A Rule Reversed: How The FTC’s Ban Unraveled
In April of last year, the Federal Trade Commission (FTC) voted to implement its final rule prohibiting non-compete agreements in the workplace. The rule, as a practical matter, eliminated the patchwork of non-compete statutes and common law adopted on a state-by-state basis. It also was designed to greatly reduce the use and enforceability of non-compete and non-solicitation agreements, except in the narrowest of circumstances.
Although set to take effect on September 4, 2024, the rule was challenged almost immediately, and by August 20, 2024, the fate of the rule appeared uncertain when a federal trial judge in Dallas entered an injunction.[1] A final judgment was entered in that case on September 4, 2024, and the FTC followed with an appeal to the Fifth Circuit Court of Appeals (Ryan, LLC v. FTC, No. 24-10951).
Earlier this month, however, the FTC voted 3-1 to withdraw its notice of appeal.[2] Chairman Andrew N. Ferguson (joined by Commissioner Melissa Holyoak) emphasized a shift to case-by-case enforcement under Section 5 of the FTC Act, while dissenting Commissioner Rebecca Slaughter argued the rule should be defended.
On September 8, 2025, the Fifth Circuit officially dismissed the FTC’s appeal.
From Blanket Bans to Surgical Strikes
With the Rule dead in the water, it is apparent no nationwide ban will be implemented by the FTC under this Administration. Employers are back to dealing with the existing patchwork of state non-compete laws (including bans in whole or part in California, Minnesota, North Dakota, and Oklahoma; income thresholds and other limitations elsewhere; and recent expansions in some states, such as Florida).
Nevertheless, employers should be aware that noncompete agreements are lately being subjected to heightened federal scrutiny.
On September 4, 2025, the FTC filed a complaint against Gateway Services, Inc., and its subsidiary, who are engaged in the pet cremation business. The FTC sought to restrain Gateway and its subsidiary from enforcing noncompete agreements against their employees. According to the Complaint, Gateway’s non-compete agreements violated Section 5 of the FTC Act by, among other things, requiring all employees (regardless of position) to sign one-year non-compete agreements prohibiting post-employment work with any pet cremation company anywhere in the United States.
Also on September 4, 2025, the FTC issued a public inquiry seeking public feedback on future enforcement actions. Specifically, the FTC “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.” Responses to the public inquiry are due November 3, 2025. According to the Deputy Director of the Bureau of Competition, the public inquiry is intended to allow “the public to shine a light on unfair and anticompetitive agreements.”
Employers and members of the public can expect sustained and heightened Section 5 litigation and consent orders. With responses to the FTC’s public inquiry informing enforcement, the FTC may deploy targeted initiatives aimed at noncompete agreements.
Additionally, although the FTC rule is enjoined from taking effect, it cannot be rescinded without going through the APA process. In the meantime, Congress could revisit bipartisan proposals to cabin non-competes, and states may continue tightening bans.
What Employers Should Do Now
Employers can rest assured no nationwide ban is in effect, but now is not the time for complacency. It is clear the FTC hasn’t let non-compete agreements out of the crosshairs, and state legislatures have shown increasing interest in further regulating restrictive covenants.
In most cases, employers should avoid across-the-board use of non-compete agreements and take efforts to tailor duration, scope, and geography to the business interests at risk. Best practice would be to document why less-restrictive tools would be inadequate to protect those interests and to conduct routine audits of documents containing restrictive covenants.
[1] See Ryan, LLC v. FTC, 746 F. Supp. 3d 369, 390 (N.D. Tex. 2024). The rule was also enjoined by a federal district judge in Florida. See Props. of the Villages, Inc. v. FTC, No. 5:24-cv-316, 2024 WL 3870380, at *10–11 (M.D. Fla. Aug. 15, 2024).
[2] The FTC also withdrew its notice of appeal in a separate matter pending before the United States Court of Appeals for the Eleventh Circuit. Props. of the Villages, Inc. v. FTC, No. 24-13102 (11th Cir. 2025).
