The Rule That Never Took Effect: What Happened to the FTC's Noncompete Ban

The Federal Trade Commission formally removed its Non-Compete Clause Rule from the Code of Federal Regulations on February 12, 2026, closing out a rulemaking effort that would have banned most noncompete agreements nationwide but that never took effect after a federal court blocked it and the agency ultimately abandoned its defense of the rule in court.DOCUMENTED

The withdrawal followed the FTC's September 5, 2025 decision to formally dismiss its pending appeals in the two lead cases challenging the rule, Ryan LLC v. FTC in the Fifth Circuit and Properties of the Villages v. FTC in the Eleventh Circuit, effectively vacating the rule for good.DOCUMENTED

What the rule would have done

The FTC's final rule, issued in April 2024 after a lengthy comment and rulemaking process that began with a proposed rule in January 2023, would have banned employers from entering into new noncompete agreements with workers starting September 4, 2024. For existing noncompetes, the rule drew a distinction based on seniority: agreements covering senior executives could generally remain in force, while noncompetes covering other workers would become unenforceable, with employers required to notify affected current and former employees of that change by the rule's effective date.DOCUMENTED

The Commission's rationale, developed over a multi-year rulemaking process, characterized widespread use of noncompete agreements as an unfair method of competition that suppressed wages, limited worker mobility, and stifled the formation of new businesses by employees who might otherwise leave to start competing ventures.DOCUMENTED

The court challenges begin

Business groups challenged the rule in federal court almost immediately after its adoption, arguing the FTC lacked the statutory authority under Section 6(g) of the FTC Act to issue a substantive, legislative rule of this kind rather than merely a procedural one. In Ryan LLC v. FTC, filed in the Northern District of Texas, U.S. District Judge Ada Brown initially issued a narrower preliminary injunction, before ultimately ruling for the plaintiffs more broadly on August 20, 2024, ordering that the rule be set aside entirely and not take effect anywhere in the country, just days before its scheduled effective date.DOCUMENTED

Litigation over the rule was not entirely one-sided in its early stages: in a separate challenge, ATS Tree Services v. FTC, a federal court in the Eastern District of Pennsylvania took a more favorable view of the rule in July 2024, rejecting a plaintiff's request for a preliminary injunction and finding the company had not shown it would suffer irreparable harm from the rule's implementation — a split among district courts that made the rule's ultimate fate dependent on eventual appellate review.DOCUMENTED

A change in administration, a change in strategy

The FTC initially indicated it would appeal Judge Brown's ruling, filing its notice of appeal to the Fifth Circuit in October 2024. But a change in presidential administration in early 2025 brought new FTC leadership under Chairman Andrew Ferguson, and by September 2025 the agency had reversed course, formally withdrawing its appeals in both the Fifth Circuit and Eleventh Circuit cases rather than continuing to defend the rule's validity.DOCUMENTED

Ferguson framed the decision as reflecting a considered policy choice rather than merely a legal retreat, stating that the Commission would not defend what he characterized as an untenable rule, and would instead pursue enforcement against specific anticompetitive noncompete agreements on a case-by-case basis under the FTC's existing Section 5 authority.DOCUMENTED

What replaces the rule

With the blanket federal rule now formally withdrawn, enforceability of noncompete agreements reverts to the pre-rule status quo: a patchwork of state laws that vary considerably in how restrictive they are, ranging from states that ban noncompetes outright to states that enforce them broadly subject to reasonableness limitations. Legal commentary following the FTC's withdrawal has noted that several states, including Colorado and Washington, have separately enacted their own income-based restrictions on noncompete agreements, meaning the regulatory landscape workers actually face continues to shift even without a uniform federal rule.DOCUMENTED

The FTC held a public workshop on noncompete agreements in January 2026, gathering input on the scope, prevalence, and effects of employer noncompete practices, though legal observers tracking the agency's approach have characterized its case-by-case enforcement activity to date as sparse, with limited public indication of how aggressively the Commission intends to pursue individual noncompete cases going forward absent the broader rule it has now abandoned.REVIEWED

What it means for the estimated 30 million affected workers

The FTC's original rulemaking record estimated that noncompete agreements bound roughly one in five American workers, spanning industries far beyond the executive and highly compensated employees noncompetes are sometimes assumed to target. With the nationwide rule now permanently off the table, the practical question for most of those workers is whichever state's law happens to govern their employment contract — a considerably more uneven landscape of protection than the uniform national standard the rule would have established.

The rule's collapse also illustrates the practical limits of major regulatory initiatives that rest on a single agency's interpretation of decades-old statutory authority, particularly following the Supreme Court's 2024 ruling in Loper Bright Enterprises v. Raimondo, which eliminated the deference courts had previously extended to agencies interpreting ambiguous statutes. With that deference gone, the FTC's claim to broad Section 6(g) rulemaking authority faced a considerably steeper legal challenge than it might have a decade earlier, a dynamic that legal observers expect to constrain similarly ambitious rulemaking efforts by other federal agencies going forward.REVIEWED

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