On September 5, 2025, the Federal Trade Commission (FTC) officially withdrew its appeals in two federal cases that had invalidated its rule banning most employee noncompete clauses. This marks a significant shift in the agency’s approach to regulating employment agreements.
The FTC’s original rule, adopted in April 2024 under then-Chair Lina Khan, sought to declare most noncompete clauses an “unfair method of competition” under Section 5 of the FTC Act. The rule was immediately challenged in court, and in August 2024, a Texas federal judge ruled that the FTC had exceeded its statutory authority. A Florida court issued a similar injunction shortly thereafter.
Despite initial appeals, the FTC, now under Chair Andrew Ferguson, has opted to voluntarily dismiss both appeals and accept the vacatur of the rule. Ferguson and Commissioner Melissa Holyoak had dissented at the time the rule was issued, warning that it lacked legal grounding and would not survive judicial review.
Enforcement Ahead?
While the categorical ban is no longer in effect, the FTC has signaled a pivot to case-by-case enforcement. Just one day before dropping the appeals, the Commission:
- Announced a settlement with Gateway Services Inc., barring the company from enforcing noncompetes that affected 1,800 workers in the pet cremation industry.
- Issued a Request for Information (RFI) to gather public input on the scope and impact of noncompete agreements, with an eye toward identifying future enforcement targets.
Practical Implications for Employers
What do the Commission’s actions mean for employers? The decision to withdraw its appeals and abandon a categorical ban on noncompete clauses does not eliminate FTC scrutiny—it simply shifts its regulatory approach. While there is no immediate federal prohibition on noncompetes, businesses should expect increased attention to employment agreements that may be deemed anticompetitive. The FTC may pursue enforcement actions where noncompete clauses are overly broad, especially in industries that affect low-wage or hourly workers.
Protecting Your Business
Employers can get ahead of potential scrutiny by tightening up their contracts and staying alert to regulatory signals. We recommend taking these proactive steps:
Review Employment Agreements: Employers should thoroughly audit their existing employment agreements, particularly those involving noncompetes, and ensure these clauses are reasonable in scope, geographic reach, and duration. It is also essential that the agreements are defensible under applicable state laws.
Document Legitimate Business Interests: Be sure to detail concerns such as the protection of trade secrets or investment in specialized training that justify the use of restrictive covenants.
Stay Informed on Regulatory Activity: Pay attention to FTC enforcement trends and monitor state-level legislative developments, as these may influence future compliance obligations.
We will continue to monitor the FTC’s actions and provide updates as new cases or guidance emerge. If you have questions about your organization’s use of noncompete agreements or would like assistance revising your employment contracts, please don’t hesitate to reach out.
