Working Together

In a press release issued September 5, 2025, the Federal Trade Commission (the “FTC” or the “Commission”) announced that it would dismiss its appeals of District Court decisions blocking the implementation of a rule restricting most noncompete agreements nationwide, thus reversing course on a rule championed by the Commission under the leadership of former Chair Lina Khan. (I wrote about the FTC’s passage of the Noncompete Rule in a previous blog post, here.) The FTC also announced that it is backing away from its rulemaking powers, while increasing targeted enforcement actions against improper use of noncompete agreements.

As if that were not enough to keep things interesting, these developments continue against a backdrop of litigation challenging the president’s removal of the Democratic FTC Commissioners without cause, in an effort to bring the traditionally-independent Commission under greater presidential control.

Quick Takeaways:

• In 2024, two federal district courts ruled against the implementation of the FTC’s Noncompete Rule, a comprehensive ban on noncompetes for workers promulgated and championed by the FTC, with one court ruling that the FTC lacked the necessary “substantive” rulemaking authority. These rulings were challenged by the FTC, and were pending appeal in the Fifth and Eleventh Circuits until the FTC voted to discontinue their appeals and accept the vacatur of the noncompete rule.
• On Inauguration Day 2025, President Trump replaced then-Chair Lina Khan with Andrew Ferguson to lead the FTC, who stated that under his reign, the FTC will prioritize enforcement over rulemaking.
• In September, the FTC announced that an enforcement action had been filed against a company ordering it to stop enforcing its noncompete agreements with employees. The FTC also announced, separately, that warning letters had been sent to healthcare employers urging them to conduct a comprehensive review of their noncompete agreements to ensure that they are appropriately tailored to comply with the law.
• Many states still restrict noncompete agreements and other restrictive covenant agreements, so employers should evaluate their own use of noncompetes to determine the scope of their agreements, and whether their business interests are or should be protected by other means.

Background of the Noncompete Rule

Back in April 2024, the Commission voted 3-2 to approve the proposed final Noncompete Rule, which uniformly banned new post-employment noncompete agreements for employees and retroactively invalidated others across the country. The final Rule stated that it is an unfair method of competition – and a violation of Section 5 of the FTC Act – for employers to enter into noncompetes with workers. The Rule was published on May 7, 2024, (89 FR 38342) and was expected to take effect on September 4, 2024.

Restrictive covenant agreements are prevalent: the FTC estimated that some 30 million people, or 1 in 5 American workers, from minimum wage earners to CEOs, are bound by noncompete agreements. The FTC began investigating the use of noncompete agreements in 2018. Limits on noncompete agreements and other restrictive covenant agreements have been imposed under a patchwork of state statutes and common law.

In adopting the nationwide Rule, the Commission issued a lengthy report describing the empirical and qualitative evidence of the economic harms caused by anti-competitive noncompete agreements, and the expected costs and benefits of a ban. The Commission’s report concluded that without the burden of noncompete agreements, or the looming threat to workers of being taken to court by past employers, the economy could see increased wages for employees and the creation of new businesses.

Then-Commissioner Andrew Ferguson, now the Chair of the FTC, provided one of the two dissenting votes against the Noncompete Rule. Ferguson’s dissent argued that the FTC lacked the authority for broad rulemaking to ban non-compete agreements on a nationwide basis. In his written dissent, he called the Noncompete Rule “by far the most extraordinary assertion of authority in the Commission's history,” and a violation of the Constitution.

Legal Challenges

After its passage, the Rule was met with criticism from some in the business community and immediately challenged in federal court. Those lawsuits each offered similar grounds for challenging the Noncompete Rule, namely that: (1) the Commission lacked or exceeded its statutory authority to issue the Noncompete Rule, (2) the Noncompete Rule was an unconstitutional delegation of legislative power, and (3) the Noncompete Rule was arbitrary and capricious.

Although the lawsuits were brought on near-identical grounds, the district courts’ analyses and ultimate conclusions stand in sharp contrast to each other. In ATS Tree Services v. FTC, a district court judge in the Eastern District of Pennsylvania sided with the FTC, and denied ATS Tree Services’ request for a preliminary injunction and a stay of the Rule’s effective date. The court found that the FTC was granted substantive[1] rulemaking authority by Congress – authority that had been confirmed by circuit courts –  to promulgate substantive rules to combat and prevent[2] unfair methods of competition that had significant economic impact. The case was voluntarily dismissed before a final judgment.

On August 20, 2024, a judge in the Northern District of Texas came to a vastly different conclusion in Ryan, LLC v. FTC. Judge Ada Brown, appointed by President Trump during his first term, imposed a nationwide ban against implementation of the Rule in Ryan, LLC v. FTC. The Court determined that (1) the FTC had exceeded its statutory authority in passing the Rule; (ii) the Rule was “patently unconstitutional”; and (iii) the Rule was arbitrary and capricious. The Court enjoined the Noncompete Rule, and further held that the FTC lacked any substantive rulemaking authority with respect to unfair methods of competition. The Middle District of Florida in Properties of the Villages v. FTC, came to the conclusion that the FTC lacked clear rulemaking authority under the “major questions doctrine,” but invalidated the ban only against the plaintiff in the case.

These rulings followed the recent landmark Supreme Court decision[3] which overturned a load-bearing legal doctrine that had required judges to defer to the expertise of federal agencies when interpreting regulatory statutes, opening the door for more challenges to regulatory action.

The FTC appealed the decisions to the Fifth Circuit and Eleventh Circuit Courts of Appeals, respectively. Then-FTC Chair Lina Khan argued that the noncompete ban fell squarely within the FTC’s mandate to prevent the use of unfair methods of competition.

The FTC Reverses Position Under New Leadership

As noted above, on Inauguration Day, President Trump appointed Andrew Ferguson to lead the FTC. He also nominated Republican Mark Meador to serve as a Commissioner, ensuring a 3-2 conservative majority. Ferguson reportedly appealed to President Trump to be appointed as FTC Chair in a letter, vowing to reverse former Chair Khan’s “Anti-Business Agenda” on “day one.” President Trump also fired[4] the two Democratic FTC Commissioners Rebecca Slaughter and Alvaro Bedoya in March 2025, who challenged their removal in the D.C. Court of Appeals.[5] Ferguson endorsed[6] the President’s ability to fire commissioners at will, embracing the Justice Department’s position.[7]

In February 2025, Ferguson announced the formation of a “Joint Labor Task Force,” responsible for investigating and prosecuting deceptive, unfair, and anti-competitive labor market conduct, among other directives, including “non-compete agreements, which employers can use to impose unnecessary, onerous, and often lengthy restrictions on former employees’ ability to take new jobs in the same industry after they leave their employment” and “[n]o-poach, non-solicitation, or no-hire agreements, where employers agree to refrain from hiring each other’s employees.” In the memorandum, Ferguson noted that  an example of prohibited conduct is the “collusion or unlawful coordination on DEI metrics,” echoing Trump’s executive orders on the subject and Ferguson’s commitment to implementing them.

In March 2025, the FTC filed motions to stay its challenges in the U.S. Court of Appeals for the Fifth and Eleventh Circuits, citing the change in presidential administrations and the appointment of new FTC Chair Ferguson.

In July 2025, the FTC moved to extend the stays of its appeals for another 60 days (to September), citing “significant personnel changes” at the agency, including the Senate confirmation and swearing in of Commissioner Mark Meador. The status report filed with the Fifth Circuit initially noted that FTC Chair Andrew Ferguson "continues to believe that the Commission should reconsider its defense of the rule challenged in this case, although some additional time is necessary to allow for that reconsideration,” which was corrected to say that “additional time was needed to determine whether the Commission should reconsider its defense.”

On September 5, 2025, the FTC took steps to dismiss its appeals in Ryan, LLC v. FTC, No. 24-10951 (5th Cir.), and Properties of the Villages v. FTC, No. 24-13102 (11th Cir.), and to accede to the vacatur of the Non-Compete Clause Rule. Ferguson issued a statement about the FTC’s withdrawal of its appeal. In it, Ferguson made clear his intention to break from former Chair Lina Khan’s proactive approach to promote competition, to instead to focus FTC efforts on a more exacting approach of “aggressive enforcement.”

Commissioner Slaughter, during her brief reinstatement to the Commission, issued a dissenting statement on the FTC’s decision to give up on the Noncompete Rule. After Chief Justice Roberts granted President Trump’s request to stay the order reinstating Commissioner Slaughter earlier this month, the Supreme Court upheld her dismissal in a short, unsigned order on September 22, 2025.[8] Full briefing and argument on Commissioner Slaughter’s dismissal – and whether the Court should overturn Humphrey’s Executor and grant the President unlimited removal power – will take place before the Supreme Court in December.

So… What Now?

The fact that the FTC has backed off its fight for a nationwide noncompete ban does not mean that businesses are out of the woods. In his statement announcing the Commission’s withdrawal of its appeals, Chairman Ferguson made clear that the FTC would stay vigilant in “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.”

FTC Chairman Ferguson has indicated that the current administration will prioritize individual prosecutions regarding the use of noncompete agreements. On September 4, 2025, the FTC filed an enforcement action (and proposed a settlement agreement) against a pet cremation company for abuse of employer-employee post-termination noncompetes as an anticompetitive practice in violation of Section 5 of the FTC Act. On September 10, 2025, the FTC announced that it had issued noncompete warning letters to healthcare employers and staffing companies for “restrictions [that] can unreasonably limit healthcare professionals’ employment options and thereby limit patients’ choices over who provides their medical care.” Despite Ferguson’s strong remarks on enforcement, however, he has committed to cutting FTC staff to the lowest level in a decade.

What should employers do?

This area of law is developing rapidly. Although the FTC has abandoned the implementation of the nationwide ban, many states already prohibit or limit the use of noncompete agreements, or other restrictive covenants.

As I have recommended before, employers should take measures to identify, review, and evaluate any restrictive covenants they have with members of their workforce as follows:

• Identify the restrictive covenants you currently have between your business and your employees.
• Consider the goals of a desired restrictive covenant, and the legitimate business interests that you want to protect. For example, employers may also have confidentiality provisions at their disposal which may be better suited to protect sensitive business information than a noncompete agreement. Many state laws require that a restrictive covenant be “narrowly tailored” to protect the interests of the business without being unduly burdensome to the employee.
• Seek help from an attorney to determine whether your agreements comply with applicable federal and state laws, and for guidance if your agreements are targeted for enforcement.

[1] The court reasoned that if the FTC’s power to write rules to combat unfair methods of competition was limited solely to procedural rules, “the FTC would only be able to remediate harm once it occurred. This would result in a myopic and illogical interpretation of the ordinary meaning of the statutory text.”

[2] The court reasoned that the term “prevent” on its face means the FTC was intended to act prophylactically to stop “incipient” threats of unfair methods of competition, not just to respond with adjudications, as some courts interpreting the statute had found.

[3] Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024)

[4] President Trump declared ahead of his second term his intention to place federal agencies like the FTC under direct presidential control.

[5] Slaughter and Bedoya have challenged their removal under the FTC Act, which provides that no more than three of the FTC’s five Commissioners can be of the same political party, that Commissioners serve staggered seven-year terms, and that a Commissioner can only be “removed by the President for inefficiency, neglect of duty, or malfeasance in office.” 15 U.S.C. § 41. They also challenged their removal as violative of Humphrey’s Executor v. United States, 295 U.S. 602 (1935), in which the Supreme Court unanimously affirmed the constitutionality of the statutory tenure protections granted to FTC Commissioners and held that the President could not remove such Commissioners at will.

[6] Ferguson also referred to the FTC as the “Trump-Vance Commission,” a notably politicized choice for the head of an agency once considered independent.

[7] The Justice Department issued a memo in February 2025 urging the Supreme Court to overturn the long-standing legal precedent of Humphrey’s Executor, which protected independent agencies like the FTC from undue presidential interference.

[8] The Supreme Court issued the unexplained ruling on the emergency docket (also called the “shadow docket”) a practice that has garnered criticism from federal judges and legal scholars – and most recently, in Justice Kagan’s dissent.