The State of Non-Compete Agreements in 2025: What Life Coaches and Therapists Need to Know
The State of Non-Compete Agreements in 2025: What Life Coaches and Therapists Need to Know
What Life Coaches and Therapists Need to Know
By Alexander Mills
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The State of Non-Compete Agreements in 2025: What Life Coaches and Therapists Need to Know
How recent Supreme Court decisions and federal policy changes are reshaping employment restrictions for mental health professionals
The landscape of non-compete agreements in America has undergone dramatic shifts in 2025, leaving many professionals—especially those in the life coaching and therapy industries—wondering where they stand. Between failed federal bans, landmark Supreme Court decisions, and evolving state laws, the rules governing whether you can take your skills to a competitor or start your own practice have never been more complex.
If you're a life coach, therapist, counselor, or other mental health professional, these changes directly impact your career mobility, earning potential, and ability to serve clients. Here's everything you need to know about the current state of non-compete agreements and how they affect your professional future.
The Rise and Fall of the Federal Non-Compete Ban
The FTC's Ambitious Attempt
In April 2024, the Federal Trade Commission made headlines by issuing a sweeping rule that would have banned most non-compete agreements nationwide. The regulation was designed to liberate an estimated 30 million American workers—about one in five—from contractual restrictions that prevent them from changing jobs or starting competing businesses.
For mental health professionals, this seemed like a game-changer. Considering the nationwide shortage of mental health providers, the agencies and companies that employ therapists are increasingly competing to recruit and retain those therapists. To do this, some employers insert "non-compete" clauses into their employment contracts in hopes that this will keep employees from jumping ship.
The FTC's rule would have prohibited employers from entering into new non-compete agreements and required them to notify existing workers that their current agreements were unenforceable. Set to take effect on September 4, 2024, it promised to dramatically reshape the employment landscape for coaches and therapists.
The Legal Challenges That Killed the Ban
But the rule never saw the light of day. A federal district court in Texas struck down the FTC's rule banning non-competes on August 20, 2024, finding that the FTC exceeded its statutory authority and that the rule was "arbitrary and capricious." Multiple courts across the country issued injunctions blocking the rule's implementation.
The final nail in the coffin came in early 2025. On March 7, 2025, the FTC moved to stay its appeals for 120 days, citing the change in presidential administrations and FTC Chair Andrew Ferguson's public comments stating that the FTC may reconsider whether it wishes to continue defending the Rule. With the Trump administration in power, the likelihood the FTC will try to enforce this ban is minimal (the FTC has appealed the rulings, but we expect those appeals to be withdrawn).
The Supreme Court's Game-Changing Chevron Decision
While the Supreme Court hasn't issued a direct ruling on non-compete agreements in 2025, one of its 2024 decisions has profound implications for how such agreements are regulated.
The End of Agency Deference
The Supreme Court's Loper Bright decision handed down on June 28, 2024 overruled long-standing precedent under which courts afford deference to a federal agency's interpretation of its own power (known as "Chevron deference"). Without Chevron deference now, the FTC's legal arguments in support of its authority to promulgate the rule are on equal footing as the plaintiffs arguing that the FTC overstepped.
This shift fundamentally alters the power dynamic between federal agencies and the courts. Previously, when Congress passed ambiguous legislation, courts would typically defer to the agency's reasonable interpretation of that law. Now, judges have much more authority to second-guess agency decisions.
What This Means for Future Regulations
The demise of Chevron deference makes it significantly harder for federal agencies to implement sweeping regulations like the non-compete ban. Any future attempts to regulate employment agreements at the federal level will face much higher judicial scrutiny, making state-level action increasingly important.
The Current Legal Landscape for Non-Competes
Federal Status: Back to Square One
With the FTC rule dead and buried, non-competes return to the status quo and are legal and enforceable on the same terms as they were before the FTC passed the non-compete rule. This means the enforceability of your non-compete agreement depends primarily on state law and the specific terms of your contract.
State-by-State Variations
The patchwork of state laws governing non-competes has become increasingly important. In 2025, three states, Louisiana, Maryland and Pennsylvania, will prohibit or limit the use of non-competes for various types of health care professionals. They join 17 other states, including Colorado, Indiana, Kentucky, Tennessee and Texas, which have some limits on non-competes for health care professionals.
Some states have taken more aggressive action. California, Minnesota, and North Dakota have essentially banned non-compete agreements entirely, while others enforce them only under strict conditions regarding geographic scope, duration, and legitimate business interests.
Impact on the Life Coaching Industry
The Unique Position of Life Coaches
Life coaches occupy a unique position in the non-compete landscape. Life coaching is about supporting and guiding clients to achieve their goals in life. It's comparable to mentoring – but paid and with clear duties and expectations on both sides. Unlike licensed therapists, life coaching isn't a strictly regulated industry. However, like running any other business, it has a few legal requirements. This lack of formal regulation means that non-compete agreements in coaching often focus on client relationships and business methodologies rather than professional licensure restrictions.
Common Restrictions Faced by Coaches
These non-competes all vary, but more and more we are hearing therapists being asked to sign them. You might feel confused, scared, or just too overwhelmed to care because you need the work right now. Life coaches typically encounter several types of restrictions:
Geographic Limitations: Preventing coaches from practicing within a certain radius of their former employer's location.
Client Non-Solicitation: Prohibiting contact with former clients for a specified period.
Industry Restrictions: Limiting the coach's ability to work in similar coaching niches or specialties.
Trade Secret Protection: Preventing the use of proprietary coaching methods, curricula, or business systems.
Enforcement Challenges
The enforceability of non-competes in life coaching varies significantly. Non-compete agreements aim to limit competition by penalizing employees for soliciting clients and using trade secrets or proprietary information, systems, software, etc. If none of that is occurring, and you are starting fresh with new customers without utilizing any so-called 'trade secret information' learned during your time at [the former employer], the non-compete would be unenforceable.
The Therapy and Mental Health Professional Challenge
Ethical Considerations Unique to Therapy
Mental health professionals face particularly complex challenges with non-compete agreements because of the therapeutic relationship's nature. You must establish clear boundaries and a new understanding of your role as a coach versus a therapist involving a new contract or agreement outlining the nature of life coaching, the goals, and the methods you will use, distinctly different from therapeutic techniques.
The American Psychological Association recognizes this complexity: "When entering into employment or contractual relationships, psychologists make reasonable efforts to provide for orderly and appropriate resolution of responsibility for client/patient care in the event that the employment or contractual relationship ends, with paramount consideration given to the welfare of the client/patient."
Types of Restrictions Affecting Therapists
These clauses might prohibit the therapist from seeing any client who had previously been seen at the original employer, or from marketing to the audience served by the original employer. Alternatively, non-compete clauses might require that the therapist pay the original employer a certain fee or a percentage of fees from clients who the therapist had seen at the original employer and then continued to see at their new workplace.
This last type of restriction is particularly problematic for therapists, as it could be seen as paying a fee for referrals, which is prohibited by professional codes of ethics and by many states' laws.
The Client Continuity Dilemma
One of the most challenging aspects of non-competes in mental health is the tension between contractual obligations and client welfare. Obviously, clients are not calves. Clients are not property and they have the right to choose who they want as their counselor. However, the counselor has a right to refuse to treat them. In a case like this, the ethical and legal burden of the decision rests upon the counselor--not the client.
This creates difficult situations where therapists must choose between honoring their contractual obligations and potentially abandoning clients who would benefit from continuity of care.
Healthcare Industry Trends and Implications
Increased State-Level Restrictions
Over the past 18 months, states and the federal government enacted several new laws that substantially limit when healthcare entities can enforce non-competes. This trend reflects growing recognition that healthcare worker mobility is essential for addressing provider shortages and ensuring patient access to care.
Tellingly, many of these developments occurred in states that traditionally have granted employers more flexibility to use restrictive covenants. This shows that the current legislative trend is not coming solely from one side of the political spectrum or only in certain geographic areas.
Professional Standards and Enforcement
Even where non-competes remain legal, courts are increasingly scrutinizing their scope and enforcement. Courts in most states will generally enforce a non-compete so long as it is reasonably limited in its subject-matter, geographic scope, and duration, and provided it serves a legitimate business purpose.
Practical Guidance for Professionals
Before Signing: Key Considerations
If you're presented with a non-compete agreement, consider these crucial factors:
Duration and Scope: What are your long term goals? How could signing potentially affect those goals? Who is your ideal client? Will the contract limit you from being accessible to those clients? If so, how, and for how long?
Geographic Limitations: Ensure any geographic restrictions are reasonable for your market and won't force you to relocate to continue working.
Financial Impact: Will it deprive you of making a living, or force a relocation in order to use your experience and skills in the future?
Legal Review is Essential
Always get legal counsel. Consult your boards or associations. If you are employer - encourage your employees to do so. It's a good thing that they want integrity and to be sure they understand what they understand what they are getting into. It will ensure a better fit in the long run.
The advice of an attorney is often necessary due to the complexity of many of these matters. Don't assume you understand the full implications of what you're signing.
Alternatives to Traditional Non-Competes
Many employers are moving toward alternative protections that are less restrictive but still protect their legitimate business interests:
Non-Disclosure Agreements (NDAs): Protecting confidential information without restricting employment.
Non-Solicitation Clauses: Preventing active solicitation of former clients while allowing natural client migration.
Training Repayment Agreements: Requiring repayment of training costs if employment ends within a certain period.
Looking Ahead: What to Expect in 2025 and Beyond
Continued State-Level Action
With federal regulation unlikely under the current administration, expect continued state-level legislation addressing non-competes, particularly in healthcare. Increased limits on non-competes at the state level are expected to continue in 2025.
Judicial Scrutiny
Courts are increasingly skeptical of broad non-compete agreements. Several states' highest courts recently invalidated non-compete clauses in employment or other business sales agreements. These cases are reminders that non-compete language should be reasonable in geographic scope and duration and supported by adequate consideration.
Industry-Specific Solutions
Expect to see more industry-specific approaches to employment restrictions, particularly in healthcare and professional services where client relationships are central to business value.
The Bottom Line for Coaches and Therapists
The death of the federal non-compete ban doesn't mean you're powerless. Understanding your rights under state law, carefully reviewing any agreements before signing, and seeking appropriate legal counsel can help you navigate this complex landscape.
For established professionals, now is an excellent time to review existing agreements and consider whether they remain enforceable under current law. For those just starting their careers, understanding the implications of employment restrictions can help you make informed decisions about where and how to build your practice.
The landscape will continue evolving, but one thing is clear: the era of blanket, overly broad non-compete agreements is waning. Courts and legislatures are increasingly recognizing that worker mobility—especially in essential services like mental health care—serves the broader public interest.
Whether you're a life coach helping clients achieve their dreams or a therapist providing essential mental health services, staying informed about these legal developments ensures you can focus on what matters most: helping your clients thrive while building a sustainable practice for yourself.
Remember: This article provides general information and should not be considered legal advice. Always consult with a qualified attorney regarding specific situations and contracts.
