Conflicting signals from state and federal authorities over noncompete agreements have left some in the business community uncertain about what’s allowed and what’s not.
Once a routine business tool designed to protect trade secrets and prevent employee poaching, contract clauses that restrict employees from moving to other competing companies now face growing legal challenges and public skepticism.
A nationwide ban issued by the Federal Trade Commission in April 2024 had been tied up in court, but now the agency has dropped its appeal. Meanwhile, the state’s own attempt to prohibit noncompete clauses was vetoed, leaving employers and employees unsure about what’s legal and enforceable.
South Kingstown-based lawyer Joshua A. Hawks-Ladds, who specializes in employment law, described the situation as “confusing and highly fluid.”
“The FTC tried to ban all noncompetes, but that rule is in legal limbo. Some people wrongly believe there’s already a national ban,” Hawks-Ladds said. “There isn’t. This is still a state-by-state issue.”
Hawks-Ladds says the confusion is especially acute in Rhode Island, where state-level uncertainty adds to the broader national patchwork.
In 2024, Rhode Island lawmakers passed a bill to broadly ban most noncompete agreements – a major step toward aligning the state with stricter policies in places such as California and Minnesota.
The bill, introduced by Sen. Matthew L. LaMountain, D-Warwick, was designed to strengthen employee rights and to encourage entrepreneurship.
“Noncompete clauses stifle innovation,” LaMountain told Providence Business News. “My bill does take [into] consideration trade secrets, but what about regular folks working for an employer here in the state who want to start their own company? If a noncompete clause is enforced, that pushes potential new business right out of Rhode Island.”
However, Gov. Daniel J. McKee vetoed the bill, citing concerns from the business community about enforcement challenges and unintended consequences. He warned the legislation could put Rhode Island at a competitive disadvantage.
As a result, noncompete agreements remain enforceable in Rhode Island for now.
This past legislative session, LaMountain reintroduced the legislation, but after it was passed by the Senate, the House didn’t consider it.
LaMountain says he is ready to reintroduce the legislation again in the next legislative session.
The uncertainty is further complicated by the FTC issuing a final rule in April 2024 prohibiting most noncompete agreements nationwide. A few months later, a federal judge blocked enforcement of the rule, holding that the FTC lacked authority to create such a sweeping ban. The agency had initially appealed, but under its new leadership appointed during the Trump administration, it dismissed the appeal in September.
The result is confusion for Rhode Island workers and businesses alike, where noncompetes remain generally legal but face an uncertain future.
This legal limbo leaves employers unsure about how far they can go in contracting in restricting employees moving to competing companies and employees unclear on their rights and options, Hawks-Ladds says.
“That’s a reality many lawmakers haven’t fully addressed,” he added.
Some employment law attorneys such as Hawks-Ladds argue that in small states such as Rhode Island, noncompete clauses can stifle economic growth by driving skilled workers outside the region.
“In a tiny state like Rhode Island, with a smaller job market, a noncompete can cover almost the entire state,” Hawks-Ladds said. “If a hospital worker in Wakefield is restricted from working elsewhere within 40 miles, it effectively pushes a skilled worker out of Rhode Island.”
Unlike Massachusetts, Rhode Island does not require “garden leave” provisions – a practice in which employers must pay former employees during their noncompete period. Both Massachusetts and Rhode Island restrict noncompetes for low-wage workers, but Rhode Island’s protections are narrower.
Despite the confusing legal backdrop, some limited safeguards have moved forward in Rhode Island.
As of mid-2024, advanced practice registered nurses are newly protected from noncompete agreements under a targeted law aimed at improving access to care, particularly in underserved areas.
Existing protections also remain under the state’s 2019 Noncompetition Agreement Act, which bars noncompete clauses for low-wage workers, student interns, and minors under 18.
But for most other workers – including professionals in health care, tech and finance – noncompetes remain enforceable, raising concerns that these restrictions could hamper Rhode Island’s ability to attract and retain top talent.
“Large companies want to be where there’s access to top talent,” Hawks-Ladds said. “Noncompetes can send the wrong signal, especially in a small economy like Rhode Island’s. It can hurt the state’s reputation and make recruiting harder.”
(Correction: An earlier version of this story included an inaccurate quote in the 19th paragraph attributed to Joshua A. Hawks-Ladds. It should have said, "In a tiny state like Rhode Island, with a smaller job market, a noncompete can cover almost the entire state."
Also, an earlier version of this story gave an inaccurate outcome for legislative efforts to broadly limit the use of noncompete clauses in New York and Connecticut. Those efforts recently failed.)
