FTC non-compete ban: 2024 final rule vacatur and enforcement update
The FTC’s 2024 final rule banning new non‑compete clauses was vacated by a federal court. The Commission dropped its appeal on 5 September 2025 and will instead challenge non‑competes through case‑specific enforcement. Employers should inventory agreements, comply with stricter state laws and rely on confidentiality protections.
The U.S. Federal Trade Commission (FTC) shook U.S. employment law when it proposed a rule in January 2023 to ban non‑compete clauses for employees and independent contractors. After a year of comment, the Commission adopted a final rule in April 2024 (published in May) that made sweeping changes: employers are prohibited from entering into new non‑compete clauses with any workers after the effective date, 4 September 2024. Existing non‑competes covering senior executives – individuals earning more than roughly $151,000 and who play a policy‑making role – can remain in force, but non‑competes with other workers become unenforceable【843006103715816†screenshot】. Employers must notify workers that their non‑compete will not be enforced and refrain from representing that unenforceable clauses still apply. The rule does not bar confidentiality or non‑solicitation agreements and contains a sale‑of‑business exception, so traditional M&A covenants remain viable.
Rights and obligations
Once effective, the rule gives workers the right to leave their employer and seek other jobs without fear of a non‑compete being enforced. Employers cannot request, require or enforce non‑compete clauses against most workers, and they must rescind existing agreements for non‑senior employees. The FTC rule rests on Section 5 of the Federal Trade Commission Act and is intended to enhance labour mobility and wage competition. Because non‑disclosure, confidentiality and non‑solicitation clauses remain lawful, companies must rely on these and trade‑secret laws to protect proprietary information.
Implementation challenges and legal proceedings
The rule quickly encountered legal challenges. In July 2024 business groups sued in Texas, arguing that the FTC lacked authority to regulate non‑competes as a matter of competition law. A U.S. district court vacated the rule, and the Fifth Circuit issued orders staying its implementation. On 5 September 2025 the FTC moved to dismiss its own appeal, effectively allowing the vacatur to stand【499477036556894†L63-L117】. The Commission emphasised that it will continue to address “illegal” non‑competes on a case‑by‑case basis and signalled this intent by filing an enforcement action against Gateway Services, a franchisor that allegedly imposed franchise‑wide non‑compete restrictions【499477036556894†L63-L117】. Because the final rule has been vacated, employers remain subject to an inconsistent patchwork of state laws; some states (e.g., California, Oklahoma and Minnesota) already ban most non‑competes, while others permit them with wage‑level restrictions or time and geographic limits.
Implications and recommended actions
Employers should not assume the demise of the rule ends scrutiny. The FTC’s shift to enforcement actions means that broad or low‑salary non‑competes could be deemed an “unfair method of competition”. To prepare:
- Inventory existing covenants. Identify employees and contractors subject to non‑competes and categorise them by seniority and state jurisdiction. Consider rescinding or modifying clauses that exceed state‑law thresholds.
- Review state law trends. Monitor state legislation and case law; many states continue to restrict non‑competes or require “garden leave” pay. Adopt a harmonised policy that complies with the strictest applicable jurisdiction.
- Strengthen confidentiality and non‑solicitation protections. Use robust non‑disclosure agreements, non‑solicitation and non‑interference clauses coupled with trade‑secret safeguards, employee training and exit‑interview protocols. Tailored restrictions tied to protecting legitimate business interests are more likely to withstand scrutiny.
- Communicate transparently with employees. Inform affected workers about any changes, provide notice if non‑competes will not be enforced and reinforce expectations around confidentiality.
- Monitor FTC and litigation developments. The Commission may pursue sector‑specific cases or propose new rules; employers should follow ongoing litigation and be prepared to adjust policies if the legal landscape changes.
Zeph Tech analysis
The vacatur of the FTC’s non‑compete rule does not signal a return to business as usual. Rather, it portends continued scrutiny of restrictive covenants under both federal unfair‑competition law and an increasingly fragmented state landscape. Organisations should take a proactive approach: inventory agreements, pivot toward targeted confidentiality protections and adopt state‑compliant policies. Cross‑functional collaboration between legal, people operations and risk teams will be essential to align employment practices with evolving legal standards and labour‑market realities. Staying nimble will help firms attract and retain talent while mitigating the risk of FTC enforcement or private litigation.
