In May of 2024, the Federal Trade Commission (FTC) issued a final rule that would have banned virtually all noncompete agreements on a national level.¹ Specifically, the Rule deemed noncompete provisions, and the mere act of requiring employees to enter into them, an unfair method of competition in violation of Section 5 of the FTC Act. The FTC’s comprehensive Rule prohibited new noncompetes with all workers, including senior executives, without regard to compensation level. Existing noncompete clauses for senior executives would remain in force, while existing noncompetes for workers other than senior executives would be prohibited beginning in September of 2024. The Rule included very limited exceptions, such as a noncompete agreement related to the bona fide sale of a business.

Two developments stalled the FTC’s Rule. First, litigation immediately ensued challenging the substance of the Rule and the FTC’s authority to implement the Rule resulting in injunctions adverse to the FTC. Second, President Trump assumed the White House for a second term and made clear that the new administration would determine whether to support the Rule in its current form and pursue appellate review of lower court rulings striking the Rule as unlawful and unenforceable.

On September 5, 2025, the FTC withdrew the pending appeals of the Rule, ending the effort to regulate noncompetes through a nationally-applied, uniform policy. That, however, did not completely resolve the issue. The Trump-appointed FTC Chairman stated that the FTC will “continue to enforce the antitrust laws aggressively against noncompete agreements,” albeit on a case-by-case and employer-by-employer basis. Moreover, there remains a patchwork of state and local laws that regulate the enforceability of noncompete agreements, and employers must continue to understand the nuances in the jurisdictions in which they operate.

How Will Employee Noncompetes be Evaluated Going Forward?

From a federal law perspective, employee noncompete agreements, like all other restrictive provisions of otherwise procompetitive agreements or arrangements, will be evaluated under the “rule of reason,” in which the legitimate procompetitive purpose of an agreement is balanced against its potentially anti-competitive effects. Further, the restraint must be reasonably necessary to effectuate the procompetitive purposes of the overall arrangement, and there must not be less restrictive alternatives. In other words, in the context of employee noncompetes, the FTC and the Department of Justice (DOJ) will scrutinize:

1. whether such agreements are reasonably necessary in order to preserve the ability of the employer to fairly compete in the marketplace;
2. if so, whether the breadth and scope of the noncompete is commensurate with such a need; and
3. whether other means, such as confidentiality agreements and intellectual property and trade secret laws, are sufficient alternatives.

Indeed, on the heels of the abandonment of the Rule, FTC Chairman Ferguson issued warning letters to a number of large healthcare and staffing companies stating that “ many healthcare employers and staffing companies include noncompete[s] … in employment contracts that may unreasonably limit employment options for … nurses, physicians, and other medical professionals” and urging them to engage in a thorough review of all employment agreements to ensure compliance with applicable law.

In a nod to rejecting the absolutism of the Rule and returning to the nuance of the rule of reason, the FTC stated that “narrowly tailored noncompetes” may serve valid purposes, but that, in practice, many are overbroad in duration, geographic scope, or “inappropriate for certain roles entirely.”

Finally, as noted above, employers must continue to be mindful of the law in the jurisdictions in which they operate and/or have employees, as there is a discernible trend – with some exceptions –  toward states enacting legislation that restrict[s] the enforceability of noncompetes and/or imposes significant requirements in form and content for such provisions to be enforceable.

What Should Employers Do in Response to the FTC Reversal?

Employers no longer face an absolute ban on noncompete agreements, at least on the federal level, so it is now possible that certain “reasonable” agreements will remain lawful under federal law. The FTC, however, signals that it sets a high bar for demonstrating that an agreement can pass muster under the rule of reason. Furthermore, four states (California, Minnesota, North Dakota, Oklahoma) have near-total bans on employee noncompetes, and many others have significant restrictions.

Employers that wish to enter into employee noncompetes should therefore seek legal advice as to both state and federal law before doing so. And given the continued focus on this area, the time is now for employers to conduct a review of any existing noncompetes to assess any potential risk or company policies, and to determine whether there are less risky means to protect the company’s valuable business interests that will more likely avoid an intrusive government investigation, and in the worst case, pass judicial review.