The Federal Trade Commission (FTC) dismissed its appeals in two legal challenges to its 2024 rule banning noncompete agreements in employment contracts.
The noncompete rule never took effect. It was issued in April 2024 and would have banned most noncompete agreements nationwide, but it was struck down by judges who said it exceeded the agency's authority.
A 3-1 majority of the agency's commissioners voted Sept. 5 to dismiss the appeals and accede to the vacatur. In a statement, FTC Chairman Andrew Ferguson said the ban's "illegality was patently obvious" and "would never survive judicial review." He added, "We can continue tilting at windmills by defending the Biden administration's indefensible rule, or we can get down to the hard business of promoting labor competition and protecting American workers."
The lone dissent came from Commissioner Rebecca Slaughter, who said that "the record in the FTC's own rulemaking made clear that noncompetes not only present barriers to worker mobility but also suppress wages, prevent new business formation, and slow innovation."
Rachel Satinsky, an employment attorney based in Littler's Philadelphia office, said that the FTC decision is good news for employers and not unexpected given the change in administration.
"At the same time, the FTC has made clear that it intends to play a role in ensuring that overbroad noncompete agreements are not used," Satinsky said. "This is not a free pass to start signing one-size-fits-all noncompete agreements," she said. "Noncompetes need to be appropriately tailored to individuals and their work."
Ferguson made clear that the agency is committed to enforcement efforts against unlawful noncompetes, saying 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."
On Sept. 4, the FTC ordered pet cremation company Gateway Services and a subsidiary to stop enforcing noncompete agreements against their 1,800 employees, which typically prohibited them from working in the pet cremation service industry anywhere in the U.S. for one year after leaving Gateway.
On Sept. 10, the FTC sent letters to an unspecified number of health care and medical staffing companies urging them to review their employment agreements to root out any restrictive noncompete clauses for nurses, physicians, and other medical professionals.
"There is a renewed focus on overbroad noncompetes in health care," Satinsky said. "It's not surprising because many states have been enacting new laws and statutes limiting or prohibiting the use of noncompetes in health care."
In 2025, several states — including Arkansas, Colorado, Illinois, Indiana, Montana, Oregon, Texas, and Utah — have enacted new legislation banning or curtailing the use of noncompete provisions and other restrictive covenants in employment agreements with physicians and other health care providers.
It is recommended that employers review their employment contracts for noncompete agreements, considering the duration, scope, and purpose of the clauses, and monitor changes in federal and state law.
Seeking Public Input
The FTC also launched a public inquiry "to better understand the scope, prevalence, and effects" of noncompete agreements, as well as to gather information to inform possible future enforcement actions.
Members of the public, including current and former employees restricted by noncompete agreements, and employers facing hiring difficulties due to a rival's noncompete agreements, are encouraged to share information about the use of noncompetes, according to the agency.
"This shows that the FTC is still interested in noncompetes and will be continuing oversight of noncompete agreements," Satinsky said. "It's important to know that under both the Biden and Trump administrations, the FTC has shown they will take issue if noncompetes are not narrowly tailored."
The public has until Nov. 3 to submit comments to the FTC.
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