FTC Ban on Noncompete Agreements Is Now Officially Dead

On September 5, 2025, the Federal Trade Commission (FTC) dropped its appeals of court rulings that had invalidated its nationwide ban on noncompete agreements in employment contracts. This action has important implications for employers, employees and the broader labor market, essentially returning regulation of noncompetes to state law.

The FTC rule, announced in 2024, purported to ban most noncompetes for workers in the United States, declaring such agreements are inherently anticompetitive and suppress wages, entrepreneurship and labor mobility. However, the rule quickly faced legal challenges from business groups and trade associations. Multiple federal courts ruled against the FTC, holding that the agency had overstepped its statutory authority. The FTC appealed. 

The FTC’s withdrawal of the appeals means there will be no federal administrative rule prohibiting noncompete agreements. Instead, the enforceability of noncompetes will revert to the patchwork of state laws. Some states broadly ban or severely limit such agreements, while most states permit them subject to requiring reasonableness in duration, geography and scope. As a result, employers must ensure employment contracts comply with the relevant state laws. 

While abandoning its broad rulemaking approach, the FTC also announced it will pivot toward targeted enforcement actions under Section 5 of the FTC Act, which prohibits unfair methods of competition. The FTC intends to challenge what it considers egregiously anticompetitive labor practices on a case-by-case basis, particularly where noncompetes are used for low-wage workers or where such agreements serve no legitimate business purpose.

This shift is consistent with other recent FTC enforcement trends, emphasizing individual investigations and actions against perceived harms to market competition. Employers can expect the FTC to closely scrutinize practices that may restrain worker mobility or artificially depress wages, especially in industries with concentrated labor markets.

In light of these developments, employers should:

• Review noncompete agreements — Assess whether existing noncompete provisions are appropriately tailored or whether they could be viewed as anticompetitive, particularly for lower-wage roles or where there is little justification for restricting mobility
• Consider alternatives — Where protection of trade secrets or client relationships is essential, consider less restrictive alternatives such as nondisclosure or nonsolicitation agreements, which are more likely to withstand state-law scrutiny and FTC attention.
• Consult counsel — Work with legal counsel to develop compliant employment practices. An attorney experienced with restrictive covenants will also be well-versed in state legislative developments and court decisions that could affect enforceability.

The Law Offices of Donald W. Hudspeth P.C. assists Arizona businesses with the development and enforcement of restrictive covenants. To schedule a consultation, call our Phoenix firm today at 866-696-2033 or contact us online.