In a joint statement, Chair Andrew Ferguson and Commissioner Melissa Holyoak—both of whom dissented from the prior administration’s sweeping non-compete ban—indicated that the Federal Trade Commission (“FTC”) will pivot away from broad rulemaking and instead pursue a case-by-case enforcement strategy.
Under this new approach, the FTC plans to bring a “steady stream” of targeted enforcement actions to define the limits of lawful non-competes under the FTC Act and the Sherman Act, rather than imposing a nationwide prohibition through regulation.
Commissioner Meador’s Framework for Assessing Non-Competes
In a separate statement concurring with the withdrawal of the agency’s appeals, Commissioner Mark Meador outlined a framework for evaluating non-compete agreements based on their “competitive character.” He identified several key factors that the FTC may weigh in future enforcement actions:
- Employee wage and skill level: Non-competes may be less defensible for low-wage workers and more justifiable for highly skilled roles.
- Distribution and franchise structures: Non-competes raise greater concern where they restrict competition horizontally within a network.
- Independent contractors: The analysis should consider whether contractors operate exclusively for the company or receive specialized training or resources.
- Free-riding concerns: Whether the employer invested in training or shared proprietary information that the employee could leverage post-employment.
- Less restrictive alternatives: Employers should consider confidentiality, IP protection, or non-solicitation clauses before resorting to non-competes.
- Scope and duration: The agreement must be no broader than necessary in geography, duration, and industry coverage.
- Market power: The FTC is likely to scrutinize non-competes imposed by dominant firms or those widely used across an industry.
Details of the FTC’s Enforcement Action
The FTC’s complaint alleged that Gateway Pet Memorial Services had, since 2019, required nearly all employees—including drivers and facility-level laborers—to sign non-compete agreements prohibiting them from working anywhere in the U.S. pet cremation industry for one year following employment.
The FTC found this approach problematic for several reasons:
- The Company applied the agreements uniformly across all levels of staff, without individualized justification.
- The nationwide geographic scope was considered overly broad, restricting employees from working in areas where the Company had no operations.
Under the proposed consent order (“Proposed Order”), the Company must immediately stop enforcing existing non-competes and is barred for ten years from entering into or maintaining such agreements with most employees.
Exceptions apply for directors, officers, or senior employees in connection with equity grants or the sale of a business involving individuals holding ownership interests.
The Proposed Order also places limits on non-solicitation agreements, permitting them only with respect to customers with whom the employee had direct contact or provided service within the prior 12 months. Additionally, the Company must notify current and former employees that their non-compete agreements are void and inform all new hires that they will not be subject to such restrictions.
What Employers Should Take Away
According to Chair Ferguson, this action and the FTC’s decision to withdraw its appeals reflect a strategic shift from rulemaking to enforcement. The agency plans to use real-world cases to define the line between lawful and unlawful non-compete practices.
Employers should anticipate increased scrutiny and enforcement activity in this area and are strongly advised to review their current non-compete, non-solicitation, and confidentiality agreements. Agreements that are overly broad, indiscriminate, or not tailored to legitimate business interests may invite regulatory attention.
How Forework Can HelpIf you’d like guidance on assessing or revising your company’s restrictive covenant policies in light of the FTC’s latest enforcement posture, contact Forework today.