FRANCHISE LAW
Does the FTC Non-Compete Rule Affect Franchises?
The FTC’s 2024 Non-Compete Rule never took effect, so it does not govern franchise non-competes — those are still controlled by state law and the terms of your franchise agreement. The Federal Trade Commission issued a rule in 2024 that would have banned most worker non-competes, but a federal court set it aside before its effective date, and in 2025 the FTC dropped its defense of the rule. If you read older guidance about a “new FTC ban,” this is the correction. Here is where things actually stand as of mid-2026.
What Happened to the FTC’s Non-Compete Rule
In April 2024, the FTC voted to adopt a rule that would have prohibited most non-compete agreements with workers nationwide. Before it could take effect, the U.S. District Court for the Northern District of Texas, in Ryan LLC v. FTC, held that the agency exceeded its authority and set the rule aside on a nationwide basis in August 2024.
The FTC initially appealed. In September 2025, the Commission voted to dismiss its appeals and accede to the vacatur, formally ending the effort to impose a nationwide ban. The rule was subsequently removed from the Code of Federal Regulations. The practical result: there is no federal rule banning non-competes, and the legal landscape has returned to the pre-rule status quo, where state law decides whether a non-compete is enforceable.
What Governs Franchise Non-Competes Now
With no federal rule in force, franchise non-competes are governed where they always were — in state law and in the franchise agreement itself. Two distinct relationships are worth separating:
| Relationship | Who it covers | What governs it |
|---|---|---|
| Franchisor–franchisee | The post-term covenant in the franchise agreement | State franchise/contract law; reasonableness in scope, duration, geography |
| Employer–employee | Non-competes a franchisor or franchisee signs with their own staff | State employment law, which varies widely and is changing |
For the franchise relationship, courts generally enforce a post-termination non-compete only to the extent it is reasonable — limited in duration, geographic reach, and the activities it restricts, and tied to a legitimate interest like protecting trade secrets and the system. A covenant drafted to be reasonable is far more likely to hold up than one drafted to be maximal. Our explainers on how non-compete clauses typically work in franchise agreements and the post-termination non-compete clause in your franchise agreement walk through the mechanics.
State Law Is the Real Variable
Because the federal rule is gone, the state where the franchise operates matters more than ever. Some states refuse to enforce most non-competes, others enforce reasonable ones, and several have tightened or changed their rules recently. State employment non-compete law in particular is in flux. The takeaway for franchisors operating in multiple states is that a single nationwide non-compete clause will not be enforced uniformly — the clause has to be drafted with an eye to the law of each state where it might be tested.
It is also worth noting that even without a rule, the FTC has signaled it may still challenge specific non-compete practices through case-by-case enforcement, and it continues to scrutinize franchise-relationship terms more broadly. So “no rule” does not mean “no risk.” It means the analysis is once again a state-law and reasonableness analysis rather than a federal-ban analysis.
What Franchisors Should Do
If your franchise agreement or employee contracts were revised in 2024 in anticipation of the FTC ban, revisit them — they may have been changed based on a rule that no longer exists. The current priorities are straightforward: make sure post-term covenants in your franchise agreement are reasonable and tailored, confirm they comply with the law of each state where you operate, and treat employee non-competes separately under applicable state employment law. Where a covenant has been the subject of conflict, our overview of franchise agreement non-compete disputes is a useful starting point.
Frequently Asked Questions
Is the FTC non-compete rule in effect?
No. The 2024 rule was vacated by a federal court before it took effect, and in September 2025 the FTC dropped its appeal and accepted the vacatur. The rule has been removed from the Code of Federal Regulations.
Does any federal rule ban franchise non-competes?
No. With the FTC rule gone, there is no federal ban. Franchise non-competes are governed by state law and the franchise agreement.
Are franchisor–franchisee non-competes enforceable?
It depends on the state and the terms. Courts generally enforce a post-termination non-compete only to the extent it is reasonable in duration, geographic scope, and restricted activities, and tied to a legitimate business interest.
Should I update covenants I changed for the 2024 rule?
Likely yes. If you revised agreements or employee contracts in anticipation of the ban, have them reviewed, since the rule those changes were based on never took effect.
Because this area turned on contested federal litigation and varies sharply by state, have your specific covenants reviewed before relying on them. Reidel Law Firm helps franchisors draft and defend enforceable agreements. Talk to a franchise attorney.
