FTC Switches Gears on Noncompetes: From Ban to Targeted Enforcement

The Federal Trade Commission (FTC) has changed its strategy on noncompete agreements, abandoning a wholesale prohibition for targeted enforcement.

In April 2024, the agency issued a final rule finding that noncompete agreements constitute an unfair method of competition in violation of Section 5 of the FTC Act, banning nearly all noncompetes.

The rule faced . But in September, the FTC voted 3–1 to withdraw its defense of the rule in federal cases where the courts had enjoined it on constitutional grounds.

In a statement announcing the withdrawal, FTC Chair, Andrew N. Ferguson, signaled a change in strategy with regard to noncompete agreements, stating that the agency would remain vigilant “enforcing the antitrust laws aggressively against noncompete agreements” including by “patrolling our markets for specific anticompetitive conduct that hurts American consumers and workers, and taking bad actors to court.”

The FTC’s shift from wholesale enforcement to specific industries began with the health care sector. The agency sent letters to several large health care employers and staffing firms, urging them to conduct a comprehensive review of their employment agreements to ensure compliance.

“Many healthcare employers and staffing companies may include unreasonable noncompete agreements in employment contracts for vital roles like nurses, physicians, and other medical professionals,” the agency said in a press release. “These restrictions can unreasonably limit healthcare professionals’ employment options and thereby limit patients’ choices over who provides their medical care.”

In addition, the FTC filed a complaint against Gateway Services, Inc. and a related subsidiary, alleging the pet cremation company imposed noncompete agreements on almost all of its employees—from highly compensated executives to hourly, facility laborers—prohibiting them from working in the industry anywhere in the United States for a one-year period after leaving Gateway.

Pursuant to the proposed consent order, Gateway must immediately stop enforcing all existing noncompete agreements and the company is banned from entering into noncompetes, with limited exceptions.

The agency also launched a public inquiry, seeking public comment “to better understand the scope, prevalence and effects of employer noncompete agreements, as well as to gather information to inform possible future enforcement actions.”

Specifically, the agency asked for information on the scope of the use of noncompetes, encouraging “current and former employees restricted by noncompete agreements, employers facing hiring difficulties due to a rival’s noncompete agreements and market participants in the healthcare sector in particular, to share information about the use of noncompete agreements.”

Questions included the name of any employer currently implementing noncompete agreements; what roles, positions, or job functions the employer uses noncompetes for; the terms of the agreement (such as geographic scope or duration); and whether and how the employer enforces the noncompete agreement.

To read a template of the FTC’s warning letters to the health care sector, click .

For more information about the agency’s public inquiry, click .

Why it matters: While the agency decided not to maintain its defense of the Biden-era noncompete rule, the FTC continues to keep an eye on noncompetes, with targeted enforcement and a public inquiry open for comments until Nov. 3.