USA Trends and Developments Contributed by: Ronald R. Rossi, Daniel J. Koevary, Jonathan L. Shapiro and Matthew B. Stein, Kasowitz LLP
Non-compete agreements in 2025: the FTC retreats but enforcement persists In January 2023, the FTC proposed a nationwide rule declaring it an “unfair method of competition” − and a violation of Section 5 of the FTC Act − for employers to enter into post-employment non-compete claus- es with workers and enforce certain non-competes. The FTC finalised the Non-Compete Clause Rule in May 2024, broadly banning post-employment non- competes for most workers with certain exceptions, including current non-competes with senior execu- tives and non-competes involving the sale of a busi- ness. The Non-Compete Clause Rule was set to go into effect on 4 September 2024. Litigation concerning the Non-Compete Clause Rule soon followed. In Ryan, LLC v FTC , the US District Court for the Northern District of Texas held in August 2024 that the FTC lacked substantive rule-making authority over unfair competition and that the Non- Compete Clause Rule was “arbitrary and capricious”. Around the same time, the US District Court for the Middle District of Florida in Properties of the Villages, Inc v FTC enjoined enforcement of the Non-Compete Clause Rule − basing its decision on the “major ques- tions doctrine”, which prevents a federal agency from issuing substantive rules without express congres- sional authorisation where such rules would have “extraordinary economic and political significance”. These injunctions prevented the Non-Compete Clause Rule from taking effect on its scheduled date. Following these rulings, the FTC − under the Biden Administration − filed appeals to the US Court of Appeals for the Fifth and Eleventh Circuits, seeking to overturn both decisions. However, on 4 September 2025 − a year after the rule was supposed to take effect and before the appellate courts issued a ruling on the appeals − the FTC, under the new Republican leadership, abandoned its defence. In a three-to-one vote, the FTC moved to dismiss the appeals and to accede to the vacatur of the Non-Compete Clause Rule. With that vote, the FTC’s sweeping regulatory experiment came to an end. Despite abandoning the Non-Compete Clause Rule, the FTC has not retreated from the non-compete issue. Instead, the agency has shifted to case-by-case
enforcement. On 4 September 2025 (the same day it took steps to dismiss its appeals), the FTC brought an enforcement action against Gateway Pet Memorial Services, the nation’s largest pet cremation business, alleging that the company required nearly all of its 1,800 employees − from executives to hourly workers − to sign one-year, nationwide non-competes. Under the FTC’s proposed consent order, Gateway would be required, among other terms, to immediately stop enforcing all existing non-compete agreements. The case appears to represent the FTC’s new enforcement model: challenging employer practices through selec- tive litigation rather than regulation. Simultaneous with the announcement of its enforce- ment action against Gateway, the FTC initiated efforts to gather additional information about non-competes by issuing a “Request for Information Regarding Employer Non-Compete Agreements” soliciting public comment so that it can better understand the scope, prevalence and effects of non-compete clauses, as well as gather information for potential future enforce- ment actions. The initiative is intended to help the agency identify industries where non-competes most significantly restrain competition. Just a few days later, on 10 September 2025, FTC chairman Andrew Ferguson sent warning letters to several large healthcare systems and staffing compa- nies, urging them to review their employment agree- ments and warning that “unreasonable non-compete agreements in employment contracts for vital roles like nurses, physicians, and other medical profession- als” may violate Section 5 of the FTC Act. Kelse Moen, the deputy director of the Bureau of Competition and co-chair of the agency’s Joint Labor Task Force, underscored that “enforcement against unreasonable non-compete agreements remains a top priority for the Federal Trade Commission”. For employers, the message is clear: the demise of the FTC’s Non-Compete Clause Rule does not signal the end of the FTC’s interest in the issue. The FTC’s pivot means that, instead of a nationwide invalida- tion of non-competes, employers may see targeted enforcement actions and those companies that impose sweeping, undifferentiated non-competes − especially in the healthcare industry − remain at risk
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