Red Alert for Noncompetes: FTC Signals Continued Scrutiny of Restrictive Covenants, National Law Journal

The launch of a Joint Labor Task Force signals that the Federal Trade Commission will continue to scrutinize labor practices, but through targeted enforcement rather than rulemaking.

On Feb. 26 the Federal Trade Commission announced the launch of a Joint Labor Task Force to “prioritize rooting out and prosecuting unfair labor-market practices that harm American workers.” The announcement signals that the Republican-led FTC will continue to focus on anticompetitive labor practices, a shift from the party’s traditional pro-employer approach.

In a directive issued along with the announcement, FTC Chair Andrew Ferguson instructed the directors of the Bureaus of Competition, Consumer Protection and Economics—and the Office of Policy Planning—to form a task force to prioritize investigation and prosecution of deceptive, unfair or anticompetitive labor market conduct and harmonize the bureaus’ methods and procedures for investigating such conduct.

Although Ferguson opposed the now-enjoined FTC rule barring most noncompete agreements on constitutional grounds, as he viewed the rule as going beyond the FTC’s statutory authority, he has recently indicated support for the use of the FTC’s enforcement authority to target noncompetes on a case-by-case basis, stating that the FTC will use the antitrust laws as a “scalpel” to prosecute specific noncompete agreements where appropriate.

Labor Practices Subject to Scrutiny by the FTC

The directive lists a broad range of practices that the FTC may investigate for potential antitrust and/or consumer protection violations, including:

• No-poach, non-solicitation, or no-hire agreements.
• Wage-fixing agreements.
• Noncompete agreements.
• Labor-contract termination penalties.
• Labor market monopsonies, where a business uses anticompetitive methods to create or maintain significant buyer power in a market for labor.
• Collusion or unlawful coordination on diversity, equity and inclusion metrics, which the directive states “may have the effect of diminishing labor competition by excluding certain workers from markets, or students from professional-training schools, on the basis of race, sex, or sexual orientation.”
• Harming gig economy workers through unfair or deceptive trade practices.
• Deceptive job advertising.
• Deceptive business opportunities, which “lure Americans into buying a business on the basis of false or misleading representations about the value and potential earnings of the business.”
• Misleading franchise offerings.
• Harmful occupational licensing requirements “that can serve as an unwarranted barrier to entry and reduce labor mobility.”
• Job scams, “including fraudulent job placement scams and online ‘task scams,’ that lure job seekers to complete small online tasks but instead trick consumers into paying money that is never recovered."

Notably, the Biden FTC targeted some of the same labor practices, including no-poach, no-hire, non-solicitation and wage fixing agreements, as reflected in the FTC and U.S. Department of Justice’s joint Antitrust Guidelines for Business Activities Affecting Workers, issued just before the change in administrations.

The FTC is already acting on this directive as, on the same day it announced the Joint Task Force, the FTC voted unanimously to approve a consent order requiring building services contractor Planned Building Services to cease enforcement of no-hire agreements, which limited building owners from hiring building service workers that were employed by Planned Building Services.

The focus on “collusion or unlawful coordination on DEI metrics” is the most notable departure from past enforcement priorities. Ferguson has been a vocal supporter of President Donald Trump’s anti-DEI executive orders, calling DEI a “scourge on our institutions” in a Jan. 22 FTC press release. Under the Biden administration, the FTC treated race discrimination as an unfair trade practice that violates Section 5 of the FTC Act, but it remains unclear whether the FTC will now use its Section 5 authority to target companies actively engaging in DEI initiatives.

Future of the FTC’s Noncompete Ban

As noted above, the FTC rule that would have banned nearly all noncompete agreements was held unlawful by two district courts and enjoined before taking effect. Although the agency appealed both rulings in the last months of the Biden administration, on March 7, the FTC filed motions to hold the appeals in abeyance for 120 days. Ferguson and Mark Meador, Trump’s recently confirmed nominee for FTC commissioner, have both indicated publicly that the FTC will likely abandon the noncompete rule. That said, the agency has not announced that it will abandon the noncompete rule yet, so the situation remains in flux.

Takeaways

The launch of the Task Force signals that the FTC will continue to scrutinize labor practices, but through targeted enforcement rather than rulemaking. The FTC’s enforcement approach will likely become clearer in the coming months, as the dismissal of the two Democratic commissioners means the agency is no longer deadlocked. Although the noncompete rule faces a grim future, Ferguson has made clear that the FTC will use its enforcement authority to target noncompete agreements in every sector.

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Reprinted with permission from the May 23, 2025, edition of the National Law Journal © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.