered employees under the CHOICE Act do not include healthcare practitioners, as defined in section 456.001 of Florida law. Restrictive covenants entered into with healthcare practitioners are subject to Florida’s existing restrictive covenant law which permits non-competes that are reasonable in time and geographic scope subject to the prohibition of non-competes with physicians that practice a medical specialty in a county where one entity employs all physicians who practice that specialty in the county.

Covered employers include any entity or individual that employs or engages a covered employee.

A garden leave agreement is an arrangement between an employer and an employee where the employer prevents a departing employee from engaging in other employment but continues to pay the employee for a period of time.

Under the CHOICE Act, this time period is known as a “notice period,” during which the employee remains on the employer’s payroll after providing notice of resignation and is prohibited from providing services to the employer’s competitors and from pursuing the employer’s customers for any competitor. Notably, during the first 90 days of the notice period, an employer can require the employee to continue work; however, during the remainder of the notice period, the employee is not required to provide any services to the employer and has the right to engage in non-work activities. Garden leave agreements must meet several additional requirements to be presumed enforceable under the Choice Act. Some of those requirements include:

1. Providing the employee with at least seven days to review and consider the written garden leave agreement before the offer expires.
2. Advising the employee in writing of his/her right to seek counsel.
3. The employee must acknowledge, in writing, that during the employee’s employment, he/she received confidential information or customer relationships.

Additionally, the employee may work for another employer during the notice period if permitted by his/her previous employer. The notice period may be reduced if the employer provides at least 30 days written notice to the employee that the notice period is ending.

The CHOICE Act also deems enforceable non-compete agreements that restrict an employee for no more than four years from providing similar services within a specified geographic area for a new employer or from working for a new employer where they would be expected to use the confidential information or customer relationships of the covered employer, when:

1. The employee was provided with at least seven days to review and consider the written non-compete agreement before the offer expires.
2. The employee was advised in writing of his/her right to seek counsel.
3. The employee acknowledged in writing that during the employee’s employment, he/she will receive confidential information on customer relationships.
4. If there is also an applicable garden leave agreement, the non-compete contains a provision that specifies that the non-compete period is reduced day-for-day by any non-working portion of the garden leave notice period.

Another notable aspect of the CHOICE Act is that it will require Florida courts to issue a preliminary injunction when an employee attempts to violate an agreement deemed enforceable. To have the injunction dissolved or modified, the burden is on the employee to show, by clear and convincing evidence, any of the following:

1. The employee will not perform similar work or use confidential information or customer relationships of the employer during the garden leave notice and/or non-compete period.
2. The employer has failed to pay the employee the compensation or provide the consideration contemplated under the agreement and has had a reasonable amount of time to cure the deficiency.
3. The employee may also show that the business seeking to employ the employee is not planning or preparing to engage in the same business or activity within the non-competes restricted geographic area.

New Jersey

New Jersey is considering a ban altogether on non-competes, with limited exceptions, through the newly proposed Senate Bill No. 4385. Senate Bill No. 4385 defines a non-compete clause as:

“any agreement arising out of an existing or anticipated employment relationship between an employer and a worker, including an agreement regarding severance pay, to establish a term or condition of employment that prohibits the worker from, penalizes a worker for, or functions to prevent or hinder in any way, the worker from seeking or accepting work with a different employer after the employment relationship ends, or operating a business after the employment relationship ends.”

Senate Bill No. 4385 would act retroactively, meaning it would void all non-compete agreements entered both prior to and after the bill would take effect. The only non-compete agreements that may survive the bill are those:

1. With a “senior executive.” A senior executive is defined as a worker who is in a policy-making position with an employer and is paid a total compensation of not less than $151, 164 during the immediately preceding year of employment.
2. Entered prior to the bill taking effect.
3. Meeting certain conditions, including, but not limited to:
   • The employer provides a written disclosure, within 30 days after the effective date of Senate Bill No. 4385, including a description of the law’s requirements and any revisions that were made to the agreement to comply with the law.
   • Any revisions must be signed by the senior executive and the employer.
   • The non-compete is not broader than necessary to protect the legitimate interests of employers.
   • The non-compete period is no longer than 12 months.
   • The geographic reach of the non-compete is reasonable and limited to the areas in which the worker provided services during the two years before the employment relationship ended and does not prohibit the worker from seeking employment in other states.
   • The non-compete is reasonable in scope and limited to the activities and services provided by the employee during the last two years of his/ her employment.
   • The non-compete clause does not penalize the employee for challenging the validity of the non-compete, meaning an attorney’s fees clause will likely be unenforceable against a challenging employee, whether the employer prevails or not.
   • No choice-of-law provision may be used in an attempt to avoid the requirements of Senate Bill No. 4385, meaning an employer cannot simply opt to use another state’s law to avoid New Jersey law.
   • The non-compete clause does not restrict an employee from providing services to the former employer’s customers or clients if the employee is not the one who initiates the contact or solicits the customer or client.
   • The employer gives the employee notice within 10 days of the termination of employment of the employer’s intention to enforce the noncompete.

New Jersey is also considering Senate Bill No. 4386, which would ban non-competes that prohibit an employee from “engaging in a lawful possession, trade, or business of any kind after the conclusion of the employee’s employment with the employer.” Senate Bill No. 4386, like Senate Bill No. 4385, would also be retroactive.

Colorado

Colorado passed SB 25-083 (Amendment), amending its current employee non-compete statute, codified at CRS § 8-2-113, to significantly restrict non-competes with healthcare providers. Prior to the Amendment, the Colorado statute rendered void a non-compete that restricted a physician’s right to practice medicine but allowed contractual damages provisions requiring the physician to pay damages if the physician chose to compete in violation of the contract. The Amendment struck this language entirely from the statute and generally prohibits non-competes that restrict the practice of medicine (which, per the statute, includes physician assistants), the practice of dentistry, or the practice of advanced practice registered nursing.

The Amendment further states that a prohibited non-compete includes any provision that restricts a healthcare provider in the area of medicine, dentistry, or advanced practice registered nursing from providing current or former patient information related to the healthcare provider’s continuing practice of medicine and contact information. Clearly, the Amendment is focused on ensuring that patients are able to stay informed regarding movement by their provider from one employer to another and giving patients the right to follow that provider if they so choose.

In the transaction context, the Amendment allows for non-competes in the event of the purchase and sale of any of the following entities:

1. A business.
2. A direct or indirect ownership interest in a business.
3. All or substantially all of the assets of a business.

However, if an individual owns a minority ownership interest in the business and receives that ownership interest as either equity compensation or otherwise in connection with the individual’s services rendered for the business, the duration of the individual’s non-compete cannot exceed a number calculated by the total consideration received by the individual from the sale divided by the average annualized cash compensation received by the individual from the business. This change significantly impacts the way businesses draft equity agreement non-competes as applicable to individuals located in Colorado.

The Amendment’s restrictions apply to any contract entered or renewed on or after August 6, 2025. As the effective date is fast approaching, businesses with Colorado employees should review their employment non-competes with clinicians to ensure that contracts with any new hires (or any contracts with existing employees to be renewed) on or after August 6 are in compliance with the Amendment. Similarly, equity grant agreements containing non-competes should be reviewed and revised as needed for ongoing compliance.

Takeaways for Employers

Employers, especially those that operate in multiple jurisdictions, should continue to review their current non-compete/non-solicitation agreements to ensure the agreements are enforceable in each state of operation. Although many states are restricting such covenants, a few states have made such covenants more enforceable. If the agreements are not enforceable under state law, employers should identify and evaluate next steps to protect their interests.