The Federal Trade Commission (FTC) has decided not to continue its legal fight over a rule proposed in 2024 that would have broadly banned employer noncompete agreements, except for those involving the highest-ranking executives. The decision follows a federal court ruling in Texas that vacated the rule, and subsequent nationwide blocks on its enforcement.
On September 5, under new leadership, the FTC voted to abandon its appeal of the Biden administration's noncompete ban. The rule was intended to prevent employers from restricting employees from joining competing businesses after their employment ended. However, it never took effect due to ongoing legal challenges.
FTC Chairman Andrew N. Ferguson explained the rationale behind dropping the appeal: “the rule’s illegality was patently obvious.” In a joint statement with Commissioner Melissa Holyoak, he added that defending the rule further would be unproductive: “the rule would ‘never survive judicial review’ and it would waste resources to continue to defend it.”
Ferguson stated that rather than pursuing a broad prohibition on noncompete agreements, the FTC will focus on enforcing existing antitrust laws against unlawful practices involving such contracts. He cited recent action taken by the agency against Gateway Services Inc., a major pet cremation company that required all U.S. employees since 2019 to sign noncompete clauses barring them from working elsewhere in the industry for one year after leaving.
According to the FTC, Gateway used these agreements “to erect barriers in circumstances where it faced what it perceived to be tougher competition” and aimed “to curtail worker mobility and workers’ ability to negotiate better employment terms.”
Ferguson indicated more enforcement actions are likely if other companies use similar agreements unlawfully. “Companies 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,” he said.
