During the Biden presidency, the Federal Trade Commission (FTC) adopted a non-compete rule in 2024 that would have barred the use of most non-compete contracts. Former FTC Chair Lina Khan considered the non-compete ban was within the FTC’s mandate to prevent the use of unfair methods of competition. The rule was later challenged by the U.S. Chamber of Commerce and others who argued the FTC lacked Congressional authorization to adopt the rule. A district court judge set aside the rule, and the FTC appealed the decision to the U.S. Court of Appeals for the Fifth Circuit. In September of this year, the FTC moved to voluntarily dismiss the appeal. Ryan v. FTC, 24-10951 (5th Cir. 9/5/25).
The FTC thereafter, however, issued letters to various entities indicating it is increasing its focus on employers’ non–compete agreements to ensure contracts comply with anti-trust laws, with initial letters being primarily to undisclosed healthcare employers and staffing companies. Those included warnings that the agency will “investigate unfair methods of competition, including non-compete agreements that are unjustified, overbroad, or otherwise unfair or anti-competitive.” FTC Chairman Andrew Ferguson also said in a public statement that, despite the agency’s withdrawal of support for the previous administration’s non-compete ban, the FTC will continue to enforce “anti-trust laws aggressively against non-compete agreements.” Thus, the FTC is shifting away from broad rulemaking and toward case-by-case enforcement. Ferguson stated that the FTC would generally apply the common law reasonableness inquiry, “which asks whether the restriction is no greater than necessary to protect the employer’s legitimate interests, and balances those interests against the hardship inflicted on the employee and any potential injury to the public.”
In general, non-compete agreements remain governed by state law. There is a trend among the states to limit non-competes but not outlaw them altogether. At least two states, however, Florida and Kansas, recently strengthened the enforceability of non-competes. A few other states totally ban non-competes. Different state laws create concerns for employers as such agreements may be lawful in their own state but invalid in a neighboring jurisdiction. Some employers try to get around these problems by incorporating choice-of-law rules in their non-compete agreements and/or jurisdictional provisions indicating states where such agreements are to be litigated. While these type provisions can help determine which state’s non-compete laws govern disputes and where litigation must occur, there are still limits on such provisions as they usually have to have some connection to the parties and not offend the public policy of applicable jurisdictions. A few recent cases illustrate unusual situations where employees have actually moved to certain states supposedly to keep their non-compete agreements from being enforceable. A related issue is that an employee may file a declaratory judgment suit in a more favorable state in an effort to head off an adverse ruling in another state with a less favorable forum.
Some employers are considering as alternatives stronger trade secret protections and compensation changes and alternative arrangements, including garden leave arrangements, repayment agreements, retention bonuses or longer vesting periods for long-term awards.
This article is part of our October 2025 Newsletter.
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