The Federal Trade Commission has abandoned its federal noncompete rule, but U.S. employers should not treat the withdrawal as a green light to relax restrictive-covenant (a contractual clause limiting a worker's post-employment activities) practices, according to a recent client alert from the international law firm Reed Smith LLP.

The Reed Smith commentary is unambiguous on its central point: federal retreat does not mean federal absolution. The firm walks employers through the pressure points that remain, none of which depended on the FTC rulemaking to exist.

What does the abandonment actually change?

The FTC's noncompete rule had aimed to invalidate the great majority of existing noncompete agreements and bar most future ones. With the rule withdrawn, federal preemption of state noncompete regimes (the legal doctrine that allows federal law to override conflicting state law) is no longer in play. That leaves the existing state patchwork intact.

What employers may be tempted to miss is that the patchwork has not been static. State legislatures and courts have continued to restrict noncompetes on their own, independent of any federal action. The momentum, in Reed Smith's framing, has been bottom-up rather than top-down.

Where does the risk now sit?

Three buckets carry the load.

• State law. Restrictions vary sharply by jurisdiction. Some states ban noncompetes outright for most workers; others enforce them only above an income threshold; still others police scope, duration, and geography without banning them. HR templates that assume one rule applies everywhere create exposure.
• Private litigation. Trade-secret lawsuits and tortious-interference claims (suits alleging a third party improperly induced a worker to break a contract) did not pause during the FTC rulemaking. Courts continue to police reasonableness on scope, geography, and duration. Reasonableness, in this context, asks whether a covenant's restrictions are no broader than necessary to protect a legitimate business interest.
• Adjacent federal regulation. Wage-and-hour rules, classification guidance, and EEOC activity on related issues remain live. None require a noncompete to enforce a workplace restriction, but several overlap with the conduct noncompetes are used to police.

What should HR do now?

The agenda is short.

1. Audit templates by jurisdiction. A noncompete that is unenforceable where the employee lives is unenforceable everywhere. Templates need a residence-based rule, not a headquarters-based rule.
2. Calibrate duration and scope. Twelve months remains a defensible benchmark in most states that enforce noncompetes, but courts have been narrowing geographic and customer-based restrictions. A covenant limited to customers the employee actively serviced survives challenge more often than a broad market bar.
3. Document the trade-secret justification. Trade-secret protection remains the cleanest basis for a noncompete. HR should coordinate with legal to confirm that confidential-information policies, access controls, and exit interviews actually support the restrictions sought in any agreement.
4. Train hiring managers. Out of habit, managers continue to request noncompetes where less restrictive tools — garden leave (paid time off during which an exiting employee is barred from joining a competitor), non-solicitation clauses, or standalone NDAs — would do the job.

A useful benchmark: companies that narrowed their noncompetes during the FTC rulemaking window are in the strongest position now. Those that broadened them are exposed to state attorneys general and private plaintiffs, neither of whom needed the FTC rule to act.

State-level action on noncompetes is unlikely to slow in the next twelve months; HR teams that audit their templates in the next two quarters will spend less time rebuilding them later.

By Daniel Okafor