The Federal Trade Commission’s (FTC’s) non-compete rule may be effectively dead, but the agency’s focus on non-compete agreements is very much alive. In February, FTC Chairman Andrew Ferguson launched a Joint Labor Task Force to prioritize investigations into what the FTC considers deceptive, unfair, or anticompetitive labor-market practices, especially those that limit worker mobility and earning potential. This includes no-poach agreements, non-solicitation clauses, no-hire provisions, and non-compete agreements.
On September 4, the FTC took a major step in this direction by issuing a complaint and proposed consent order against Gateway Services Inc. (Gateway), the largest pet cremation company in the United States. The FTC alleges that Gateway’s widespread use of non-compete agreements violates Section 5 of the FTC Act.
Background
Gateway Services Inc. and its U.S. subsidiary operate more than 100 locations and employ nearly 2,000 workers nationwide. Since 2019, Gateway has required nearly all new hires, regardless of role, to sign non-compete agreements. These contracts prohibit employees from working in the pet cremation industry anywhere in the U.S. for one year after leaving the company. These agreements were not limited to executives, also applying to hourly workers like crematory operators and route drivers, whose roles typically do not involve access to trade secrets or sensitive information.
FTC’s Allegations
The FTC alleges that Gateway’s non-compete agreements:
- Suppress wages and benefits by limiting job mobility.
- Reduce competition for labor in the pet cremation industry.
- Impose personal hardship on workers.
- Create barriers to entry for competitors.
The Commission argues that any legitimate business interests could have been protected through less restrictive means.
What the Proposed Order Does
The proposed consent order includes several key provisions:
- Bars Gateway from entering, maintaining, or enforcing non-compete agreements.
- Limits non-solicitation clauses to customers the employee directly served in the 12 months before their departure.
- Requires clear written notice to current and former employees that they are free to compete and solicit business.
- Mandates compliance reporting and FTC access for oversight.
- Remains in effect for 10 years
Why This Matters
This action reinforces the FTC’s commitment to investigating companies that use unfair, deceptive, or anticompetitive non-compete or customer non-solicit agreements. It sends a clear message to employers: non-compete agreements must be reasonable, justified, and narrowly tailored, not tools to suppress competition or trap workers. As the FTC continues to scrutinize labor market practices, this case could serve as a blueprint for future enforcement, especially in industries where low-wage workers are subject to overly broad contractual restraints.
What You Should Do
If your company uses non-compete or customer non-solicitation agreements to protect confidential information:
- Audit your agreements to ensure they are used only with employees who have access to trade secrets or sensitive customer relationships.
- Ensure provisions are reasonable and justified.
- Draft agreements to be no more restrictive than necessary to protect legitimate business interests.
