Can Your Employer Legally Block Your Side Hustle?
Half of side hustlers earn $200/month or less — yet they face the same legal exposure as someone earning ten times that, and roughly 30 million U.S. workers are bound by noncompetes.
- Can Your Employer Legally Block Your Side Hustle?
- Why Most Side Hustlers Can't Afford a Lawsuit
- What Happened to the FTC's Noncompete Ban
- Where State Law Draws the Line
- Who's Most at Risk?
- How to Audit Your Employment Contract for Side Hustle Risks
- Negotiating, Challenging, or Working Around Restrictions
- Sources
- What to Read Next
Can Your Employer Legally Block Your Side Hustle?
Data as of May 2026
Quick Answer:
Your employer can legally restrict your side hustle if you've signed a noncompete or work in an industry with moonlighting rules. After the Federal Trade Commission (FTC) dropped its appeal of the Texas court ruling that vacated its proposed noncompete ban, restrictions are now governed entirely by state law — and protections vary widely depending on where you live.
Key Takeaways:
- The average side hustle earns about $891/month, but half of side hustlers bring in $200/month or less — meaning most can't afford a single legal defense.
- The FTC estimates roughly 30 million U.S. workers — about 1 in 5 — are subject to noncompete agreements, and there are no federal protections after the FTC abandoned its rule in 2025.
- State law decides your rights: Washington's 2026 noncompete earnings threshold is $123,394.17/year, while California voids them almost entirely.
- If you work in a regulated industry, separate rules apply — Financial Industry Regulatory Authority (FINRA) Rule 3270 requires written notice to your firm of any outside business activity before you start.
Recommended: The $100 Startup by Chris Guillebeau — Launch a business with minimal capital
Disclosure: This article is informational and is not legal advice. Talk to an employment attorney before signing or challenging a restrictive covenant. Canopy Press may earn affiliate commissions from some articles; this piece contains no affiliate links.
Why Most Side Hustlers Can't Afford a Lawsuit
Side hustle income follows a power-law distribution. The average earner takes home about $891/month, but half of all side hustlers make $200/month or less (Bankrate 2024 survey). That means most people are pulling in under $2,400/year from their second job — yet they're exposed to the same legal risks as someone earning ten times that amount.
Data Highlight:
Average side hustle income: $891/month. Median: roughly $200/month. Half of side hustlers earn less than $2,400/year — often less than the cost of a single billable hour with an employment attorney.
The FTC estimates that approximately 30 million U.S. workers — close to one in five — are subject to noncompete agreements that could restrict or block a side hustle (FTC Notice of Proposed Rulemaking on Non-Compete Clauses, 88 Fed. Reg. 3482, Jan. 2023). These aren't just for executives. Noncompetes show up in retail, food service, hairstyling, and even some gig contracts.
The math doesn't favor the worker. About 60% of side hustlers tell LendingTree's 2024 side hustle survey the income is "essential," yet most earn too little to cover even a minor legal fight. With the FTC's noncompete rule dead, that imbalance is now baked into state law.
What Happened to the FTC's Noncompete Ban
The federal ban on noncompetes had a short, complicated life. In April 2024, the FTC issued the (https://www.ftc.gov/legal-library/browse/rules/noncompete-rule), which would have voided most existing noncompetes and barred new ones for non-executives. On August 20, 2024, Judge Ada Brown of the U.S. District Court for the Northern District of Texas vacated the rule nationwide in Ryan, LLC v. FTC (No. 3:24-cv-00986), ruling the agency had exceeded its statutory authority. The FTC initially appealed. Then in September 2025, it dropped that appeal, ending the fight and leaving the lower court ruling intact (FTC announcement).
Read carefully: the FTC didn't repeal its rule. A court vacated it, and the FTC eventually walked away from the appeal. The agency now says it'll pursue case-by-case enforcement, including warning letters to employers in healthcare and other industries (Squire Patton Boggs analysis). For most workers, that means the rules are back to where they were in 2023 — governed by state law and the language in your offer letter.
Where State Law Draws the Line
What your employer can and can't restrict comes down to where you live. Some states have effectively outlawed noncompetes; others have set income thresholds; many still allow broad enforcement.
| State | Noncompete Threshold | Other Protections |
|---|---|---|
| Washington | $123,394.17/year (2026, adjusted annually by L&I per RCW 49.62.020) | Employers can't restrict workers earning under 2x state minimum wage from a second job ((https://www.morganlewis.com/pubs/2025/02/washington-supreme-court-clarifies-limits-on-employers-anti-moonlighting-agreements)) |
| Colorado | $127,091 (noncompete) / $76,254.60 (non-solicitation) | Tiered by role and pay (Foley & Lardner) |
| California | Near-total ban; void even if signed out-of-state | California's near-total ban on employee noncompetes is codified in Business & Professions Code §16600, strengthened in 2024 by SB 699 and AB 1076 which made void noncompetes unenforceable even if signed out of state. |
In February 2025, the Washington Supreme Court ruled that employers can't enforce anti-moonlighting clauses against workers earning less than twice the state minimum wage ((https://www.perkinscoie.com/insights/2025/02/washington-supreme-court-limits-noncompete-agreements)). That gives low-income Washingtonians a clear floor — but you only get the protection if you know it exists and push back.
Who's Most at Risk?
Two different things often get conflated here: who runs a side hustle, and who has a noncompete that might block it. They're not the same group.
Side hustle adoption is highest among younger workers. About 34% of Gen Z and 31% of Millennials report a side hustle, compared with smaller shares of Gen X and Boomers (SurveyMonkey 2025).
Noncompete exposure cuts across age and pay. Roughly 18% of U.S. workers are bound by one, and the share is rising fastest in low-wage industries — a hairstylist or warehouse worker is now nearly as likely to face restrictions as a software engineer (GAO-23-103785).
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Women and low earners feel it most. Women earn about $611/month from side hustles versus $1,195 for men ((https://www.bankrate.com/loans/small-business/side-hustles-survey/)), and workers under $40k/year are twice as likely to call that income essential ((https://www.lendingtree.com/debt-consolidation/side-hustle-income-survey/)). The people who need the second income most are the ones least equipped to fight a lawsuit over it.
How to Audit Your Employment Contract for Side Hustle Risks
Before you start anything, pull up your offer letter, employee handbook, and any signed agreements. Look for three things:
- Noncompete clauses. Language restricting you from working in the same industry or with competitors during or after employment.
- Moonlighting policies. Many handbooks require you to disclose and get approval for any second job. Skipping this step can be grounds for termination, even if the side hustle is harmless.
- Conflict-of-interest language. Pay attention if your side hustle could touch your employer's customers, suppliers, or business model.
A disclosure script that doesn't sound stiff:
"Hey — wanted to give you a heads up. I'm planning to do some freelance [work] on the side. It's outside our industry and won't touch my hours here. Anything I should know on policy?"
If HR pushes back, ask them to put the objection in writing and cite the specific clause they're relying on. That single ask often softens the response — and gives you a paper trail if you ever need to challenge enforcement later.
Negotiating, Challenging, or Working Around Restrictions
- Negotiate before you sign. A noncompete is most flexible the day before you accept the job. Ask for carve-outs for non-competing or low-income side work — most employers will agree if you bring it up.
- Challenge restrictions that don't meet your state's threshold. If you're in Washington, Colorado, Illinois, or another state with an income floor, point to it (Foley & Lardner thresholds).
- Follow your industry's rules. If you work in finance, FINRA Rule 3270 requires you to give your firm written notice of any outside business activity — paid or unpaid — before you start it, and the firm can impose conditions or refuse outright (FINRA Rule 3270). Healthcare workers face similar disclosure obligations under most hospital bylaws. Comply with the paperwork and you'll usually keep the door open.
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Sources
- Bankrate, "Side Hustles Survey 2024"
- LendingTree 2024 Side Hustle Survey
- FTC Notice of Proposed Rulemaking on Non-Compete Clauses, 88 Fed. Reg. 3482 (Jan. 2023)
- U.S. Government Accountability Office, GAO-23-103785, "Noncompete Agreements"
- Federal Trade Commission, Noncompete Rule
- Ryan, LLC v. FTC, N.D. Tex., No. 3:24-cv-00986 (Aug. 20, 2024)
- California Business & Professions Code §16600; SB 699 (2023); AB 1076 (2023)
- Washington RCW 49.62.020 (annual L&I threshold adjustment)
- Morgan Lewis, Washington Supreme Court anti-moonlighting analysis
- Foley & Lardner, "2025 Noncompete Income Thresholds"
- SurveyMonkey, Side Hustle Statistics 2025
- FINRA Rule 3270, Outside Business Activities
Frequently Asked Questions
Can my employer block a side hustle that doesn't compete with their business?
It depends on what you signed. If your contract has a moonlighting clause, your employer can require you to get approval for any outside work — even unrelated work. Check your employee handbook for "outside employment" or "conflict of interest" language.
Are noncompetes enforceable if I earn less than my state's income threshold?
In states like Washington, Colorado, and Illinois, noncompetes are unenforceable below specific income floors. Washington's 2026 threshold is $123,394.17/year, adjusted annually by L&I per RCW 49.62.020. If you're under the threshold and your employer threatens action, you have grounds to challenge it.
How do I negotiate a noncompete clause to allow side hustles?
Bring it up before you sign. Ask for a written carve-out covering non-competing work, freelance contracts, or anything earning under a set dollar amount. Frame it around financial flexibility rather than distrust — most employers would rather amend the language than lose the candidate.
What to Read Next
If you're thinking through your contract before your next role, these two pieces dig deeper:
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- The Real Cost of an Employment Lawyer (and When You Need One)
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