Updated October 29, 2025
FAQ
- What is the Federal Trade Commission (“FTC”) noncompete ban?
The rule bans “noncompete” provisions, which are defined as either oral or written contracts that prevent a worker from (i) seeking or accepting work within the United States with a different employer after the employment concludes; or (ii) operating a business in the United States after the conclusion of employment. On September 5, 2025, the FTC abandoned its earlier final rule, issued during the Biden administration, that had prohibited the enforcement of most noncompete agreements. Rather than enforcing a sweeping prohibition on most employee noncompete agreements, the FTC now indicates that it will challenge noncompete agreements on a case-by-case basis. In other words, this means the FTC will evaluate and challenge specific noncompete agreements that it believes is unfair or anticompetitive, rather than applying a universal rule.
- Who does the rule apply to?
The rule applies to all workers in the United States (including employees and independent contractors).
- When does the rule become effective?
It is unclear. Absent a legal challenge, the rule is set to go into effect on September 4, 2024. HOWEVER, multiple lawsuits have been filed against the FTC to block implementation of the ban, so it is unclear if or when it may take effect. Abandonment of the previous blanket rule became effective on September 5, 2025.
- Does the ban affect non-solicitation or non-disclosure agreements?
Probably not. Trade secret protections also remain intact under the FTC’s final rule. It also generally does not affect non-solicitation or non-disclosure agreements. However, such provisions could be invalid if they are so broad that “they function to prevent a worker from seeking or accepting other work or starting a business after their employment ends.” Whether or not a non-solicitation or non-disclosure clause meets this threshold is a “fact-specific inquiry.”
- Are there any exceptions to the ban?
Yes. The rule does not invalidate existing noncompetes with senior executives. But going forward, beginning on the date the rule takes effect (if it does), employers are not permitted to enter into noncompetes with any workers, including senior executives—even if they are given in exchange for compensation, equity, or other consideration.
- What is a senior executive under the rule?
“Senior executives” are defined as workers who, when employed, were in a policy-making position and received total annual compensation of at least $151,164 in the year preceding departure. Note that while existing noncompetes with senior executives remain in force, such agreements cannot be signed after the effective date of the rule.
- Does the rule impose notification requirements?
Yes. The new rule also includes a notification component, such that employers will be required to notify current and former employees who are subject to noncompetes that their noncompete agreements are now invalid. This notification must be made no later than the effective date of the rule. The FTC provided model notification language. If an employer provided consideration (including compensation or equity) in exchange for the noncompete, the employer may not claw back or force forfeiture of that consideration as a result of the invalidation of the noncompete. In other words, workers are entitled to keep the consideration and to benefit from the invalidation of their noncompetes.
- Is there a bona fide sale of business exception?
Yes. The rule provides an exception for a bona fide sale of business, in that it expressly excludes “a noncompete clause that is entered into by a person pursuant to a bona fide sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets.” This exception cannot be used to require executives or key employees who are not sellers to sign noncompete agreements in connection with a sale. In a win for business interests, the proposed rule’s requirement that the seller be an owner of 25 percent of the entity being sold was eliminated in the final rule.
- Is any immediate action required?
Because of the imminent legal challenges and the potential for an injunction that would delay the effective date of the new rule, employers do not need to take immediate action on existing noncompete agreements. However, employers should audit existing agreements so that they understand what agreements exist and can prepare to send out notices when and if it becomes necessary to do so. In addition, between now and the effective date, employers should carefully consider whether to include noncompetition provisions in new employment-related agreements, or whether other forms of robust restrictive covenants are sufficient to protect the employer’s interests. We will keep you updated as legal challenges progress.
- What targeted enforcement may look like (warning letters):
On September 5, 2025, the FTC Chairman provided a statement, highlighting the FTC’s commitment to identifying and prosecuting anticompetitive practices that harm U.S. consumers and workers. The Chairman specifically stated that “in the coming days, firms, in industries plagued by thickets of noncompete agreements will receive warning letters from me, urging them to consider abandoning those agreements as the Commission prepares investigations and enforcement actions.”
Five days later, on September 10, 2025, the FTC sent warning letters to several major healthcare providers and staffing agencies encouraging them to thoroughly examine their employment contracts, including noncompete agreements, so that these major healthcare providers are given the opportunity to ensure that their noncompete agreements are properly structured and legally compliant.
These warning letters also urged employers to eliminate provisions that are unfair or anticompetitive under the FTC Act and to notify relevant employees of the eliminated provisions. It emphasized the essential role of healthcare workers and warned that noncompete agreements which “unreasonably limit” healthcare workers’ job mobility and reduce patient access to care, especially in underserved rural areas, may have harmful effects in healthcare markets.
In the September 10th warning letter, the FTC noted that problematic noncompete agreements are those that are: (1) Imposed without due consideration to whether they are necessary and appropriate under the circumstances (including whether alternative contract terms may sufficiently achieve the same procompetitive purposes); (2) Overbroad in duration or geographic scope; or (3) Applied to certain roles where they are inappropriate altogether.
Other noncompete agreements that may be targets for future enforcement include: (1) Noncompete agreements applied to low- and middle-income employees, where such limitations are often less defensible; (2) Broad noncompete policies that apply to roles without access to confidential or proprietary company information; (3) Widespread effects on the labor market, such as limiting job mobility and depressing wages due to overly restrictive terms.
- What targeted enforcement may look like (consent order):
On September 4, 2025, a day before the FTC abandoned the Biden-era blanket ban on noncompete agreements, the FTC revealed a proposed consent order to resolve its enforcement case against Gateway Services and Gateway US Holdings, alleging they breached Section 5 of the FTC Act by mandating noncompete agreements for all employees, irrespective of their job roles.
This consent order may reflect the FTC’s newly implemented targeted approach by allowing Gateway to continue to enforce noncompete agreements for directors, officers, or senior employees who receive equity, or those with special access to sensitive information. But, prohibiting Gateway from enforcing noncompete agreements with all other employees of Gateway.
The Gateway consent order seems to illustrate the FTC’s new targeted approach in assessing noncompete agreements. This emphasizes the need for employers to align noncompete agreements with legitimate business needs.
- Chance to publicly comment:
FTC is seeking public comments to better understand how noncompete agreements are used and how they affect people. This input will help the agency better understand the issue of noncompete agreements and guide its future enforcement decisions. Comments must be submitted by November 3, 2025. Public participants who prefer to keep their submissions confidential should email noncompete@ftc.gov, clearly marking the message as confidential. All submitted comments will be published on regulations.gov.
- Washington State’s Approach to Noncompete Agreements (RCW 49.62):
Income Thresholds: Noncompete agreements are only enforceable if the worker earns above $120,559.99 (employees) or $301,399.98 (independent contractors).
Time Limits: Noncompete agreements are limited to 18 months unless the employer proves a longer term is necessary.
Disclosure Requirements: Agreements must be provided at hiring or supported by additional compensation, not just continued employment.
Severance Pay: If an employee is laid off, the employer must pay their base salary during the noncompete period.
Review Current Employment Contracts: Employers should carefully structure noncompete agreements to be limited in scope and duration, backed by legitimate business needs.
Stay Informed on FTC Developments: The FTC has made clear that it will continue enforcing actions against widespread use of noncompete agreements, especially against companies or industries that broadly use noncompete agreements. (e.g. healthcare industry)
Consider Other Contractual Options: Employers should strengthen trade secret safeguards through means other than noncompete agreements and explore other alternative agreements.
Follow State Legislative Trends: Employers need to stay alert to evolving state laws on noncompete agreements.
- What should healthcare providers do now: (FTC has already singled this industry out)
Noncompete agreements should be designed to safeguard legitimate business interests, such as customer relationships, trade secrets, and confidential information.
When considering new noncompete agreements, employers should assess whether the employee’s role warrants such a restriction.
If an employee holds a non-senior position, lacks access to trade secrets or confidential information, and doesn’t maintain strong relationships with customers, a noncompete agreement is likely unwarranted.
- What should I do?
Contact your attorney at Carney Badley Spellman, P.S. to stay abreast of the status of the rule and to develop a particularized risk assessment and strategy for your company.
This summary is for informational purposes only and does not constitute legal advice.
