The Federal Trade Commission has decided to accept, rather than fight, a court decision that struck down its 2024 rule that would have banned most employer noncompete agreements except for those signed by a company’s most senior executives.
The FTC, now under new leadership, voted on Sept. 5 to abandon its appeal of the Biden-administration rule that had sought to prohibit noncompete contracts that prevent an employee from working for their employer’s competitor when their current employment ends. The rule never took effect because court rulings blocked enforcement nationwide until all appeals of a Texas federal court decision vacating the rule had been exhausted.
The new FTC chairman, Andrew N. Ferguson, said the appeal was being abandoned because “the rule’s illegality was patently obvious.”
In a joint statement issued with FTC Commissioner Melissa Holyoak he said the rule would “never survive judicial review” and it would waste resources to continue to defend it.
Ferguson said the FTC would continue to aggressively enforce antitrust laws against those noncompete agreements that are unlawful, rather than seek to ban all noncompete agreements. He pointed to a recent action the FTC took against the nation’s largest pet cremation company, Gateway Services Inc., which since 2019 has required all its U.S. employees to sign noncompete contracts agreeing not to work anywhere in the U.S. pet cremation industry for one year after their employment with Gateway ended.
The FTC alleged Gateway was using noncompete agreements to “erect barriers in circumstances where it faced what it perceived to be tougher competition” and to “curtail worker mobility and workers’ ability to negotiate better employment terms.”
Ferguson said more enforcement actions would be taken in the near future against other companies if they use noncompete agreements in violation of antitrust laws.
“Companies in industries plagued by thickets of noncompete agreements will receive warning letters from me, urging them to consider abandoning those agreements as the Commission prepares investigations and enforcement actions,” he said.
