The legal landscape of noncompete agreements in the U.S. has changed significantly. It remains in flux, particularly considering the Federal Trade Commission’s (FTC) actions regarding its final rule on the matter.
Employers – and those keeping up with employment law – should be aware that noncompete contracts, while critical for protecting proprietary information and client relationships, are increasingly under a microscope from both regulatory bodies and the courts. With the FTC’s broad attempt to ban noncompetes blocked but still under scrutiny, and states diverging in the enforcement of such agreements, businesses face legal uncertainty that could weaken competitive protections. Staying informed and compliant with current state guidelines and evolving federal guidelines is crucial for risk management, talent strategy, and long-term operational stability.
The Ride Begins
On April 23, 2024, the Biden-era FTC voted 3-2 to adopt a final rule that would have banned nearly all noncompete agreements in employment. The vote split along party lines, with both Republican commissioners voting against it. As we noted in a previous alert, the FTC’s rule aimed to make existing noncompetes unenforceable for the vast majority of workers and prohibit new noncompetes even for senior executives. The FTC justified this rule by arguing that noncompetes negatively affect competitive conditions in labor markets, inhibit innovation, and can lead to increased market concentration and higher prices for consumers.
However, the implementation of the FTC rule faced substantial legal challenges. On August 20, 2024, a federal district court in Texas permanently blocked the FTC’s Final Rule on Noncompete Agreements, delivering a significant blow to the agency’s efforts. The court ruled that the regulation exceeded the agency’s authority and was arbitrary and capricious. The FTC appealed that ruling and a similar decision from a district judge in Florida. With the change in administrations, there were questions about whether the federal government would continue prosecuting the appeals.
Twists and Turns
On March 7, 2025, the federal government filed motions to stay the two ongoing appeals of rulings that blocked the FTC’s rule. This action by the Trump administration suggests an expected shift in the government’s approach.
Despite these motions to stay, FTC Chairman Andrew N. Ferguson has launched a task force to protect competition in the antitrust context in part by targeting unreasonable noncompete agreements and no-poach, non-solicitation, and no-hire agreements. Given these developments, the agency will likely maintain some level of scrutiny of noncompete agreements and their potential impact on labor markets, at least in the antitrust context.
For the time being, the enforceability of a given noncompete agreement will turn on state law at least until the federal approach becomes clearer. As a general matter, for states in Galloway’s footprint in the Gulf South, most states permit them if they only restrict the employee from carrying on or engaging in a similar business within a specific geographic area and they are reasonable in duration, geographic scope, and the type of work prohibited.
Safety Check: Practical Tips for Employers
- Evaluate whether you need a noncompete agreement.
- Review your state law on noncompete agreements.
- Articulate the legitimate business interest you are seeking to protect.
- Consider the following: the length of time needed to protect your company’s legitimate interests, the geographic region, your specific enterprise, and the actual work done by the employee.
- Cookie-cutter agreements are less likely to withstand scrutiny and should be avoided.
- Evaluate whether using non-disclosure, non-solicitation, or confidentiality agreements in tandem with or instead of noncompetition agreements is a suitable way to safeguard confidential information and customer relationships.
- Continue to be cautious about the enforceability of noncompetes, especially for non-executive employees. Even with the uncertainty at the federal level, courts are increasingly scrutinizing these agreements.
- Focus on employee retention strategies. Competing for talent by offering better wages, benefits, and working conditions remains a crucial and less legally fraught approach.
- Engage legal counsel to stay updated on legal developments to ensure compliance with state law and evolving federal enforcement priorities.
Eyes on the Horizon
We will monitor further developments with respect to the FTC’s stance on noncompete agreements and what form its proposed scrutiny of anti-competitive practices will take.
Disclaimer: This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between Galloway and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions.
Doris Bobadilla, Esq.
Licensed in Louisiana, Mississippi, Texas, and Florida
dbobadilla@gallowaylawfirm.com | 985-674-6680
Wendell Hall, Esq.
Licensed in Louisiana and California
whall@gallowaylawfirm.com | 985-674-6680