FTC Abandons Noncompete Rule and Signals Plan to Target Unlawful Noncompete Agreements Through Individual Enforcement Actions

At a Glance

• On September 4, 2025, the FTC charged a large pet cremation services company, Gateway, with violations of Section 5 of the FTC Act based on Gateway’s practice of requiring nearly all newly hired employees to execute noncompete agreements, regardless of their position or responsibilities. Kelse Moen, deputy director of the Bureau of Competition, confirmed that “today’s action will not be the last.” 
• Unlike the FTC during the prior administration, Chairman Ferguson has indicated that the agency will use more traditional antitrust principles, largely rooted in the Sherman Antitrust Act, to analyze potentially anticompetitive noncompetes and related agreements under the so-called “rule of reason.” 
• On September 10, Chairman Ferguson announced the issuance of noncompete warning letters to many large health care employers and staffing companies asking them to review and change “unreasonable non-compete agreements in employment contracts for vital roles like nurses, physicians, and other medical professionals.” Concurrently, Deputy Director Moen stated that: “We strongly encourage all employers — not just those receiving letters today — to review their contracts closely, to ensure that any restrictions on employee mobility are in full compliance with the law.” 
• Employers using noncompete, nonsolicitation or other agreements containing restrictive covenants should review, and update if needed, their existing agreements and policies to ensure those agreements comply with federal and state laws.

As most employers know, and as we have previously reported, the Federal Trade Commission (FTC) in April 2024 approved the Noncompete Rule, which was intended to ban employment noncompete agreements for the vast majority of workers (the Rule). As expected, the Rule was immediately challenged; and in August 2024, the U.S. District Court for the Northern District of Texas enjoined the FTC from implementing or enforcing the Rule nationwide. Also in August 2024, the U.S. District Court for the Middle District of Florida enjoined the FTC’s enforcement of the Rule, though only as to the plaintiff in that case. The FTC appealed in both cases.

With the second Trump administration and a different majority of FTC commissioners, the FTC on September 5, 2025, moved to voluntarily dismiss its appeals, essentially abandoning future enforcement of the Rule. The dismissal follows the February 2025 formation of the FTC’s Joint Labor Task Force, which plans to take a scalpel approach to labor market issues without invalidating approximately 30 million existing noncompete agreements. The Task Force recently announced its first proposed consent order related to the use of noncompete agreements and signaled FTC enforcement plans.

These developments raise the following questions.

What do the dismissals mean for the future of the Rule? 

The FTC issued a press release indicating it would not further challenge the nullification of the Rule or issue a new version of the Rule. The Rule is, therefore, considered dead.

What is the Joint Labor Task Force? 

In February 2025, FTC Chairman Andrew Ferguson directed the FTC to create a Joint Labor Task Force to “fight unfair or deceptive practices and unfair methods of competition,” including unlawful noncompete agreements.

What was the Joint Labor Task Force’s first noncompete enforcement action? 

The FTC recently charged a large pet cremation services company, Gateway, with violations of Section 5 of the FTC Act based on Gateway’s practice of requiring nearly all newly hired employees to execute noncompete agreements, regardless of their position or responsibilities. In the parties’ proposed consent order, they agree that Gateway will free nearly 1,800 employees from their existing noncompete agreements, and prohibit further use of noncompete agreements for employees below the director, officer or senior employee level. The FTC also enjoined Gateway’s use of customer nonsolicitation agreements, except as to the current or prospective customers a covered employee actually contacted or served in the last 12 months of their employment with Gateway. 

In a September 4, 2025, statement released alongside the FTC’s complaint and the parties’ settlement, Kelse Moen, deputy director of the Bureau of Competition, confirmed that “today’s action will not be the last.”

What legal standard is the FTC using to analyze noncompete agreements? 

The FTC historically has enforced anticompetitive noncompete agreements and other unfair methods of competition under Section 5 of the FTC Act. Unlike the FTC during the prior administration, Chairman Ferguson has indicated that the agency will use more traditional antitrust principles, largely rooted in the Sherman Antitrust Act, to analyze potentially anticompetitive noncompetes and related agreements under the so-called “rule of reason.” Federal antitrust enforcers, along with federal and state courts, apply the rule of reason by weighing the procompetitive benefits of the restraint against any potential anticompetitive effects. In the noncompete context, the rule of reason asks whether the noncompete unreasonably forecloses competition in the relevant labor market, taking into consideration, for example, whether the restricting employer exercises market power and whether the restraint is ancillary to a broader procompetitive purpose such as protecting the employer’s intellectual property. 

As a practical matter, antitrust review of noncompete agreements is likely to reach similar conclusions as review under most states’ noncompete laws, with the possible exception of cases where a very large employer’s noncompete agreements result in significant labor market foreclosures that are not reasonable even considering traditional protectable interests. 

What about no-poach agreements?

In contrast to noncompete agreements, naked no-poach restraints, in which competing employers agree between themselves not to hire one another’s employees, remain “per se” unlawful under the antitrust laws regardless of any potential procompetitive justifications. While the Trump Department of Justice has not indicated the same enthusiasm for prosecuting no-poach agreements criminally as did the prior administration, there is a long history of the agencies bringing civil enforcement actions against offending employers, and private plaintiffs also may bring their own antitrust cases.

What methods are being used by the FTC right now to identify enforcement targets? 

On September 4, 2025, the FTC announced an inquiry asking members of the public: “We are asking the public to help shine a light on unfair and anticompetitive agreements, … [and Deputy Director Moen stated that] ‘Unreasonable noncompete agreements have proliferated for too long in the dark. With the assistance of the employees and workers most burdened by them, the Trump-Vance FTC intends to uproot the worst offenders and restore fairness to the American labor market. We look forward to closely reviewing every response.’” 

On September 10, 2025, Chairman Ferguson announced the issuance of noncompete warning letters to many large health care employers and staffing companies asking them to review and change “unreasonable non-compete agreements in employment contracts for vital roles like nurses, physicians, and other medical professionals.” Concurrently, Deputy Director Moen stated that: “We strongly encourage all employers — not just those receiving letters today — to review their contracts closely, to ensure that any restrictions on employee mobility are in full compliance with the law.”

What does this mean for employers? 

Employers using noncompete, nonsolicitation or other agreements containing restrictive covenants should review, and update if needed, their existing agreements and policies to ensure those agreements comply with federal and state laws. Many states limit or completely prohibit such agreements. In states where such agreements are allowed, employers should narrowly tailor those agreements to achieve both legitimate business protection and legal compliance. For example, employers, in states where noncompetes are not already void, should consider limiting the scope of customer nonsolicitation agreements to customers that the employee actually engaged with during the course of his or her employment. Moreover, even where a business agrees not to directly solicit its supplier or other business partner’s employees, those employees should remain free to respond to general employment ads. 

And given the FTC’s recent announcements that it plans to remain vigilant in the noncompete space, large employers that arguably exercise market power with respect to hiring in specialized labor markets should consult with counsel to ensure their noncompetes and related restrictive covenants protect their legitimate business interests without impeding robust labor market competition. 

In closing

Now is a good time to work with counsel for help understanding this evolving landscape, reviewing and updating noncompete programs and agreements, and implementing lawful alternatives to noncompetes.

We will continue to monitor these important developments and, like our prior alerts on this topic, address related the business and legal implications for employers.