On Friday, September 5, 2025, the Federal Trade Commission (FTC or the Commission) brought its multiyear effort to ban employee noncompete agreements to a conclusion. As readers of this blog will certainly remember, in April 2024, the FTC voted to adopt a regulation (the Noncompete Rule or the Rule) that would have banned the great majority of employee noncompete agreements across the country. The Noncompete Rule was immediately challenged in court and, in August 2024, a federal court in Texas held the Noncompete Rule unlawful and issued a broad order vacating the Rule in its entirety. The FTC appealed that decision to the Fifth Circuit Court of Appeals but, given the subsequent change in presidential administrations, it was long anticipated that the Trump-Vance FTC was likely to abandon its efforts to defend the Biden-era Noncompete Rule. On September 5, these expectations came to fruition, as the FTC finally and definitively announced its decision to “accede to the vacatur” of the Noncompete Rule. This means that the Texas court’s order remains in place, with the result being that the Noncompete Rule cannot take effect or be enforced in any form.
While this decision marks the end of the FTC’s efforts to ban employee noncompete agreements outright, the FTC has made clear that it will continue to challenge overbroad noncompete agreements going forward. In fact, the day before announcing the end of the Noncompete Rule, the FTC announced a consent order restricting one company’s use of noncompete agreements and launched a request for information about other noncompete practices that may be potentially problematic. And then, on September 10, the FTC sent warning letters to “several large healthcare employers and staffing firms,” urging these companies to “conduct a comprehensive review of [their] employment agreements—including any noncompetes or other restrictive covenants—to ensure that they comply with applicable laws and are appropriately tailored to the circumstances.”
So how should businesses reconcile these developments? This article explains five takeaways from the FTC’s decision to guide businesses going forward.
Lesson One: The FTC Does Not Have the Authority to Make Substantive Regulations About Labor Practices
At the core of the debates around the FTC’s Noncompete Rule was a pure question of law: does the FTC have the authority to adopt substantive rules about business behavior? As background, for the vast majority of the FTC’s history, the FTC has pursued its duty of preventing “unfair methods of competition” by bringing enforcement actions against individual companies on a case-by-case basis. In the 1960s and 1970s, however, the FTC began promulgating regulations that defined particular business practices to be “unfair.” In 1973, the D.C. Circuit Court of Appeals held that the FTC has the authority, at least in certain situations, to adopt such “substantive” rules of business conduct. For myriad reasons, however, the FTC largely stopped adopting these “substantive” rules soon after that 1973 decisions. Thus, until the FTC Noncompete Rule, the FTC had not attempted to flex this rulemaking authority for nearly five decades.
The judicial challenges to the Noncompete Rule brought the question of the FTC’s rulemaking authority back into focus. And despite the D.C. Circuit’s 1973 holding to the contrary, the reasoned judgment of the U.S. District Court of the Northern District of Texas is that the FTC “lacks substantive rulemaking authority with respect to unfair methods of competition.” The Texas court recognized that the FTC has “housekeeping” authority to adopt “rules of agency organization, procedure, or practice,” but it held that the FTC has no authority to adopt substantive rules about whether particular business practices are unfair. For labor and employment professionals, this means that the FTC does not have the power to adopt substantive regulations governing labor practices.
Lesson Two: Expect the FTC to Be Active in Challenging Noncompetes on a Case-By-Case Basis
In announcing its decision to accept the vacatur of the Noncompete Rule, the FTC left no doubt that it continues to view noncompete agreements with a skeptical eye. FTC Chairman Andrew Ferguson issued a statement that “noncompete agreements can be pernicious. They can be, and sometimes are, abused to the effect of severely inhibiting workers’ ability to make a living.” By Chairman Ferguson’s telling, the FTC “should have been doing everything it could to find unlawful noncompete agreements and eliminate them.” In particular, the FTC “could have deployed the thousands of taxpayer-funded manhours spent on the Rule’s promulgation and defense on law enforcement.”
With this background, Chairman Ferguson committed the FTC going forward to “protect[ing] American workers by doing what Congress told us to—patrolling our markets for specific anticompetitive conduct that hurts American consumers and workers, and taking bad actors to court.” He noted three initiatives in particular.
First, on September 4, 2025, the FTC announced an enforcement action against the nation’s largest pet-cremation company, challenging that company’s use of noncompete agreements. As alleged in the FTC’s complaint, the company at issue had required all new hires outside of California — including drivers and low-level hourly workers — to sign broad noncompetes that prohibited the employees from working for any other pet-cremation provider in the United States for a period of twelve months after the end of their employment. The FTC’s administrative complaint claimed that this broad use of noncompetes amounted to an unfair method of competition, and in a consent decree the FTC forced the company to abandon this practice going forward except for a limited number of key employees.
Second, Chairman Ferguson advised that, “in the coming days, firms in industries plagued by thickets of noncompete agreements will receive warning letters from me, urging them to consider abandoning those agreements as the Commission prepares investigations and enforcement actions.” True to this word, on September 10, 2025, the FTC announced that it sent the first wave of these warning letters to “several large healthcare employers and staffing firms,” encouraging these companies to take a fresh look at their employment agreements and “discontinue” any restrictive covenants that are unfair or anticompetitive. The letters advise that the FTC is “distributing similar notifications to many large employers and staffing firm in the healthcare sector, and your receipt of this letter is not intended to suggest that you have engage in illegal conduct.” These letters, however, are clearly intended as a warning shot. It is likely that the Commission will continue targeting businesses in industries where noncompete agreements are known to be prevalent, and it is likely that at least some of these companies will face investigations or enforcement proceedings in the coming months.
The third notable development is that, on September 4, 2024, the FTC issued a request for information about noncompete agreements, both “to better understand the scope, prevalence, and effects of employer noncompete agreements, as well as to gather information to inform possible future enforcement actions.” Among other things, the request “encourages members of the public, including current and former employees restricted by noncompete agreements, employers facing hiring difficulties due to a rival’s noncompete agreements, and market participants in the healthcare sector in particular, to share information about the use of noncompete agreements.”
All of these initiatives make clear that the FTC is not done policing noncompete agreements. To the contrary, the end of the Noncompete Rule may well mark the beginning of the FTC’s efforts to regulate noncompete agreements in earnest.
Lesson Three: In the Near Term, Enforcement Actions May Focus on the Most Egregious Uses of Noncompete Agreements
Given the FTC’s desire to promote the interests of American workers through targeted enforcement actions, it is likely that the FTC will seek out “quick wins” while also avoiding difficult cases that might result in litigated losses. Therefore, it stands to reason that the FTC will prioritize its near-term enforcement actions against those companies whose noncompete practices are the most aggressive, far-reaching, and difficult to defend.
In the near term, the FTC is most likely to focus on companies that require large numbers of unskilled, low-wage employees to sign noncompetes, especially if those noncompetes are broad in geographic or temporal scope. More broadly, the FTC might also seek out employers whose noncompete practices are truly egregious, such as employers that require workers to sign noncompetes before announcing large-scale layoffs of those same workers, or employers whose noncompete agreements clearly violate state law.
Lesson Four: Continue to Monitor and Comply with State-Specific Legislation
As noted, one area where the FTC may focus its near-term enforcement efforts is against noncompete agreements that clearly violate state law. This would make sense as a law-enforcement strategy because, for example, an employer that required noncompetes in Oklahoma (where noncompetes are broadly illegal) would have a hard time arguing that it is not engaging in an “unfair method of competition,” despite playing by different rules than every other employer in the state. It therefore is more important than ever for companies to ensure that their noncompete practices are up to date with the fast-changing landscape of state noncompete laws.
For example, just in the past six months, the states of Arkansas, Louisiana, Maryland, Pennsylvania, Utah, Texas, Indiana, and Wyoming have all enacted legislation narrowing the circumstances where certain noncompetes can be enforced in the healthcare sector. In addition, Virginia recently banned noncompetes for employees who receive overtime pay under the Fair Labor Standards Act. Florida, by contrast, recently enacted legislation that strengthens the enforceability of noncompete agreements.
Given this rapid pace of change, it is essential to revisit one’s noncompete practices on a regular basis to lessen the risks of enforcement by the FTC and violating state law.
Lesson Five: Understand the Line Between “Fair” and “Unfair” Noncompetes
In contrast to the Noncompete Rule’s blanket attempt to condemn all noncompete agreements as “unfair methods of competition,” the FTC’s new, case-by-case enforcement approach will allow for an individualized determination of whether a particular noncompete agreement may be “fair” in light of the unique circumstances at issue in each individual case. In this respect, Republican Commissioner Mark Meador offered a helpful statement explaining the factors that FTC Staff should consider in determining whether a noncompete agreement is “fair” or not.
In Commissioner Meador’s telling, factors suggesting that a noncompete agreement may be “fair” include:
- If the noncompete is limited in time to no more than “one to two” years;
- If the noncompete is limited in geography to “the boundaries of the employer’s current operations or the locations where the employee performed their regular duties;”
- If the noncompete is limited in scope to the employer’s specific industry and the employee’s specific role;
- If the noncompete applies to highly skilled or specialized employees;
- If the noncompete protects the investments an employer wishes to make in a particular employee’s training or development;
- If the noncompete encourages “intra-firm collaboration and knowledge sharing” by promoting the sharing of proprietary information like technology, innovations, or customer relationships;
- If the employer is a “small” or “medium”-sized business that may otherwise be constrained in its ability to make risky investments;
- If the noncompete prevents “free-riding,” i.e., if it would prevent competitors from benefitting from investments in a manner that “would otherwise discourage such procompetitive investments” from being made in the first place; and
- If the noncompete is “reasonably necessary,” in the sense that a less-restrictive alternative (e.g., a non-disclosure agreement or non-solicitation agreement) would not be sufficient to protect the employer’s legitimate interests.
By contrast, factors suggesting that a noncompete agreement may be “unfair” include:
- If the noncompete lasts longer than “one to two years” after the worker’s employment;
- If the noncompete reaches geographically farther than “the boundaries of the employer’s current operations or the locations where the employee performed their regular duties;”
- If the noncompete restricts the employee’s “ability to pursue work in industries or professions that are unrelated or only tangential to the company’s core business or the employee’s specific role;”
- If the noncompete applies to low-wage workers, especially ones who receive little specialized training and have limited access to confidential business information;
- If the noncompete has the practical effect of “preventing competitors from accessing experienced employees” or “restricting employees from starting competing businesses;”
- If the noncompete has the effect of “facilitat[ing] agreements between direct competitors;”
- If the employer enjoys “significant market power” (although, Commissioner Meador’s statement makes clear, “a showing of market power is not required to challenge a noncompete”); and
- Within franchise models, if the noncompete agreements “are adopted at the behest of franchisees or operate as a facilitation device that discourages independent operators from competing for employees.”
In short, Commissioner Meador argues for an approach “akin to treating noncompetes as being subject to a ‘rebuttable presumption’ of illegality, with the employer bearing the burden to demonstrate that the noncompete is reasonably necessary to achieve legitimate business interests and narrowly tailored toward that end.”
结论
The FTC’s decision to abandon the Noncompete Rule marks the end of its efforts to ban employee noncompete agreements outright. Now, however, the FTC’s real work with noncompetes will begin, as the FTC embarks on a campaign to learn about, investigate, and challenge noncompete agreements that are unfair or anticompetitive. It is therefore more important than ever for businesses to ensure their noncompete practices comply with applicable laws and are appropriately tailored to the circumstances.
If you have any questions or concerns, please reach out to the authors or your Foley & Lardner relationship attorney.
