Legal Updates

FTC Abandons Efforts To Enforce Nationwide Ban On Non-Compete Agreements

Historically, states have regulated employee non-compete agreements through statutes or court decisions based on common law. In the spring of 2024, however, the Federal Trade Commission (“FTC”), under the Biden Administration, published a new rule that sought to ban virtually all post-employment non-compete clauses in employment agreements.

Legal challenges quickly ensued, challenging the FTC’s authority to issue such a far-reaching rule, and a number of courts issued injunctions blocking implementation of the rule. Soon after the FTC appealed those injunctions, a new administration entered the scene and changed the dynamics. The Trump Administration, through the FTC’s new leadership, announced its intention to shift its focus from pressing for a blanket ban on non-competes to seeking to remedy abuses on a case-by-case basis.

The FTC subsequently voted to withdraw its court appeals and end its efforts to ban non-compete agreements en masse. Notably, however, the FTC has not disavowed its right to challenge specific non-compete agreements deemed overly broad. Given that fact, as well as recent state-law developments curtailing the use of non-competes, employers should be careful and deliberate in using such agreements.

FTC’s Attempted Ban

The FTC’s 2024 rule purported to invalidate nearly all existing non-compete agreements and impose a virtual blanket ban on new non-competes. At the time it promulgated the rule, the FTC theorized that non-compete agreements unfairly inhibited competition by keeping wages low, suppressing new ideas, and inhibiting employees’ ability to earn a living.

Within a month of the issuance of the rule, in May 2024, the FTC’s non-compete ban was challenged in a Texas federal district court. See Ryan LLC v. FTC, 746 F. Supp.3d 369 (N.D. Tex. 2024). Ryan LLC, a global tax services firm, argued that eliminating its non-compete agreements would allow its employees to share with competitors valuable skills and information obtained while employed by Ryan.

In August 2024, the District Court issued a nationwide injunction blocking enforcement of the FTC rule, concluding that the FTC had exceeded its statutory authority in implementing the rule. The FTC appealed the ruling to the Fifth Circuit Court of Appeals.

Similarly, in June 2024, the Properties of the Villages, Inc. (“POV”), a real estate company in Orlando, Florida, challenged the FTC’s ban on non-compete agreements in a Florida federal district court. See Properties of the Villages, Inc. v. FTC, 2024 WL 3870380 (M.D. Fla. Aug. 15, 2024). POV, which had successfully withstood a challenge to its non-compete agreements in 2021, argued that the FTC rule would unlawfully invalidate POV’s legal non-compete agreements, along with essentially every other non-compete agreement in the country.

In August 2024, the District Court issued a preliminary injunction prohibiting the FTC from enforcing its rule, concluding that POV had shown a substantial likelihood of prevailing on its claim that the FTC had exceeded its authority in issuing the rule. As in the Ryan LLC matter, the FTC appealed the preliminary injunction order to the Eleventh Circuit Court of Appeals.

The FTC Changes Course

With the 2025 transition to the Trump Administration, the FTC’s leadership was significantly altered. The FTC’s philosophy on non-competes changed accordingly. The new FTC Chairman, Andrew Ferguson, who had previously voted against the non-compete ban, voiced his intent to abandon implementation of the rule.

In furtherance of its new positioning, the FTC subsequently voted to dismiss its pending appeals to the Fifth and Eleventh Circuits, and to rescind its proposed non-compete rule entirely. And, on February 12, 2026, the FTC officially removed the “Non-Compete Clause Rule” from the Code of Federal Regulations.

Rather than asserting a blanket ban on non-compete agreements, the FTC’s new strategy consists of pursuing enforcement actions for perceived non-compete abuses on a case-by-case basis. As one illustration, the FTC recently agreed to a consent order with Gateway Services Inc., a pet cremation company. Gateway’s broad non-compete agreement purported to bar its nearly 1,800 employees from working anywhere in the United States in the pet cremation industry for one year after leaving the company. Under the FTC’s consent agreement, Gateway must void all existing non-compete agreements and is prohibited from employing similar language in future agreements. Additionally, the consent order imposes strict compliance and reporting obligations on Gateway for ten years.

In light of the FTC’s change of course from pressing for a blanket ban to challenging specific non-competes on a case-by-case basis, employers should review the language in their non-compete agreements carefully with regard to scope and duration.

State Law Focus

Employers should also remain mindful of state laws that regulate non-compete agreements. Several states, including California, Minnesota, North Dakota, Oklahoma, and – just as of this week – Washington, prohibit non-compete agreements entirely, with some extremely limited exceptions, such as for the protection of trade secrets.

Numerous other states have enacted laws restricting the circumstances under which employers may enforce non-compete agreements. For example, Arkansas, Louisiana, Maryland, Utah, and Pennsylvania have recently enacted legislation curtailing the use of non-compete agreements in specific industries, such as healthcare.

Other state laws establish employee income thresholds for non-competes or restrict the time periods over which they may be enforced. For instance, under the Massachusetts non-compete statute, non-compete agreements generally may not exceed 12 months in duration and are not enforceable against overtime-eligible workers or employees who are laid off or otherwise terminated without cause.

At the other end of the spectrum, Florida recently enacted the Contracts Honoring Opportunity, Investment, Confidentiality, and Economic Growth (“CHOICE”) Act, which creates a presumption of enforceability for non-compete agreements, and mandates that a court issue a preliminary injunction enjoining an employee from violating a valid non-compete agreement during the pendency of litigation. Further, the CHOICE Act allows non-competes to extend for up to four years and does not require that they include geographic limitations.

Finally, a minority of states do not have statutes governing non-compete agreements and continue to leave it to courts to determine whether non-competes are reasonable and enforceable.

Implications For Employers

The FTC’s abandonment of its non-compete rule is a positive development for employers. Employers must be mindful, however, that the FTC (and courts) will continue to scrutinize such agreements closely. Given the broad array and diversity of state laws governing non-compete agreements, employers should consult legal counsel to ensure that their non-competes are appropriately tailored as to geography, duration, scope, and purpose.

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If you have questions about the impact of the FTC’s recent actions on non-compete agreements or non-compete agreements in general, please feel free to contact one of our experienced employment lawyers.