In another update to the Federal Trade Commission’s (the “FTC”) Non-Compete Ban (the “Rule”), a federal judge in Pennsylvania ruled against ATS Tree Services, LLC v. Federal Trade Commission, et al.[1] denying ATS’ motion for a preliminary injunction. The Court found that ATS failed to show that the FTC lacks the power to ban non-competes based on its authority to promulgate rules prohibiting unfair methods of competition, adding ATS had not shown that allowing the Rule to take effect would cause irreparable harm. The Court’s decision highlighted that non-compete clauses often hinder labor market mobility and suppress wages by limiting employees’ ability to seek better employment opportunities. The Court also acknowledged the FTC’s comprehensive analysis demonstrating that non-competes are broadly anti-competitive and detrimental to economic growth.
This decision represents a split from the conclusion a federal judge in Texas recently reached in Ryan LLC v. Federal Trade Commission, et al.[2] Earlier this month, the Texas court issued a preliminary injunction finding that the FTC likely exceeded its statutory authority when promulgating the Rule, and the plaintiffs had a high likelihood of prevailing on the merits. A decision is expected by August 30, 2024.
The Rule is scheduled to take effect on September 4, 2024. It makes most existing non-compete agreements unenforceable and prohibits new agreements, except in limited circumstances. While the cases make their way through the legal system, employers should prepare to abide by the Rule by reviewing employment contracts and preparing to send notices to employees with non-compete clauses when the Rule goes into effect.
