“No More Non-Competes,” Part Five: FTC Abandons Rule Prohibiting Non-Compete Agreements but Advances Targeted Enforcement

In April 2024, the FTC, under the leadership of then-Chair Lina Khan, issued a Rule prohibiting businesses from entering or enforcing nearly all non-compete agreements with employees. However, as we previously reported, in August 2024, the U.S. District Court for the Northern District of Texas held that the Rule was unlawful and blocked the FTC from enforcing it. The FTC appealed this ruling and another ruling by the U.S. District Court for the Middle District of Florida, which also blocked enforcement of the Rule. However, on September 5, 2025, under the leadership of Chair Andrew N. Ferguson, the FTC withdrew its notices of appeal and “acceded to the vacatur” of the Rule in both cases, leaving the orders of the district courts in place and preventing the Rule from taking effect. Chair Ferguson, in a statement joined by Commissioner Melissa Holyoak, argued that the Rule was overbroad and that its “illegality was patently obvious.” Chair Ferguson added, however, that the FTC would nevertheless “continue to enforce the antitrust laws aggressively against noncompete agreements.”

On September 4, 2025, the day before abandoning the Rule, the FTC announced one such enforcement action against Gateway Services, Inc. (“Gateway”), which the FTC’s complaint describes as “by far the largest pet cremation services company in the United States.” The FTC alleged that Gateway required nearly all U.S.-based employees, regardless of position, to accept non-compete agreements that typically prohibited them from working in the pet cremation services industry anywhere in the United States for one year following the end of their employment. The FTC alleged that these broad non-compete agreements amounted to an unfair method of competition under Section 5 of the FTC Act, 15 U.S.C. § 45. Under a proposed consent order, Gateway would immediately stop enforcing all existing non-compete agreements, notify employees that they are no longer bound by the agreements, and avoid imposing such restrictions in the future, with limited exceptions.

Moreover, the FTC announced a variety of other initiatives related to non-compete agreements. On September 4, 2025, the FTC published an RFI “to better understand the scope, prevalence, and effects of employer noncompete agreements, as well as to gather information to inform possible future enforcement actions.” The RFI seeks responses from members of the public, including current and former employees subject to non-compete agreements and employers facing hiring challenges due to rivals’ use of such agreements. Then, on September 10, 2025, the FTC sent warning letters to several large health care employers and staffing firms regarding their use of non-compete agreements. The FTC did not disclose the recipients of these letters but released a template letter that urged companies to “conduct a comprehensive review” of their employment agreements and any non-compete covenants. Further, on September 17, 2025, the FTC announced a workshop to be held on October 8, 2025 intended to “highlight the negative impact of noncompete agreements on American workers and put business on notice of its enforcement priorities.”

Together, these developments signal that, although the FTC has abandoned its efforts to broadly prohibit non-compete agreements, the agency will continue targeted enforcement. As we previously reported, Chair Ferguson has stated that labor market issues will remain a key area of scrutiny for the FTC and has organized a Joint Labor Task Force aimed at addressing deceptive, unfair, and anticompetitive practices impacting labor markets. While this new era of case-by-case enforcement narrows the scope of prohibited non-compete agreements, such enforcement could create greater uncertainty about which non-compete agreements rise to the level of unfair methods of competition.

Finally, employers should also stay attuned to state laws that regulate non-compete agreements. In the past year alone, nine states (Arkansas, Indiana, Louisiana, Maryland, Pennsylvania, Texas, Utah, Virginia, and Wyoming) have enacted legislation narrowing the circumstances in which employers, most often in the health care sector, can enforce certain non-compete agreements. These state laws create a set of standards separate from, and possibly more restrictive than, standards at the federal level. In general, employers should be mindful of which states they operate in, whether their non-compete agreements serve a legitimate procompetitive purpose, and whether the agreements are appropriately tailored to achieve that purpose and comply with applicable law. Experienced counsel can help employers navigate this evolving regulatory and enforcement context.