Covenants Not to Compete Are Subject to State Law; not Federal Law

The Federal Trade Commission Rule effective September 4, 2024, attempting to strike down most covenants not to compete has been invalidated by the Courts.
However, noncompete clauses are still subject to restrictions under State laws. Laws governing Covenants Not to Compete vary between States, however, here are typical State Law requirements:
First, the covenant must either be included in a legally enforceable contract, such as an employment agreement or agreement for sale of a business, or be a legally enforceable contract itself.
Second, the covenant must comply with specific restrictions under applicable state law.
A covenant not to compete is a restraint on trade. Most courts are reluctant to enforce restraints on trade – including Covenants Not to Compete.
Many states have specific laws defining what restrictions are valid in an enforceable Covenant Not To Compete.
Typically:
The party seeking to enforce the covenant must prove a legitimate business interest that is worth protecting.
The duration of the restricted period must be reasonable; not too long.
The territory and scope of the restriction must be reasonable; not overbroad.
A Covenant Not To Compete that limits an individual’s freedom to engage in his or her profession or usual line of work will likely not be enforceable if the duration is more than a year – often even less than a year.
A Covenant Not To Compete entered into in connection with the sale of a business will generally be enforceable for a longer time – sometimes as much as 3 to 5 years – to protect the goodwill value of the purchased business.

Be Tax Savvy: Don’t Own Your Real Estate in an S-Corp

By Arthur Warady • August 18, 2026

If your Accountant or someone else tells you to take title to Real Estate in an S-Corporation, don’t listen. Run the other way! There are many adverse tax consequences if you own Real Estate in an S-Corporation. Many are detailed in the tables below. Two of these adverse income tax consequences is that live or die, it’s a great gift to the IRS. If you die owning Real Estate in an S-Corp, your heirs will inherit your unrealized capital gain when they sell the Real Estate. When you own Real Estate in an S-Corp you forfeit the “step up in basis” that your heirs would enjoy if you had owned the Real Estate outright, or in a partnership, or an LLC. “Step up in basis” is the Federal Income Tax Benefit that excuses your heirs from the obligation to pay tax on the unrealized appreciation of property they inherit. If you sell the Real Estate in the S-Corp while you are alive, you incur capital gains tax within the S-Corp, and then are taxed again when you distribute the sales proceeds out of the S-Corp. Yes, here’s a situation where your pay “double tax” even though you were told that the S-Corp is a “flow through entity”. On the other hand, neither of these adverse income tax consequences arises if you own the Real Estate outright, in a partnership, or in an LLC (taxed as a disregarded entity or partnership). The tables below give you more details about the comparison of owning Real Estate in an S-Corp compared with an LLC. Real Estate: S-Corp v LLC 2025-10-30