As the Federal Trade Commission rolls back its 2024 rule barring employers from imposing noncompete agreements on employees, here’s what HR and business leaders should know.
By Maggie Mancini
More than a year after the Federal Trade Commission issued a final rule barring employers across the nation from imposing noncompete agreements on employees, the federal agency has halted the rule’s implementation. Early this month, the FTC vacated the ruling, claiming that the federal agency lacked the “statutory authority” to issue the ruling in 2024. Following the announcement, the FTC launched a public inquiry to better understand the scope, prevalence, and effects of noncompete agreements, which may determine future enforcement actions.
When the noncompete ban was first issued by the FTC under the Biden administration in April 2024, it faced immediate pushback and legal challenges from the business community, including the U.S. Chamber of Commerce and an impacted employer in Texas.
The FTC’s move to dismiss its pending appeals confirms the end of its pursuit of a nationwide noncompete ban, at least under the Trump administration, says Jim Witz, trial lawyer and co-chair of the Unfair Competition and Trade Secrets Practice Group at Littler.
“Generally, this is good news for employers, as there is now no federal rule banning noncompete agreements,” he says. “At the same time, the FTC has made clear that it intends to play a role in combating the use of overbroad noncompete agreements and will pursue enforcement actions against individual employers to that end.”
Over the past few weeks, Witz says, the FTC has taken two separate actions reinforcing its intentions. On Sept. 4, the FTC announced the issuance of a complaint and proposed consent order against the largest pet cremation company in the U.S., which had imposed noncompete agreements on almost all employees, prohibiting them from working in the pet cremation industry anywhere in the country for one year.
And, on Sept. 10, the FTC sent warning letters to several healthcare and staffing firms, urging them to conduct a comprehensive review of their employment agreements and restrictive covenants to ensure they are appropriately tailored, potentially indicating further actions focused on those industries in the future, Witz explains.
“The FTC’s actions indicate that it is taking more of a case-by-case approach to regulating noncompetes and will focus on particularly egregious cases of abuse and industries which is perceives to be engaged in anti-competitive use of noncompetes to the detriment of both workers and the public,” Witz says.
As FTC rules shift, employers should expect continued individual enforcement activity by the FTC, particularly focusing on employers who use “one-size-fits-all” noncompete agreements containing similar restrictions for both high-level executives and hourly employees alike, Witz says.
Organizations should continue to carefully evaluate what business interests they seek to protect, consider how different types of agreements may be appropriate for different subsets of employees, and ensure that any restrictions are drafted in compliance with the law.
“Employers may often achieve most of the protection they need from unfair competition by more tailored restrictive covenants such as customer and employee non-solicitation restrictions as well as confidentiality agreements which face less regulatory scrutiny both at the state and federal level,” Witz adds.
