The FTC’s Federal Noncompete Rule Has Been Withdrawn. What Does That Mean for Your Business?

In 2024, the Federal Trade Commission attempted to prohibit most employee noncompete agreements nationwide through a rule issued under Section 5 of the Federal Trade Commission Act. That rule never took effect. After a federal district court set it aside and the FTC later abandoned its appellate efforts, the agency formally removed the rule from the Code of Federal Regulations in 2026.

For businesses that paused or revised their use of noncompete agreements while the rule was being litigated, this is an appropriate time to reassess their restrictive-covenant strategy. The FTC’s 2024 rule is no longer a pending compliance concern, but noncompetes remain heavily regulated under state law and may still attract federal antitrust scrutiny in individual cases.

A Quick Recap

The FTC’s 2024 rule generally would have prohibited employers from entering into new worker noncompete clauses and would have made most existing noncompetes unenforceable. The rule included limited exceptions, including different treatment for certain existing agreements with qualifying senior executives and an exception relating to bona fide sales of businesses.

The rule was immediately challenged in federal court. In Ryan LLC v. Federal Trade Commission, the U.S. District Court for the Northern District of Texas set the rule aside under the Administrative Procedure Act. The court concluded that the FTC lacked statutory authority to issue the rule and that the rule was arbitrary and capricious. Because the rule was set aside before its scheduled effective date, it never became operative.

The FTC initially pursued appellate review but later changed course and abandoned those efforts. In 2026, the agency formally removed the rule from the Code of Federal Regulations. Accordingly, the FTC’s 2024 nationwide noncompete rule is not in effect.

That procedural history carries an important qualification: the district court’s decision was not necessarily affirmed through a final appellate decision on the merits. Nor does the withdrawal of this particular rule prevent Congress or a future FTC from addressing noncompetes through different legislation, enforcement activity, or rulemaking.

Noncompetes Are Still Regulated

The withdrawal of the FTC rule does not make noncompete agreements a free-for-all. Instead, state law once again supplies the principal rules governing whether—and under what circumstances—an employee noncompete may be enforced.

The differences among states are substantial. California, Minnesota, North Dakota, and Oklahoma generally prohibit most employee noncompetes, subject to state-specific exceptions and qualifications. Other jurisdictions limit noncompetes based on employee earnings, occupation, advance-notice requirements, duration, geographic scope, or the employer’s obligation to provide compensation during the restricted period. Still others enforce appropriately tailored noncompetes when they protect a legitimate business interest and are reasonable in duration, geography, and scope of restricted activity.

Texas generally permits employee noncompetes when they are ancillary to or part of an otherwise enforceable agreement and contain reasonable limitations as to time, geographical area, and scope of activity. The covenant must not impose a restraint greater than necessary to protect the employer’s goodwill or other legitimate business interests.[^2]

A covenant that may be enforceable against an employee working in Texas could be void against an employee who lives and works in California—even if both employees work for the same company. California generally treats employee noncompetes as void and restricts attempts to avoid that prohibition through out-of-state governing-law and forum provisions.[^5][^8]

Accordingly, a single nationwide restrictive-covenant template creates substantial risk for multistate employers.

The FTC Has Not Completely Left the Field

Although the FTC abandoned its categorical rulemaking approach, the agency may still challenge particular noncompete practices under its existing enforcement authority. Federal antitrust laws also remain applicable independently of the withdrawn rule.

As a result, the absence of a nationwide rule does not mean every noncompete is safe from federal scrutiny. Agreements that are unusually broad, imposed on large categories of lower-wage workers, unsupported by a legitimate business justification, or used in a manner that materially suppresses labor-market competition may present greater enforcement risk.

The critical distinction is that there is currently no FTC rule categorically prohibiting most worker noncompetes. Any federal challenge would instead need to proceed under an applicable statute and the facts of the particular matter.

Practical Steps for Business Owners

Businesses that paused, revised, or discontinued noncompete agreements in anticipation of the FTC rule should consider reassessing their restrictive-covenant programs under current law.

1. Review Covenants by Employee Work Location

The governing analysis ordinarily begins with the state where the employee lives and performs services. The analysis may also be affected by the agreement’s governing-law and forum-selection provisions, the place of contracting, the employer’s location, and the public policy of the state with the strongest connection to the employment relationship.

Employers with personnel in multiple states should generally use state-specific agreements or state-specific addenda rather than a single national form.

2. Confirm That Each Restriction Protects a Legitimate Business Interest

A noncompete should not be used merely to discourage ordinary employee mobility. Where permitted, it should be tied to a protectable interest, such as:

• trade secrets;

• genuinely confidential business information;

• substantial client goodwill;

• specialized training; or

• sensitive strategic information.

The employee’s position and actual access to sensitive information should drive the scope of the covenant. A restriction appropriate for a senior executive or salesperson with substantial client responsibility may be inappropriate for a lower-level employee with no access to trade secrets or customer goodwill.

3. Use the Narrowest Effective Protection

Depending on applicable state law and the employer’s legitimate interests, narrower protections may include:

• carefully drafted confidentiality agreements;

• trade-secret protections;

• invention and work-product assignment provisions;

• restrictions on using confidential information to divert customers;

• narrowly tailored customer or employee nonsolicitation provisions where enforceable;

• return-of-property and data-deletion obligations; and

• garden-leave arrangements where lawful and properly structured.

These alternatives are not automatically enforceable. California, for example, may invalidate customer nonsolicitation, employee nonsolicitation, garden-leave, forfeiture, or similar provisions if they operate as restraints on lawful competition.[^5] Each provision must therefore be evaluated under the law applicable to the particular employee.

4. Review Existing Agreements Before Attempting Enforcement

Before sending a demand letter or seeking an injunction, an employer should confirm:

• which state’s law applies;

• whether the covenant was supported by legally sufficient consideration;

• whether the employee falls within a statutory exemption or prohibition;

• whether required advance notice was provided;

• whether the covenant satisfies applicable earnings thresholds;

• whether its duration, geography, and activity restrictions are reasonable;

• whether the state permits judicial reformation of an overbroad covenant; and

• whether attempted enforcement could itself trigger statutory liability.

In some jurisdictions, presenting or attempting to enforce a prohibited noncompete can create exposure even if no lawsuit is ultimately filed.

5. Monitor State Legislative Developments

Noncompete law remains one of the most active areas of state employment legislation. States continue to adopt and revise compensation thresholds, notice requirements, occupational exclusions, and categorical prohibitions.

An agreement that is enforceable today may become restricted or unenforceable after a statutory amendment, a change in the employee’s work location, or a new judicial decision.

The Bottom Line

The FTC’s 2024 nationwide noncompete rule never took effect and has now been formally withdrawn. But that does not mean noncompetes are categorically lawful or insulated from federal review.

For most businesses, the controlling question remains: Is this restriction enforceable under the law applicable to the employee and the particular employment relationship?

The answer depends on the employee’s work location, role, compensation, access to confidential information, the employer’s legitimate business interests, and the precise language of the agreement. Now that the FTC’s 2024 rule is no longer pending, businesses should evaluate their restrictive covenants under the current state-by-state framework rather than simply restoring older forms.

This article provides general information and does not constitute legal advice or create an attorney-client relationship. The enforceability of restrictive covenants depends on the governing law and the facts of each matter.