FTC Formally Abandons Federal Non-Compete Ban, Launches Case-by-Case Enforcement Approach

The Federal Trade Commission (FTC) has officially abandoned its controversial nationwide non-compete ban, formally ending a legal battle that began last April.

On September 5, 2025, the FTC voted 3-1 to dismiss its court appeals and let stand the court's August 2024 decision that stalled the non-compete rule. Abandoning the nationwide ban “does not prevent the Commission from doing what it should have been doing all along,” emphasized FTC Chairman Andrew Ferguson in a related statement.

Instead, the FTC is “addressing non-compete agreements through enforcement actions against companies that misuse them in violation of the law,” delivering on its Trump-era promise to focus its resources on targeted, case-by-case enforcement.

For Texas businesses, this development confirms what legal experts have predicted since the Trump administration took office: State law will continue to govern non-compete agreements, and properly crafted agreements remain enforceable under Texas law.

However, the FTC does have the authority to investigate Texas non-compete agreements that appear unreasonable or anticompetitive.

The FTC’s New Enforcement Approach to Non-Compete Violations

One day before announcing its decision to abandon its court battle, the FTC took one of its first non-compete actions under Commissioner Ferguson’s leadership.

On September 4, the FTC filed a complaint against Gateway Services, Inc., the nation's largest pet cremation business, alleging that Gateway’s broad and indiscriminate use of non-compete agreements violated the FTC Act.

The problematic practices that caught the FTC's attention include:

• Blanket application to all employees: Gateway required one-year nationwide non-competes for virtually all new hires since 2019, regardless of their position or responsibilities
• Overbroad geographic scope: The agreements prohibited employees from working anywhere in the United States pet cremation industry for one year
• Application to low-wage workers: Non-competes applied to drivers who pick up deceased pets and crematory workers who process ashes – positions requiring minimal specialized training
• Strategic deployment as a competitive weapon: Gateway knowingly used non-competes to erect barriers when facing tougher competition
• Use during closures and terminations: Gateway demanded non-competes from workers they terminated weeks later or in areas where Gateway exited operations

Under the proposed consent order, Gateway must immediately stop enforcing all existing non-compete agreements, freeing nearly 1,800 employees from these restrictions.

FTC Issues Warning Letters to Employers

Just six days after the Gateway Services announcement, the FTC took another enforcement step: The FTC sent warning letters to several large healthcare employers and staffing firms urging these companies to "conduct a comprehensive review of their employment agreements – including any non-competes or other restrictive agreements – to ensure they are appropriately tailored and comply with the law."

Recipients of these letters were advised that they hadn’t necessarily violated the law. "Your receipt of this letter is not intended to suggest that you have engaged in illegal conduct," wrote Chairman Ferguson.

Instead, recipients were encouraged, “to review their contracts closely,” stated Kelse Moen, Deputy Director of the Bureau of Competition and co-chair of the agency’s Joint Labor Task Force, “to ensure that any restrictions on employee mobility are in full compliance with the law.”

While the September 10 warning letters specifically targeted healthcare employers, the FTC's broader enforcement strategy suggests other industries with problematic non-compete practices may face similar scrutiny next.

Why healthcare? The FTC specifically targeted the healthcare sector due to concerns that non-competes may unreasonably restrict employment options for nurses, physicians, and other medical professionals. This is particularly problematic in rural areas where medical services are already limited, and these restrictions can reduce patients' choices for medical care.

In Texas, non-compete agreements for physicians and certain other healthcare professionals are limited by state law for many of the same concerns cited above.

Read our blog “Texas Healthcare Employers: Audit and Update Non-Compete Agreements for SB 1318 Compliance BEFORE They Auto-Renew” to review the latest requirements for Texas physicians.

How the FTC Evaluates Non-Compete Agreements for Violations

Commissioner Mark Meador outlined a proposed framework for the FTC to evaluate non-compete agreements in a detailed statement accompanying the September 5 decision to dismiss its court appeals.

“By clarifying the legal inquiry and focusing on context, necessity, and proportionality,” Meador explained, “the Commission can continue to protect legitimate business investments while ensuring that non-competes do not unduly restrict competition or worker mobility.”

Key factors in the FTC's proposed guidance include:

Likelihood of Free-Riding Concerns: The Commission will examine whether genuine business interests are being protected, such as employer-specific investments in training, access to confidential know-how, or sharing of proprietary information that cannot be protected through less restrictive means.

Availability of Less Restrictive Alternatives: Even where legitimate business interests exist, employers must demonstrate that non-competes are reasonably necessary and that narrower restraints like non-disclosure agreements or customer non-solicitation clauses are insufficient.

Scope and Duration Analysis: Restrictions should be no broader in geographic scope, duration, or field of employment than necessary to protect legitimate interests. The FTC identified several red flags:

• Durations exceeding one to two years
• Geographic scope exceeding the employer's current operations or where the employee worked
• Restrictions on work in industries unrelated to the company's core business

Market Power and Adverse Economic Effects: While market power isn't required for FTC action, non-competes imposed by firms with significant market power raise heightened concerns. The Commission will also consider additional contextual evidence, such as widespread industry use, the skill and wage levels of restricted employees, and evidence of reduced labor mobility.

What This Means for Texas Businesses

With the federal ban definitively dead, Texas law continues to govern non-compete agreements. Texas courts will enforce non-competes that meet these requirements:

• Reasonable geographic scope: Limited to areas where the employer actually conducts business
• Appropriate duration: Typically, one to two years maximum
• Legitimate business interests: Must protect trade secrets, confidential information, or specialized training investments
• Adequate consideration: Employee must receive something of value in exchange
• Ancillary agreement: Must be part of another valid agreement like an employment contract

Texas courts will "reform" overly broad agreements to make them reasonable rather than void them entirely, providing some protection for employers who err on the side of broader restrictions.

Tips to Avoid FTC Scrutiny:

In addition to state requirements, Texas employers should be mindful of the lessons learned from the Gateway case:

• Don't Apply Blanket Non-Competes: Avoid requiring all employees to sign identical non-compete agreements regardless of their role, responsibilities, or access to confidential information.
• Limit Geographic Scope: Restrict agreements to geographic areas where your business actually operates or where the employee worked, not nationwide prohibitions.
• Match Duration to Need: Ensure the time restriction corresponds to how long your confidential information or competitive advantage remains valuable.
• Focus on Appropriate Employees: Target non-competes to employees with genuine access to trade secrets, specialized training, or customer relationships that require protection.
• Consider Alternatives: Evaluate whether non-disclosure agreements, customer non-solicitation clauses, or intellectual property protections might achieve your goals with less restriction on employee mobility.

Well-Crafted Non-Compete Agreements Remain an Important Tool for Texas Businesses

Well-crafted non-compete agreements remain an important tool for protecting legitimate business interests – when they're properly tailored to specific business needs and comply with established legal requirements. Proactive legal review can help ensure your agreements protect legitimate interests without triggering regulatory or court scrutiny.

Ready to review your employment agreements against current legal standards?

Contact the experienced business attorneys at Hendershot Cowart P.C. today at (713) 783-3110 to schedule a consultation and ensure your business is protected and in compliance with evolving regulatory expectations.