Written by Christine Wilson, Andrew Dockham, Justin Stewart-Teitelbaum, Sam Fulliton and Kara Reid From Freshfields on Sept 4, 2025
How the FTC Is Shaping the Future of Noncompetes — Three Recent Actions Explained
On September 4, 2025, the Federal Trade Commission (“FTC”) ordered Gateway Services, Inc.—the largest pet cremation company in the United States—and its subsidiary (collectively, “Gateway”) to cease enforcing noncompete agreements against their employees. The FTC described the action as part of its broader effort “to protect American workers from harmful labor practices.”
That same afternoon, the FTC issued a public inquiry seeking “to better understand the scope, prevalence, and effects of employer noncompete agreements, as well as to gather information to inform possible future enforcement actions.” These actions reflect the FTC’s stated commitment to investigating and prosecuting deceptive, unfair, and anticompetitive labor-market practices, including through the newly formed cross-agency Joint Labor Task Force.
Yet at the same time, the FTC withdrew its defense of the noncompete ban proposed by the FTC during the Biden Administration (the “Noncompete Rule”). How should we square the FTC’s enforcement in Gateway and its issuance of the RFI with the abandonment of the Noncompete Rule’s defense? Each of these actions align with the FTC’s stated preference for a bespoke, fact-specific enforcement against noncompete agreements.
I. The FTC Action Against Gateway Services
a. The Complaint
The FTC alleged that Gateway violated Section 5 of the FTC Act by imposing noncompete agreements on nearly all employees, regardless of role or responsibility. Since 2019, Gateway’s policy prohibited employees from working in the pet cremation industry anywhere in the United States for one year after leaving the company—except for those employed in California (which bans noncompete agreements).
The FTC highlighted several concerning aspects of Gateway’s policy:
- Gateway entered into noncompete agreements indiscriminately, without regard to an employee’s role.
- Gateway imposed noncompete agreements even when planning to close facilities and thereby terminate employees, and during acquisitions where post-transaction layoffs were anticipated.
- Gateway’s internal documents acknowledged that its noncompete agreements reduced competitive pressure by limiting rivals’ access to talent in competitive markets (and in less competitive markets with smaller scale competitors, Gateway “could get comfortable with the risk” that employees were not subject to noncompete agreements).
- The company used noncompete agreements strategically in response to competitive threats—for example, executing agreements when a competitor entered a local market.
The FTC concluded that Gateway’s noncompete agreements distorted the bargaining power in labor markets, suppressed competition even beyond the labor context, and discouraged employees from launching competing businesses.
b. The Settlement
Pursuant to the proposed FTC consent order, Gateway must stop enforcing existing noncompete agreements for “Covered Employees,” and refrain from entering into or attempting to enter into a “Covered Non-Compete Agreement.” In addition, the FTC’s proposed consent order prevents Gateway from:
- communicating to an employee or any other person (including prospective or current employers) that any former Gateway employee is subject to a noncompete agreement; and,
- prohibiting “Covered Employees” from soliciting current or prospective customers, except for those customers where the employee had direct or personal contact in the last twelve months of employment with Gateway.
Gateway must provide notice both to existing employees that they are no longer subject to a noncompete agreement and to new employees that they will not be subject to a noncompete agreement. With several exceptions, these terms generally prohibit Gateway from entering into, enforcing, or threatening to enforce noncompete and nonsolicitation agreements with its employees.
But these exceptions are key. First, the prohibitions only apply to “Covered Employees,” which do not include names listed in a nonpublic appendix. Similarly, “Covered Noncompete Agreements” do not include those entered into with directors, officers, or senior employees in conjunction with equity compensation or equity-based interests (indicating that the nonpublic appendix likely includes the names of such individuals). Similarly, this prohibition does not apply to noncompete agreements entered into as part of the sale of a business if the relevant employee has a pre-existing equity interest in the sold company.
c. Commissioner Statements
The Commission vote was 3-1 to issue the Gateway complaint and accept the proposed consent agreement for public comment, with Commissioner Slaughter dissenting in an issued statement. Chairman Ferguson issued a statement joined by Commissioner Holyoak in support of the complaint and settlement.
Chairman Ferguson emphasized in his statement that Gateway’s “noncompete agreements [were] so pernicious and so onerous as to make them anticompetitive.” At the same time, he recognized the procompetitive benefits noncompete agreements can offer: “For example, noncompete agreements can promote investment in employees by mitigating the risk that a rival will lure employees away. And noncompete agreements can allow business owners to sell their enterprise profitably because no one would buy a business if the seller could immediately compete again in the same field.” He noted that the Commission will continue to apply a case-specific approach to assessing the lawfulness of noncompete agreements, and that in the Gateway case, “evidence [indicated] that Gateway’s particular use of noncompete agreements violates Section 5 of the FTC Act,” in particular because they were neither reasonable in scope (in particular, geographically) nor justified to protect a legitimate business interest.
In Commissioner Slaughter’s dissenting statement, she noted that “[t]his order is fine as far as it goes.” While agreeing with the enforcement against Gateway, she considered the settlement not to go far enough because it “does nothing to address the structural problems in the underlying market” – i.e., Gateway’s alleged strategy to roll up smaller providers via serial acquisitions. She claimed that “[w]ithout touching the structural issues in the market, a [noncompete] remedy, however meaningful, will not successfully protect consumers or workers in the pet aftercare market.”
II. RFI
On September 5, the day after issuing its complaint and accepting the proposed remedy in Gateway, the Federal Trade Commission launched a public inquiry and request for information (“RFI”) to better understand the scope, prevalence, and effects of employer noncompete agreements, as well as to gather information to inform possible future enforcement actions. The RFI recognizes that, while noncompete agreements can serve valid purposes in some circumstances, available evidence indicates that they are often subject to abuse.
In particular, the FTC noted that some employers appear to impose noncompete agreements as a matter of course, inserting them into employment contracts without consideration to whether the noncompete agreement is appropriate. While noting that there can be legitimate justifications for imposing noncompete agreements, the FTC acknowledged that noncompete agreements may also harm labor markets, leading to lower worker earnings, lost innovation, higher consumer prices, and overall negative effects on workers’ and consumers’ quality of life.
The FTC has encouraged participation in the RFI from members of the public, including employees subject to noncompete agreements and employers facing hiring difficulties due to a rival’s noncompete agreements.
III. The FTC Agreeing to Vacating of its Noncompete Rule
Only one day later, the FTC also took steps to dismiss its appeals in Ryan, LLC v. FTC, No. 24-10951 (5th Cir.), and Properties of the Villages v. FTC, No. 24-13102 (11th Cir.), and to agree to vacating the Noncompete Rule promulgated by the Commission in April 2024. While seemingly at odds with the FTC’s action in Gateway and its issuance of the RFI, the FTC’s decision to abandon the Noncompete Rule aligns with dissents expressed by Republican Commissioners at the time and with the preference for a case-specific approach evidenced by the action in Gateway.
When the FTC issued the Noncompete Rule, then-Commissioner Ferguson and Commissioner Holyoak dissented on the grounds that the FTC lacked the statutory authority to issue the Noncompete Rule. That same rationale motivates the Commission’s decision to abandon the Noncompete Rule’s defense now – i.e., the majority considered the Noncompete Rule’s illegality to be “patently obvious” and chose instead to “protect American workers by doing what Congress told [the FTC] to do—patrolling our markets for specific anticompetitive conduct that hurts American consumers and workers, and taking bad actors to court.”
IV. Takeaways
- While the FTC has abandoned the Noncompete Rule, it intends to continue targeted enforcement against noncompete agreements it considers to violate existing antitrust laws. Despite its continued enforcement interest, the FTC has acknowledged now on multiple occasions the validity of noncompete agreements in the M&A context.
- The factors the FTC will consider in evaluating the legality of a noncompete rule are addressed in Commissioner Meador’s statement in support of vacating the Noncompete Rule. These factors include the horizontal or vertical nature of the restraint, whether the challenged restraint is reasonably necessary to a legitimate collaboration or the operations of a company, the market power of the entity imposing the restriction, and whether the agreement operates as a barrier to entry (such as by preventing competitors from accessing employees and whether it prevents employees from starting competing businesses).
- Several contextual factors may be relevant in assessing a noncompete agreement, including employee wage and skill level, deployment in a distribution network, and application to independent contractors.
- The FTC’s challenge to Gateway’s noncompete policy fits into this framework. Gateway applied its noncompete agreements to all employees regardless of skill or wage level and did so in response to competitive threats or market pressures (i.e., to disadvantage rivals).
