The Federal Non-Compete Ban Died. That Is Not Good News.

The federal non-compete ban died in February. That is not good news for the reason you think it is.

If you are buying a business whose value depends on the people inside it, and most service businesses do, then somewhere in your diligence folder is a stack of employee agreements you are quietly treating as an asset. A licensed technician who has been there twelve years. An operations manager who knows every account. A sales lead who owns the relationships. Signed paper, filed away, presumably binding.

Presumably is doing a lot of work in that sentence.

What Actually Happened In February

The rule is gone, and it is gone permanently rather than paused.

The FTC formally removed the Non-Compete Clause Rule from the Code of Federal Regulations effective February 12, 2026. Before that it had withdrawn its appeals in the two cases that killed it. A Texas district court had already set the rule aside in August 2024, and the agency stopped fighting for it. There is no federal ban on non-compete agreements and there is not going to be one out of that rulemaking.

So the paper in your file is enforceable again. That is the conclusion most buyers draw, and it is wrong in two directions at once.

Why The Ban Dying Did Not Bring Non-Competes Back

Two things happened while everyone was watching the federal case, and both of them cut against you.

States moved first. A stack of legislatures tightened their own non-compete statutes through 2024 and 2025, some of it in anticipation of a federal rule that never took effect. Those statutes did not get repealed when the rule died. The federal picture went back to where it started. The state picture did not. It is meaningfully more restrictive today than it was three years ago. Roughly a dozen states plus the District of Columbia now set a wage floor below which a non-compete cannot be enforced at all.

Read that last part again if you are buying a trades business. The pay band those floors sit in is exactly where your field technicians live.

The second thing is that the FTC did not walk away. It pulled the rule and kept enforcing case by case under Section 5 of the FTC Act. On the same day it removed the rule from the code, it finalized a consent order against a company over no-hire agreements that stopped other employers from hiring its workers. Not a non-compete. A no-hire. The scrutiny moved sideways, it did not stop.

The rule is gone. The scrutiny is not.

The One Covenant That Still Works Everywhere

Sale-of-business non-competes survive in places where employment non-competes are flatly void.

California and Minnesota ban employment non-competes outright and still permit a covenant given in connection with the sale or dissolution of a business. Wyoming does the same. The FTC’s own rule, the one that would have wiped out employment non-competes nationwide, carved out the bonified sale of a business. The bipartisan bill sitting in the Senate keeps the same exception. Everybody who has tried to kill non-competes has stopped short of killing the one attached to a transaction.

So the restrictive covenant with the most legal durability in your entire deal is the one you negotiate directly with the seller. And the ones with the least are the ones you inherit from the seller’s employees.

That is backwards from how most buyers spend their attention. I have watched a buyer spend an hour arguing the geographic radius on a seller’s non-compete and thirty seconds glancing at the employee agreements, when the employee agreements were the thing the whole revenue base actually depended on. After 35 years of looking at these, the covenant that gets negotiated hardest is almost never the one carrying the risk.

How To Price A Team You Cannot Lock Up

If a business’s moat is a person, and you cannot enforce a covenant against that person, you do not have a moat. You have a hope.

This is a valuation question, not a legal footnote. A listing that leads with a twelve-year licensed technician is describing an asset and a single point of failure in the same sentence. If the state where that technician works voids employment non-competes, or sets a wage floor above what he earns, the agreement in the file is decoration and you are paying a premium for it.

Four questions before you sign anything. Which state’s law governs each employee agreement, and does that state have a wage threshold. Whether the covenant was signed with real consideration at the time, or handed to someone six years into the job with nothing given in exchange. Whether an enforceable non-solicitation agreement exists, because non-solicits often survive in places non-competes do not. And what the seller is actually agreeing to, in writing, and how broadly it is drawn.

Understand where this lands in your math. None of it moves your DSCR and none of it moves your multiple. It moves your revenue in month seven, after the technician has gone across the street and taken four accounts with him, and by then your coverage is a real problem rather than a hypothetical one. If you want to see what that does to a deal, take the revenue down by whatever those accounts represent and run it again through DealScore Pro. It is the same exercise as a stress test, just with a cause attached.

A team is not an asset until something makes it stay.

What This Means For You

If you have a business under LOI right now, pull the employee agreements this week and find out which state’s law governs them before you finish diligence. If that state voids them, the retention plan has to be money and equity rather than paper, and it belongs in your cash-in number.

Most of what separates a business that holds its value from one that quietly leaks it is this kind of thing: a risk that never touches the financials until it does. I walk through the full framework, including how I underwrite key-person exposure before I commit a dollar, in the free 28-minute masterclass.

See you Saturday.

Mike

Want to see how I stress-test every deal against cost shocks, revenue dips, and hidden liabilities before I'd put a dollar at risk? I walk through the entire Bulletproof method in a free 28-minute masterclass.

Forward this email. Tell them to grab Mike's free book - Real Estate Is for Suckers: Buy a Business Instead. Same framework Mike uses to stress-test every deal.