Breaking the Bind: Rethinking Non-Compete Agreements in a Federal Framework

Authors

Stephen Hendricks, Western State College of Law

Abstract

In April 2024, the Federal Trade Commission (FTC) adopted a sweeping rule that bans most non-compete agreements nationwide. Though well-intentioned, the FTC’s categorical prohibition neglects the complex interplay between worker mobility, employer investment, and the protection of legitimate business interests. This Article contends that the United States must move beyond the current false binary of complete prohibition or unregulated enforcement. Drawing on comparative legal analysis, it proposes a federal framework modeled on Germany’s Karenzentschädigung system, under which employers must provide post-employment compensation—typically fifty percent of prior salary—to enforce non-competes.

After tracing the evolution of non-compete doctrine in American law, this Article critiques the FTC’s rule on constitutional, statutory, and federalism grounds. It then offers a detailed roadmap for legislative reform, demonstrating how a structured compensatory approach can promote innovation, protect trade secrets, and ensure economic security for workers. The proposal includes statutory minimums on compensation and duration, administrative enforcement through the Department of Labor, and judicial review grounded in proportionality and business necessity. Empirical evidence from Germany supports the model’s efficacy in reducing litigation, enhancing labor mobility, and preserving competitive markets.

Ultimately, this Article advances a middle path—“earned enforceability”—that reconciles economic dynamism with legal stability. By transforming non-compete agreements from instruments of suppression into deliberate, reciprocal contracts, a federal compensatory regime can replace the existing regulatory patchwork with a durable, constitutionally sound solution for the knowledge-based economy.

Recommended Citation

Stephen Hendricks, Breaking the Bind: Rethinking Non-Compete Agreements in a Federal Framework, 28 Chap. L. Rev. 241 (2025).
Available at: https://digitalcommons.chapman.edu/chapman-law-review/vol28/iss2/1