A dramatic recalibration of federal policy on noncompete agreements has unfolded, signaling a decisive move away from broad regulatory bans toward a more targeted, litigation-focused approach. A recent public hearing held by the Federal Trade Commission (FTC) served as the primary stage for this strategic pivot, where the central debate over the legality and economic consequences of these restrictive employment clauses took a sharp turn. While the hearing featured extensive criticism of noncompetes, the most significant development was the current leadership’s definitive rejection of the previous administration’s pursuit of a nationwide prohibition. In its place, the commission is now championing a more measured, case-by-case enforcement strategy that promises to reshape the landscape for employers and employees alike, heralding what many see as a new era in antitrust enforcement.
A New Philosophy from Rulemaking to Enforcement
Rejecting the Unlawful Power Grab
The prevailing sentiment throughout the FTC’s recent hearing was a firm and unequivocal rejection of broad, rule-based prohibitions on noncompete agreements. FTC Chairman Andrew Ferguson articulated this new direction, acknowledging that these clauses can indeed produce anticompetitive effects that harm workers, stifle competition for talent, and ultimately hurt consumers. However, he strongly positioned the prior administration’s effort to implement a sweeping, nationwide ban as a significant overreach of the commission’s statutory authority. Ferguson characterized the now-nullified April 2024 final rule as an “unlawful power grab,” arguing that the agency had ventured into “pure lawmaking.” He contended that the previous FTC attempted to enact a policy with a massive economic impact, one that would preempt a complex web of existing state laws and legislate in an area where Congress has repeatedly considered but ultimately declined to act, thereby usurping a role constitutionally reserved for the legislative branch.
This strategic reversal represents more than a simple policy change; it reflects a fundamental ideological shift within the commission regarding its role in regulating the labor market. The previous approach viewed noncompetes as presumptively anticompetitive, justifying a broad, prophylactic rule to eliminate them across the board. The current leadership, in contrast, is returning to a more traditional antitrust framework that evaluates business practices on their specific effects in the marketplace. This perspective concedes that not all noncompetes are created equal. Some, when narrowly tailored, may serve legitimate, pro-competitive business interests, such as protecting valuable trade secrets or justifying significant investments in specialized employee training. The new philosophy moves the FTC away from its brief tenure as a quasi-legislative body and firmly back into its historical role as an enforcement agency, where legal action is driven by evidence of demonstrable harm in individual cases rather than by broad regulatory decree.
The Education Through Enforcement Doctrine
In place of the abandoned universal ban, Chairman Ferguson announced that the FTC would adopt a more nuanced policy of “education through enforcement.” This doctrine is built on the principle that targeted legal actions against unlawfully restrictive agreements can establish clear precedents and effectively guide industry behavior without the need for a sweeping, one-size-fits-all rule. The approach recognizes that some noncompete agreements may serve legitimate business purposes, such as safeguarding client relationships or proprietary information, but it maintains that such agreements must be narrowly tailored to achieve those specific goals. The commission will now focus its resources on pursuing enforcement against agreements that lack sufficient justification and have demonstrable adverse effects on competition and worker mobility. To illustrate this strategy in action, Ferguson pointed to a recent proposed consent order against Gateway Services, Inc., a pet cremation company, whose noncompetes were alleged to be unlawfully broad. While acknowledging that critics might find this piecemeal approach too slow, Ferguson asserted that the agency is constrained by its legal authority and the established precedent of U.S. antitrust law.
This enforcement-led strategy is deeply rooted in the commission’s interpretation of its legal and historical mandate. According to Ferguson, the body of U.S. antitrust law, as it has evolved over more than a century, does not support the kind of broad, regulatory prohibition that the previous administration sought to implement. The FTC’s authority is to police unfair methods of competition, a task historically accomplished through case-by-case adjudication rather than sweeping rulemaking that redefines entire market dynamics. By focusing on litigating specific instances of anticompetitive conduct, the agency aims to build a body of case law that clarifies the boundaries of legitimate noncompete use. This method, while more deliberate, is presented as being more legally sound and respectful of the separation of powers. It sends a clear message to businesses that the FTC is not abandoning the issue but is instead shifting its tactics to a more defensible and legally durable form of intervention that relies on the established power of the courts to interpret and apply the law.
The Enforcement Playbook Targets and Tactics
Scrutinizing the Details and Industries
The hearing provided clear insights into how the commission will analyze and prosecute noncompete cases moving forward under its new enforcement-first paradigm. Mark Woodward, an FTC attorney and an assistant director in one of its anticompetitive practices divisions, emphasized that the negative impacts of these agreements are most pronounced for workers who lack significant bargaining power. He clarified that even if a noncompete is limited in its geographic scope and duration—factors traditionally used to assess reasonableness—it is not automatically considered legal. Woodward stated that while the FTC considers these factors, they are “not necessarily dispositive.” The agency will still scrutinize the totality of the circumstances surrounding the agreement, including the nature of the industry, the employee’s role, and the actual competitive effects of the restriction. This holistic analysis signals a more sophisticated and less formulaic approach, promising a deeper dive into the specific facts of each case to determine whether an agreement unlawfully restrains trade.
An overarching trend identified during the hearing is the FTC’s heightened focus on specific industries where noncompetes are perceived to cause the most significant harm, with healthcare emerging as a primary area of concern. Woodward explicitly stated that healthcare has been a “particular focus” for the agency because anticompetitive noncompetes in this sector are “especially significant.” Such agreements can severely limit employment options for physicians, nurses, and other medical professionals. This, in turn, can restrict patients’ ability to choose their healthcare providers, potentially disrupting the continuity of care when a trusted doctor is forced to leave a geographic area. The commission’s focus is already evident in its actions, as Chairman Ferguson previously issued multiple warning letters to healthcare employers and medical staffing firms, urging them to review and rescind overly broad noncompete clauses. This industry-specific targeting demonstrates a strategic allocation of resources toward areas where the public interest is most directly and acutely affected by restrictive covenants.
A Warning to Employers
Despite the FTC’s strategic pivot, a consensus viewpoint on this enforcement-led strategy has not been reached. John Lettieri, President and CEO of the Economic Innovation Group, argued against the industry-by-industry or case-by-case method, advocating instead for “broadly applicable restrictions across the board.” From his perspective, the most effective approach is one that liberates all workers to pursue their best interests without being encumbered by restrictive covenants. However, the hearing ultimately concluded with a clear message and direct advice for employers. Woodward urged businesses to “consider alternatives” to noncompetes whenever possible. He suggested that less restrictive measures can often achieve the same protective goals more effectively. For instance, targeted nonsolicitation agreements can safeguard investments and client relationships, while nondisclosure agreements (NDAs) can protect confidential company information and trade secrets without locking a worker out of an entire industry.
The final takeaway from the hearing was an unambiguous warning that employers who continued to use overly broad agreements could expect enforcement action, including litigation. Woodward’s final remarks left little room for interpretation, expressing a clear readiness to challenge these clauses in court. He argued that alternatives such as fixed-term contracts for employees receiving costly training are often better tailored to an employer’s stated goals than a broad noncompete. By issuing this stern admonition, the FTC signaled its confidence in its legal position and its commitment to pursuing cases it believes it can win. Woodward’s statement, “I personally look forward to litigating some cases in this area. I like our chances on many of the fact patterns we’ve heard about today,” underscored the agency’s renewed focus. The hearing, therefore, established not a retreat from the issue, but a tactical redeployment, shifting the battle over noncompetes from the realm of regulation to the courtroom.
