The Federal Trade Commission has formally abandoned its 2024 rule banning most post-employment noncompete clauses. Instead, the agency will enforce restrictions on a case-by-case basis.
The FTC also announced its first major enforcement action under the new plan: the targeting of the nation’s largest pet cremation business.
The noncompete rule, which the FTC adopted in April 2024 under the Biden administration, prohibited many forms of noncompete agreements deemed to be an “unfair method of competition.” However, nationwide enforcement was effectively blocked after a federal judge in Texas vacated the rule in August 2024, ruling that the FTC lacked the authority to enact such a sweeping regulation.
Rather than attempting another blanket prohibition, the FTC now intends to enforce actions selectively, specifically targeting noncompete agreements deemed anticompetitive under existing law.
“As a result of the FTC’s withdrawal of the 2024 rule, we have seen several states enact legislation to prohibit or restrict geographic noncompetition agreements that are ancillary to an employment relationship,” said attorney Brent Pohlman, a partner in the National Veterinary Law Group at Mandelbaum Barrett PC. “This is an ever-evolving landscape at the state level, so practice owners and veterinarians need to be aware of changes at the state level while being mindful of federal enforcement.”
Under the new approach, the FTC filed a complaint and proposed a consent order against Gateway Services Inc. and its subsidiary. Serving more than 17,000 veterinary practices across 100-plus locations, Gateway is the largest pet cremation company in the United States.
According to the complaint, almost 1,800 Gateway employees — from executives to hourly workers — are bound by noncompete agreements that forbid them from working in a pet cremation business anywhere in the United States for one year after leaving Gateway.
According to the FTC, the agreements are overly broad, harm competition and limit workers’ ability to pursue better opportunities. The agreements also likely impede the opening of competing pet cremation service businesses, including those by Gateway employees.
Under the proposed consent order, Gateway must:
- Immediately stop enforcing existing noncompetes.
- Refrain from entering into new noncompete agreements (with limited exceptions).
- Notify employees that they are no longer restricted by a noncompete agreement.
- Limit solicitation restrictions to only customers the employee had contact with in the previous 12 months.
The order will release Gateway employees from restrictive agreements, allowing them to move within the industry and negotiate better wages and benefits.
“The FTC’s approach and analysis in the Gateway action does not represent a change in its prior application of the law,” Pohlman said. “The FTC will be examining whether geographic noncompetition agreements are reasonable in duration and scope and whether the restriction is related to a legitimate business interest and not just intended to prevent competition.”