As illustrated by a recent Pennsylvania state court decision, employers attempting to enforce post-employment covenants face risks that extend beyond a lack of enforceability to potential government scrutiny. Although the Federal Trade Commission (“FTC”) abandoned its proposed ban on post-employment non-competes, it continues to invoke Section 5 of the FTC Act (“Section 5”), which broadly proscribes “unfair methods of competition,” to challenge restrictive covenants on a case-by-case basis. Employers seeking to comply with Section 5 face unique challenges as there continues to be no relevant case law, the Biden-FTC’s broad Section 5 policy remains “on the books,” and the Trump-FTC has surpassed its stated goal of “taking bad actors to court”1 by deploying a mix of warning letters and consent decrees.
The Biden-FTC caught businesses off-guard in 2023 when it used Section 5 to invalidate2 post-employment non-competes—the first known standalone application of Section 5 to employee non-competes since the statute’s 1914 enactment. The then-sole Republican Commissioner, Christine Wilson, criticized the Biden-FTC’s Section 5 policy as a radical departure from precedent that absolved the agency of conducting a rigorous analysis of actual or potential harm to competition.3 Rather than withdrawing the Biden-FTC Section 5 policy, the Trump-FTC has surprised practitioners and employers by continuing to root its challenges to employer-employee non-competes in Section 5.
For example, in a May 8, 2026, warning letter,4 FTC Chair Andrew Ferguson admonished Mortgage Connect, a Coraopolis, Pennsylvania-based mortgage services provider, to conduct a comprehensive review of its employment contracts and discontinue overbroad covenants. Mortgage Connect had drawn the FTC’s attention by seeking to enforce a nationwide post-employment non-compete against a former executive vice president who had left to join a smaller competitor. This effort backfired, with the FTC issuing its warning letter on May 8, and three days later, on May 11, the Pennsylvania Court of Common Pleas of Allegheny County denied the requested injunction,5 finding the covenant “sweeping” and “overbroad.”
Federal scrutiny is only one risk. Because there is no federal preemption regime for employee non-competes, employers must also account for state attorneys general, state legislatures, and state courts, many of which have become more active in protecting employee mobility.
Even if employers avoid federal scrutiny, efforts to successfully enforce non-competes are by no means guaranteed and face a complex web of differing review standards under state law. And, where employers may have previously relied on courts to trim unenforceable provisions (e.g., utilizing a savings clause or “blue pencil” provision in a non-compete agreement), some courts, such as the influential Delaware Chancery Court, have recently voided unreasonable non-competes entirely—leaving the employer without the benefit of the covenant and potentially exposed to follow-on agency scrutiny.6
New ground for federal antitrust enforcement
In 2022, the Biden-FTC broke new ground in labor-related antitrust enforcement—far expanding the contours of traditional anticompetitive effects analyses—bringing standalone Section 5 challenges of post-employment non-competes for the first time in In re O-I Glass, Inc.7 In 2024, the FTC promulgated a final rule that would have invalidated nearly every employee non-compete nationwide.8 Then-Commissioner Ferguson criticized the rule as an unlawful assertion of legislative power.9 The U.S. District Court for the Northern District of Texas vacated the rule in August 2024, and the Trump-FTC later dropped its appeal in favor of reviewing non-competes on a case-by-case basis.10
That shift has not meant retreat. Despite expectations that the Trump administration would rescind the Section 5 Policy Statement, Chair Ferguson has leveraged Section 5 in this non-compete campaign, even after the FTC dropped its broad non-compete ban. The Mortgage Connect letter is only the latest labor-related deployment of the FTC’s enforcement tools, which include warning letters raising potential Section 5 violations, investigations, and formal consent orders.11
Chair Ferguson has emphasized that overbroad non-competes harm rival businesses and consumers who benefit from worker mobility. He argued, for example, in the Mortgage Connect letter, that restrictions can “impede small businesses and startups from competing effectively against established incumbents.” Although Chair Ferguson has not explicitly embraced the Biden-FTC’s Section 5 approach, his continued use of Section 5 in scrutinizing labor-related conduct perhaps is an implicit endorsement.
Why Section 5—and why it matters for defense strategy
The FTC’s reliance on Section 5, rather than only Section 1 of the Sherman Act, has significant implications for employers drafting restrictive covenants. A well drafted non-compete must be defensible under traditional antitrust theories and now also against standalone Section 5 scrutiny. Failure to duly consider Section 5—and the lower standard it provides enforcers—could result in warning letters, investigations, or lawsuits.
Under a Sherman Act framework, employer-employee covenants are considered “vertical” restraints and are typically assessed under the “rule of reason,” a standard that balances the procompetitive benefits against the anticompetitive harm and would require proof of injury to competition itself, not merely to an employee. Section 5 reaches conduct that may fall short of a Sherman Act violation. The practical upshot is the FTC’s—thus far untested—use of Section 5 authority means a broader range of restraints exposes businesses to enforcement, and violations can be found under a lower standard.
Accordingly, employers drafting non-competes must diligently create a record demonstrating that the covenant is fair and reasonable under the standards the FTC has recently pronounced.
Is it reasonable: how the FTC evaluates non-competes
In remarks delivered at the FTC’s January 27, 2026, non-compete workshop, Chair Ferguson expounded on a two-pronged test for the reasonableness of non-competes from the FTC’s perspective, drawing on his view of the common law. The FTC asks first whether a post-employment non-compete advances a legitimate employer interest and, second, whether the restriction is narrowly tailored to achieve that end.
As Chair Ferguson explained, a “legitimate” employer interest is procompetitive; employers may seek restrictions necessary to protect their capacity to improve products, attract and train skilled workforces, and otherwise advance competitiveness. A reasonable non-compete may be drafted to prevent the transmission of sensitive information or protect investments in training employees with unique skillsets.
To meet these ends, Chair Ferguson argues a restrictive covenant must be narrowly tailored, meaning no narrower restriction could achieve the same lawful goals. For example, businesses seeking to protect trade secrets should consider whether confidentiality or non-disclosure agreements can provide the necessary guardrails. To prevent employees from poaching customers, employers should weigh whether a discrete non-solicit agreement would suffice in lieu of a broader non-compete.
To minimize risk of federal agency enforcement, employers drafting non-competes should be mindful of the following factors that the FTC—and courts—will examine to determine whether a covenant is narrowly tailored:
- Employees covered: non-competes covering lower-wage workers or employees without significant training are subject to heightened scrutiny, whereas higher-level workers with substantial training generally receive a more deferential standard of review.
- An employee’s role is also relevant to whether the employee is justifiably restricted. In Mortgage Connect, the court noted that the employee’s former role was not customer-facing, meaning she did not threaten the employer’s customer relationships.
- Duration: courts typically view one-year durations (or less) as reasonable and may allow restrictions up to two years.
- Geographic scope: employees should be restricted only in the geographic area in which they actually performed services or had customer contact.
- A company that competes nationally is not guaranteed to be able to enforce a nationwide non-compete. In Mortgage Connect, the court held a nationwide covenant was too broad for the non-customer-facing employee.
- Less restrictive alternatives: the FTC has repeatedly faulted employers for failing to consider whether non-disclosure or non-solicitation protections could achieve the same legitimate end. If applicable, counsel should consider building a contemporaneous record explaining why narrower mechanisms were rejected.
- Workforce-wide application: imposing the same covenant on every employee regardless of role elevates risk. The agency’s recent matters share this fact pattern. Employers should tier covenants by role, with agencies historically permitting more restrictive provisions for senior personnel and customer-facing employees with access to genuinely sensitive information.
50 states, almost as many approaches
Even non-competes drafted to minimize FTC scrutiny may not be enforceable in all 50 states, and state courts and legislatures have created a patchwork of standards to consider.
Some states, including California, ban employee non-competes by statute.12 Others set wage thresholds, and some restrict non-competes in particular industries.
Certain states codify reasonableness benchmarks. Florida, for example, treats covenants lasting less than six months as presumptively reasonable and ones lasting more than two years as presumptively unreasonable in respect of rank-and-file employees, with longer periods deemed reasonable for those with higher compensation.13
Many states apply a more deferential standard to non-competes arising in the sale-of-business context.14 Because sellers are presumed to have more bargaining power and the restraint protects purchased goodwill, courts typically permit broader restrictions.
Many jurisdictions blend statutory and common-law limits. Pennsylvania voids most health-care non-competes longer than one year by statute,15 while Pennsylvania common law—as Mortgage Connect shows—requires reasonable tailoring.
States follow different approaches to handling unenforceable non-compete provisions. In so-called “red-pencil” jurisdictions, courts faced with overbroad provisions will void the entire agreement. Courts in “blue-pencil” states may modify provisions to save otherwise enforceable agreements, either by striking severable language (“strict blue pencil”) or rewriting overbroad language (“reform”). But judicial willingness to rescue covenants is not assured: recent Delaware Chancery Court decisions reflect a more skeptical approach,16 and courts are increasingly willing to invalidate non-competes when presented with an employee’s lack of bargaining power or other circumstances that render the covenant fundamentally unfair. In Mortgage Connect, the court found the excessive geographic scope and range of prohibited activities rendered the agreement “unreasonably broad to such an extent” that modification was “inappropriate.”
While courts wrestle with modifying versus invalidating overbroad covenants, some state legislatures have decided for them. In Texas, courts are required to reform, rather than void, overbroad non-competes.17
Detection
One way to draw regulatory attention to a non-compete is to sue to enforce it. Where the covenant is narrowly tailored, enforcement may be necessary to protect a legitimate interest. Where it is overbroad, the employer risks triggering a government investigation into company-wide non-compete practices—potentially culminating in an order invalidating all similar covenants across the workforce. Front-end compliance and considerations of state and federal risks are therefore essential to preserve enforcement options later.
Non-competes included as part of agreements for M&A transactions requiring a Hart-Scott-Rodino filing will be reviewed by antitrust agencies. Although non-competes in this context are evaluated under a more forgiving standard, excessive provisions restraining more than what is reasonably necessary to protect the value of the buyer’s acquisition can attract unwanted scrutiny.
Employers should be mindful that agency scrutiny carries risks beyond legal enforcement. A letter from the FTC alone can be costly for businesses’ customers, employees, and public relations. Published letters may also be rediscovered in the future by agencies reviewing proposed transactions.
Conclusion
Employers navigating the regulatory terrain facing post-employment non-competes are finding that enforcers, state legislatures, and courts have moved the goalposts. Mortgage Connect demonstrates overbroad non-competes may not be worth the regulatory trouble they invite. As the FTC continues to enforce Section 5 in the labor market, state legislatures are weighing new prohibitions on employee mobility constraints—all while courts show greater willingness to set aside overbroad provisions. Careful diligence and early, comprehensive analysis are therefore essential when drafting non-compete agreements.
To reduce the risk of government scrutiny, reputational harm, and litigation costs, and to preserve enforceability, employers should use non-competes only when necessary to protect legitimate business interests and should limit them by role, duration, geography, and scope. The emerging consensus in agency guidance and court decisions is straightforward: the narrower and better documented the restraint, the more defensible it will be.
Footnotes
1. Andrew N. Ferguson, Chairman, Fed. Trade Comm’n, Statement Joined by Comm’r Melissa Holyoak, Ryan, LLC v. FTC, No. 24-10951 (5th Cir. 2025) (Sept. 5, 2025).
2. Complaint, In re O-I Glass, Inc., Dkt. No. C-4786 (F.T.C. Feb. 21, 2023).
3. Christine S. Wilson, Comm’r, Fed. Trade Comm’n, Dissenting Statement Regarding the “Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act,” Comm’n File No. P221202 (Nov. 10, 2022).
4. Letter from Andrew N. Ferguson, Chairman, Fed. Trade Comm’n, to Brad A. Funari, Reed Smith LLP (May 8, 2026).
5. Mortgage Connect, L.P. v. Harvey, No. GD-25-007711 (Pa. Ct. Com. Pl. Allegheny Cnty. May 11, 2026).
6. See, e.g., Fortline, Inc. v. McCall, No. 2024-0211, 2024 WL 4088629 (Del. Ch. Sept. 5, 2024); see also Kross Acquisition Co., LLC v. Groundworks Ohio, LLC, 2024-Ohio-592, 236 N.E.3d 453 (Ohio Ct. App. 2024); Mortgage Connect, L.P. v. Harvey.
7. O-I Glass, Inc., F.T.C. Docket No. C-4786
8. FTC Says (Almost) No More Employee Non-Competes, A&O Shearman (Apr. 24, 2024), https://www.aoshearman.com/en/insights/ftc-says-almost-no-more-employee-non-competes.
9. Andrew N. Ferguson, Comm’r, Fed. Trade Comm'n, Dissenting Statement Joined by Comm’r Melissa Holyoak, In the Matter of the Non-Compete Clause Rule, Matter No. P201200 (June 28, 2024).
10. Ryan, LLC v. Fed. Trade Comm’n, 746 F. Supp. 3d 369 (N.D. Tex. 2024).
11. Decision and Order, In re Rollins, Inc., F.T.C. Matter No. 2510011 (Apr. 15, 2026); Decision and Order, In re Gateway Servs., Inc., F.T.C. Dkt. No. C-4825 (Nov. 25, 2025); Decision and Order, In re Adamas Amenity Servs. LLC, F.T.C. Dkt. No. C-4830 (Feb. 12, 2026).
12. CAL. BUS. & PROF. CODE § 16600.1 (West 2024).
13. FLA. STAT. ANN. § 542.335 (West 2026).
14. See, e.g., Labyrinth, Inc. v. Urich, No. 2023-0327, 2024 WL 295996 (Del. Ch. Jan. 26, 2024); Cal. Bus. & Prof. Code § 16601 (West 2024).
15. 35 PA. STAT. AND CONS. STAT. § 10324 (West 2025).
16. See, e.g., Centurion Serv. Grp., LLC v. Wilensky, No. 2023-0422, 2023 WL 5624156 (Del. Ch. Aug. 31, 2023); Sunder Energy, LLC v. Jackson, No. 2023-0988, 305 A.3d 723 (Del. Ch. 2023).
17. TEX. BUS. & COM. CODE ANN. § 15.51 (West 2025).
