FTC Noncompete Rule Abandoned, But Noncompetes Still Under Scrutiny
The FTC and various states have continued to evolve their approach to assessing enforceability of noncompete clauses. In light of recent and potential changes, it is critical for employers to remain vigilant on how they draft noncompete and other restrictive covenants agreements with employees, and to examine existing agreements for compliance. This alert summarizes some of the key recent takeaways in this area.
FTC Developments
In April 2024, the FTC issued a rule banning virtually all noncompete agreements nationwide. That ban was scheduled to go into effect in September 2024, but was enjoined in August that year—meaning that employers were not required to comply with the ban until the challenges were resolved. Although the FTC initially appealed the injunctions, on September 5, 2025, the FTC voted 3-1 to withdraw its appeals, effectively ending the pursuit of the rule that would have broadly banned noncompete agreements nationwide.
While the litigation on the rule was abandoned, the FTC nonetheless seems determined to pursue individual enforcement actions on unlawful noncompetes. On September 4, 2025, one day before withdrawing the FTC’s appeals on the noncompete rule, the FTC brought an individual enforcement action against pet cremation company Gateway Services, Inc. to end enforcement of the company’s noncompete agreements with its employees. In the complaint, the FTC specifically highlighted the overly broad application of the practice at the company—citing that all employees outside of California at the company were subject to noncompetes, most for a one-year term, which prohibited them from working in the pet cremation service industry anywhere in the United States. The noncompetes covered a wide range of employees from “highly compensated executives [to] hourly workers, including facility-level laborers”. The FTC specifically noted that there was no “individualized consideration of an employee’s role” in determining the terms of the noncompete. To resolve the matter, the FTC and Gateway Services entered into an Agreement Containing a Consent Order. The Consent Order requires Gateway Services to refrain both from enforcing the noncompete agreements in question and communicating to employees that they are subject to noncompete obligations. Gateway also must notify any employee who worked at Gateway for a year prior to the order that they are free to compete with Gateway. Finally, the proposed consent order limits customer nonsolicitation obligations for the covered employees to cover only current or prospective customers with whom the employee had direct contact or personally provided services during their last 12 months of employment.
On the same day, Chairman Ferguson and Commissioner Melissa Holyoak issued a statement on the consent agreement emphasizing “the Trump-Vance FTC's commitment to enforcing the law vigorously against those who demand their employees enter into noncompete agreements so pernicious and so onerous as to make them anticompetitive.” The statement noted that not all noncompetes are unlawful, but those which have anticompetitive effects will be pursued by the FTC through individual enforcement actions. These Commissioners further expressed that enforcement actions and consent agreements, “provide[] the markets with transparency about what the agency believes the law requires.”
In pursuit of that commitment, they issued a broad request for information from the public “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 request for information specifically encourages individuals who are subject to noncompete agreements and employers who may be hampered in their recruiting efforts due to competitors’ noncompete agreements to provide information. Among other areas, the FTC requested information on the justifications (if any) the employer provided for the noncompete agreement, the roles and salaries subject to the noncompete agreement, and the ways in which the applicable noncompete agreement restricts competition. Responses to the request are due by November 3.
Finally, and most recently, the FTC sent warning letters to several large healthcare employers and staffing firms urging them to conduct a “comprehensive review” of their employment agreements to ensure compliance with respect to noncompete and other restrictive covenants. In the template letter, the FTC wrote: “The FTC is focusing resources on enforcing Section 5 of the FTC Act against unlawful noncompetes, particularly in the healthcare sector.” The FTC specifically warned that:
“[A]vailable evidence indicates that in practice many employers impose noncompetes without due consideration to whether they are necessary and appropriate under the circumstances, including whether less restrictive alternative contract terms may sufficiently achieve the same procompetitive purposes. For example, noncompetes may be overbroad in duration or geographic scope. Or they may be inappropriate for certain roles entirely.”
In summary, while the heavily-litigated federal noncompete ban is off the table, the FTC has made clear that it is still focused on bringing actions against employers utilizing overly-broad noncompete agreements and other restrictive covenants. In particular, the FTC has expressed skepticism of employers’ broad deployment of noncompetes on a workforce-wide basis without nuance by role and duties, provisions that are overbroad in duration or geographic scope, and utilization of noncompete provisions when less restrictive terms might achieve sufficiently protective necessities (such as less restrictive confidentiality or nonsolicitation provisions).
Pending Noncompete Legislation in New York and New Jersey
While the FTC’s position on noncompetes following the abandonment of the proposed rule is coming into focus, it is critical to ensure that noncompete provisions are compliant with applicable state law, too. In New York and New Jersey, the legislatures continue their efforts to limit the enforceability of noncompetes.
In February 2025, New York State Senator Sean Ryan introduced a bill to broadly ban noncompete agreements in the state. If enacted, the bill would ban noncompetes for almost all employees in New York State that earn under $500,000.00 per year. As currently drafted, the bill would not have retroactive effect and would apply only to agreements entered into or modified after the bill’s enactment. The bill, however, remains in committee in the Senate; it would need to be passed by the legislature and signed by Governor Hochul to take effect. As a reminder, in December 2023, Governor Hochul vetoed a bill which would have prohibited noncompete agreements. In the Governor’s veto memo, she explained she felt the law swept too broadly by prohibiting noncompetes even for highly-compensated workers, stating: “My top priority was to protect middle-class and low-wage earners, while allowing New York’s businesses to retain highly compensated talent.” [emphasis added] Accordingly, it is possible that the $500,000.00 threshold in the latest bill would assuage the Governor’s concerns if the bill makes it to her desk.
New Jersey also has pending noncompete legislation employers should be monitoring with counsel. The New Jersey bill, as currently drafted, would prohibit noncompetes for employees who are not “senior executives”—defined as workers in “policy-making positions” with an annual salary of at least $151,164.00. Unlike the New York bill, this bill would function to invalidate already-existing noncompete agreements and would require employers to notify workers that such agreements cease to be legally enforceable within 30 days of its enactment. This bill also remains in committee and would need to both be passed and then signed by the Governor into law to take effect. If enacted, each bill would dramatically change employers’ options when negotiating agreements with workers. We continue to closely monitor federal and state developments on permissible restrictive covenant practices.
Takeaways
While appropriately-tailored noncompetes remain enforceable in New York and New Jersey, employers should continue to monitor the FTC’s newly-chartered approach and developments on the state level. As always, but especially in light of the recent scrutiny and potential state legislation, employers should draft noncompetes prudently to ensure that they meet standards of reasonableness taking into account specific employees’ roles and duties, and ensuring that the provisions are not overbroad in either duration or geographic scope. Furthermore, employers should assess the need for noncompetes, which may be vulnerable to challenge, in situations where less restrictive terms might sufficiently protect a given interest (such as less restrictive confidentiality or nonsolicitation provisions). Employers with questions about the shifting federal and state compliance landscape for noncompetes and other restrictive covenants should contact Jack Culhane at jculhane@fglawllc.com, Kristina Grimshaw at kgrimshaw@fglawllc.com, or any other attorney at the Firm.
DISCLAIMER: This alert is provided to clients and friends of the firm for informational purposes only and the distribution of this alert is not intended to, and does not, establish an attorney-client relationship. This alert also does not provide or offer legal advice or opinions on any specific factual situations or matters. This communication may be considered Attorney Advertising. Prior results do not guarantee a similar outcome.