On July 23, 2024, the U.S. District Court for the Eastern District of Pennsylvania rejected efforts by plaintiff ATS Tree Services LLC (“ATS”) to temporarily block the Federal Trade Commission’s (“FTC”) Final Rule banning most employment non-competition agreements. This was the second ruling on this issue this month: As we previously reported (HERE), a federal district court in Texas recently enjoined the FTC from enforcing the Final Rule against the U.S. Chamber of Commerce and tax services company Ryan LLC.
ATS is a 12-employee tree care company in Bucks County, Pennsylvania that requires its employees to sign non-compete agreements. The ATS agreements prohibit employees from engaging in the same type of work at a competitor in the same geographic area for one year after leaving ATS. In its suit, the ATS claimed its business would be irreparably harmed if the Final Rule was permitted to go into effect because it would lose employees as well as the return on investment it incurs in specialized training. ATS also argued that the FTC lacks the authority to issue the Final Rule. The court held that ATS failed to meet its burden of demonstrating it would suffer irreparable harm if the Final Rule goes into effect where any concerns by ATS that employees would immediately quit and go to work for competitors were too speculative to support injunctive relief. The court further found that, even if ATS could establish irreparable harm, the employer failed to establish a reasonable probability that the FTC lacks substantive rulemaking authority or exceeded such authority by banning all non-compete agreements or that Congress unconstitutionally delegated legislative power to the FTC. Rather, the court found that the FTC is empowered to make both procedural and substantive rules to prevent unfair methods of competition and the Final Rule was a proper exercise of this rulemaking authority. Accordingly, the court rejected ATS’s motion for a stay of the effective date of the Final Rule and preliminary injunction.
This decision is far from the last word on the Final Rule. Although the ATS judge appears likely to uphold the Final Rule, the Texas court is anticipated to strike down the Final Rule in its forthcoming decision on the merits promised by the court by August 30, 2024. A third challenge is also pending in federal court in Florida and appeals are likely on any or all of the district court decisions. If the decisions of the circuit courts are in opposition like their district court counterparts, there could be an opportunity for the Supreme Court to be the ultimate arbiter of whether the Final Rule is valid. In the meantime and barring further judicial or legislative action, employers should be prepared for the Final Rule to go into effect as scheduled on September 4, 2024.
For more information on the Final Rule, see our e-Alerts of April 24, 2024, HERE and April 26, 2024, HERE. Please note that regardless of the outcome of this case and the enforceability of the Final Rule, employers must comply with existing state laws governing non-competition agreements. If you have questions related to the Final Rule or non-compete provisions in general, please reach out to the NFC Attorney with whom you typically work or call us at 973.665.9100.
