September 2025
FTC retreats from broad non-compete ban but signals increased case-by-case scrutiny of non-competes will continue
On September 5, 2025, the Federal Trade Commission (the “FTC”) voluntarily dismissed its appeal in the Fifth Circuit Court of Appeals seeking to reinstate its proposed rule banning most non-compete agreements (“Rule”). However, other recent actions by the FTC signal that non-compete agreements nevertheless remain an enforcement priority.
On September 4, the day before it withdrew its appeal, the FTC filed an administrative complaint against Gateway, a pet cremation service company, alleging Gateway unlawfully required all employees, regardless of their position and responsibilities, to sign non-compete agreements barring them from working in the pet cremation service industry anywhere in the United States for one year after their separation. The FTC asserted these non-competes violated Section 5 of the Federal Trade Commission Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.”
The FTC and Gateway have entered a proposed consent order. The Order would prohibit Gateway from entering into, enforcing or threating to enforce the challenged non-compete, with limited exceptions for agreements (i) with directors, officers or senior employees receiving equity in Gateway, or (ii) with seller equity holders as part of the sale of a business. The consent order would also limit future customer non-solicit agreements to accounts an employee directly served or contacted within the last 12 months of their employment.
In an accompanying joint statement by FTC leadership, Chairman Andrew N. Ferguson rejected the notion that all non-competes are inherently unlawful, explaining that “sometimes non-compete agreements have anticompetitive effects, and other times they have procompetitive effects.” However, he reaffirmed the FTC’s “commitment to enforcing the law vigorously” against non-compete agreements that are “pernicious and [] onerous.” Commissioner Melissa Holyoak emphasized the FTC will assess non-compete agreements on a case-by-case basis.
Also on September 4, the FTC issued a Request for Information to gather public input on “the scope, prevalence, and effects of employer non-compete agreements,” particularly encouraging feedback from “current and former employees restricted by non-compete agreements, employers facing hiring difficulties due to a rival’s non-compete agreements,” and those in the healthcare industry. To the latter effort, on September 10, the FTC issued warning letters to healthcare employees and staffing firms, urging them to review their employment agreements closely “to ensure they are appropriately tailored and comply with the law.”
S&K Take: The FTC’s actions in September make clear that although the Rule is withdrawn, the FTC remains focused on scrutinizing restrictive covenants through targeted enforcement actions. Employers should ensure their non-compete agreements are narrowly tailored to protect legitimate business interests.
California appeals court addresses employer liability for harassment by off-site co-worker
In Kruitbosch v. Bakersfield Recovery Services, Inc., the California Court of Appeal considered whether an employer may be held liable under California’s Fair Employment and Housing Act (“FEHA”) for harassment by a non-supervisory co-worker that occurred off-premises and outside working hours. The plaintiff alleged that a co-worker made repeated, unwanted sexual advances via his personal cell phone and unsolicited visits to his home, and that when he complained to Human Resources, they dismissed his complaint because it occurred outside of the workplace and mocked him on social media.
The trial court dismissed the plaintiff’s claims, but the Court of Appeal reversed, in part. On the one hand, the Court held the co-worker’s off-premises conduct was not sufficiently work-related to impose liability on the employer—it did not occur through employer-provided channels, at work-related events, or in foreseeable work-related social settings. On the other hand, the Court found that the employer’s failure to act, combined with the HR personnel’s mocking, could be viewed as condoning the harassment and severely altering the plaintiff’s work environment sufficient to state viable FEHA claims of hostile work environment and failure to prevent harassment.
S&K Take: We have seen an uptick in harassment and discrimination lawsuits like Kruitbosch that are premised on off-duty conduct. Although the California Court of Appeal did not attribute the co-worker’s off-premises conduct to the employer, employers should be mindful that employees’ off-duty conduct can generate liability for the company under certain circumstances. This is particularly so as employees increasingly interact outside of working hours through electronic means, such as social media and personal cell phones. This decision also underscores that employer liability may arise not only from harassing conduct itself, but also from how an employer responds—or fails to respond—to complaints of harassment. Employers should continue to respond promptly and respectfully to all harassment complaints, regardless of where and through what means the alleged conduct occurred.
