In a July 8 article titled “FTC’s ban on noncompete agreements halted … sort of,” we reported that a Texas federal court had stayed the enforceability of the Federal Trade Commission’s final rule implementing a nationwide ban on noncompete clauses in employment agreements, but only as to the named plaintiffs in the Texas lawsuit. We pointed out that a similar challenge to the FTC’s rule had been filed with a Pennsylvania federal court, and that rulings in that case could affect whether and how the FTC’s rule might impact employers on a national basis.

Well, earlier this week that Pennsylvania federal court weighed in on the subject and issued its decision. In ATS Tree Services, LLC v. FTC, the court came to the opposite conclusion as the Texas court and found that the FTC was authorized to issue a nationwide rule banning noncompete clauses in new employment agreements and requiring employers to inform current and former employees with noncompete agreements their noncompete agreements will no longer be enforceable.

This split in legal outcomes will undoubtedly lead to appeals and further challenges to the FTC’s rule. But in the meantime, employers find themselves in a tough spot and have to make a difficult decision. The FTC’s rule is slated to go into effect on September 4, 2024.  An employer can begin to plan on how best they should comply with the requirements of the FTC’s rule, or they can wait to see whether a court enjoins the enforceability of the rule before its September 4 implementation date.

We will continue to track developments in the legal challenges to the FTC’s rule.

• ATS Tree Services, LLC v. FTC, et al, Civil Action No. 24-1743 (E.D. Pa. 7/23/24)