When and How to Use Non-Compete Agreements in 2026

The Non-Compete Landscape Has Changed Dramatically

If you last reviewed your non-compete agreements a few years ago, it is time to take another look. The legal and regulatory environment surrounding non-compete clauses has shifted significantly, and what was once standard practice in many employment contracts is now legally risky or outright unenforceable in several states.

At Optima HR Solutions, we are helping Minnesota businesses navigate this complexity every day. Here is what you need to know heading into 2026.

What the FTC and State Laws Mean for Your Agreements

The Federal Trade Commission issued its landmark rule banning most non-compete agreements in 2024, though legal challenges have created ongoing uncertainty at the federal level. Regardless of where federal enforcement ultimately lands, state law remains the primary battleground — and the trend is clearly moving toward restriction.

Minnesota: As of 2023, Minnesota banned non-compete agreements for employees and independent contractors. Clauses signed after the effective date are void and unenforceable.
California, North Dakota, and Oklahoma have long prohibited most non-competes.
Illinois, Colorado, and Washington impose strict salary thresholds and notice requirements.
Even in states where non-competes are still permitted, courts are scrutinizing them more aggressively and enforcing only narrowly tailored agreements.

For Minnesota-based employers, the bottom line is straightforward: traditional non-compete agreements with employees are no longer a legal tool in your toolkit.

What Still Works: Legitimate Alternatives to Non-Competes

Losing the ability to use non-competes does not mean losing all protections for your business interests. Several alternative agreements remain fully enforceable in Minnesota and most other states when properly drafted:

Non-Solicitation Agreements

These prevent former employees from actively recruiting your current staff or soliciting your clients for a defined period. They are narrower than non-competes and generally hold up well in court when reasonable in scope and duration.

Non-Disclosure Agreements (NDAs)

Protecting trade secrets, proprietary processes, customer data, and confidential business information through a well-drafted NDA is still entirely appropriate and legally sound. In fact, NDAs are often more effective than non-competes because they target the actual harm you are trying to prevent.

Intellectual Property Assignments

Ensure that any work product, inventions, or creative output produced by employees during their tenure belongs to your company. These agreements are critical for technology, marketing, and product development roles.

The goal was never to trap employees — it was to protect legitimate business interests. In 2026, smarter and more targeted agreements do that job better than a broad non-compete ever did.

When Non-Competes May Still Apply

There are limited contexts where non-compete language may still be legally appropriate, even in restrictive states like Minnesota:

Business sale agreements: When a business owner sells their company, a non-compete protecting the buyer is generally enforceable because it is tied to the sale of a business asset, not an employment relationship.
Franchise agreements: Certain franchise structures may include enforceable restrictions depending on the specific arrangement and jurisdiction.
Senior executive agreements in permitted states: In states that still allow non-competes, high-earning executives may be subject to narrowly tailored agreements, provided notice and consideration requirements are met.

Best Practices for 2026 Employment Agreements

Whether you are onboarding a new hire or auditing your existing agreements, here are the steps Optima HR Solutions recommends:

Audit all current employment contracts and remove or replace unenforceable non-compete language immediately.
Work with an employment attorney to draft or update NDAs, non-solicitation agreements, and IP assignments tailored to your industry and roles.
Train your managers on what they can and cannot ask employees to sign at hire or during employment.
Be transparent with employees about what agreements you use and why — it builds trust and reduces legal risk.

Protecting Your Business the Right Way

The instinct to protect your business from competitive threats is completely valid. Your client relationships, your proprietary processes, and your team culture have real value. The question in 2026 is not whether to protect those assets — it is how to do it legally and effectively.

Optima HR Solutions works with small and mid-sized businesses throughout the Minneapolis metro to review employment agreements, design compliant onboarding documentation, and build HR frameworks that protect both the business and its people.

If you have not reviewed your employment agreements recently, now is the time. Reach out to our team to schedule a contract audit and make sure your agreements are built for the legal landscape of today — not five years ago.