The following day, the FTC issued a statement signaling its intent to abandon the FTC’s implementation of a general ban on post-employment non-compete agreements that was promulgated under the prior administration. Collectively, these actions demonstrate a more employer-friendly approach to the enforceability of post-employment non-compete agreements by the FTC, as well as a desire to develop more concrete guidance for employers.
A brief summary of recent activity related to non-compete enforceability
In April 2024, the FTC as constituted under the Biden administration issued a nationwide ban on post-employment non-compete agreements. In August 2024, shortly before the ban was scheduled to take effect, a Texas court issued a permanent injunction, vacating the FTC’s rule nationwide. The court struck down the rule as unlawful under the Administrative Procedure Act, finding that the rule was arbitrary and capricious and that the FTC lacked the statutory authority to create the rule. The FTC successfully appealed to stay further proceedings on the matter until July 10, 2025, later extended to September 8, 2025.
During this period of uncertainty and in the absence of federal action, many state governments introduced their own post-employment non-compete legislation,1 and to a lesser extent legislation addressing other restrictive covenants. States took vastly different approaches, with some states restricting post-employment non-compete agreements further and issuing fines for violations, while Florida increased the enforceability of non-compete agreements.
As a result of the FTC’s September 5, 2025 activities discussed below, the Biden administration’s nationwide post-employment non-compete ban is officially null and void. The FTC has, however, through its September 4, 2025 activities, also discussed below, signaled its intent to monitor and reject unreasonable or unfair post-employment non-compete agreements going forward.
FTC initial enforcement action against unreasonable non-compete agreements and request for information
On September 4, 2025, the FTC issued its first enforcement action regarding post-employment non-compete agreements under the Trump administration, determining that Gateway Services Inc., a large pet cremation company, and its subsidiary (collectively, “Gateway”) had entered into unenforceable post-employment non-compete agreements with almost all of its approximately 1,800 employees.
In the FTC complaint filed against Gateway, the FTC alleged that Gateway subjected nearly all of its employees to broad post-employment non-compete agreements applicable for one year after the termination of their employment with Gateway. The FTC alleged that Gateway’s post-employment non-compete agreements were unjustly anti-competitive because they were imposed universally upon employees regardless of position or responsibilities, disproportionately suppressed competition and unjustly altered the bargaining positions between Gateway and its employees.
The FTC subsequently proposed a consent order to amend Gateway’s post-employment non-compete practices. The directive essentially eliminated, with limited exceptions, the enforceability of Gateway’s post-employment non-compete agreements and ordered Gateway to provide notice to all employees covered by such agreements that they are not subject to a post-employment non-compete agreement. Certain post-employment non-compete agreements were carved out from the order, specifically those entered into with directors, officers, senior employees and those entered into in conjunction with equity-based interests.
In issuing this order repealing Gateway’s employee non-compete agreements, the FTC noted that, with the exception of certain non-solicitation provisions,2 the confidentiality and non-solicitation provisions in Gateway’s restrictive covenants would remain enforceable.
Simultaneously with the publication of the above action, the FTC issued a request for information on employee non-compete agreements. The stated goal of this request is to gather public comment relating to unfair use and practices regarding post-employment non-compete agreements. Comments may be submitted until November 3, 2025.
FTC action to accede the vacatur of the Biden FTC non-compete clause rule
As expected, on September 5, 2025, the day after the Gateway directive was released, the FTC withdrew its appeals in Ryan, LLC v. FTC and Properties of the Villages v. FTC, both of which involved challenges to the Biden FTC post-employment non-compete ban on the grounds that the ban exceeded the scope of the FTC’s power. The district court had determined that the FTC lacked the authority to issue the general nationwide ban, and the FTC subsequently appealed. On September 5, with the withdrawal of its notice of appeal for both cases, the FTC acceded the vacatur of the Biden non-compete rule.
In Commissioner Ferguson and Commissioner Holyoak’s joint statement on the matter, they indicated a willingness to engage in more direct action analogous to that taken with Gateway. This statement also signaled that the FTC would dedicate resources towards investigations and enforcement, rather than developing a new rule to replace the Biden FTC non-compete ban.
As evidenced by the Gateway enforcement action, companies who utilize overly broad and restrictive post-employment non-compete agreements could be subject to extensive remediation measures, including potentially costly reporting and recordkeeping requirements.3 As such, employers should examine their existing post-employment non-compete and other restrictive covenant agreements to ensure that the scope of such agreements is reasonable and complies with state laws.
Footnotes
1. Arkansas, California, Colorado, Florida, Indiana, Oregon, Texas, Utah, Virginia, and Wyoming all passed various forms of state non-compete legislation since the beginning of 2025. Approximately a dozen other states introduced legislation that has either died or was pending during that same time.
2. The FTC proposed consent order stated that employees are permitted to solicit customers whom they did not have direct contact with or whom they did not personally provide services to during their employment with Gateway, and may solicit any customer following their non-solicit period, although the length of such period is not provided.
3. The proposed consent order states that Gateway must provide compliance reports 30 days after the order is issued, six months after the order is issued, one year after the order is issued and annually on the anniversary of the order for the next nine years. These compliance reports must include a full description of the measures Gateway has implemented to comply with the order and their continued plan for compliance. Further, upon the FTC’s request, Gateway must provide the FTC with any employment agreement that Gateway enters into or implements after the date of the order. The proposed consent order also imposes upon Gateway certain recordkeeping requirements for the next 15 years.
