Proposed Federal Reforms Target Non-Compete Clauses and Employee Restraints

Proposed federal government reforms could impose penalties exceeding $1 million on employers for including certain non-compete clauses, even if they are never enforced. If passed, the changes would prohibit non-compete clauses for employees earning at or below the $190,100 threshold and would also ban restraints preventing former employees from soliciting former colleagues. The reforms are expected to take effect in 2027.

The proposed changes would significantly alter how post-employment restraints are drafted and used, potentially extending the definition of a non-compete to include financial consequences like requiring employees to repay bonuses. These rules would also prohibit cascading clauses, which are often used to provide courts with alternative options for enforcement.