Neither of the two decisions by Federal Courts addressing the legality of the ban on non-compete restrictions have prohibited the ban from taking effect on September 4, 2024. This ban will affect employees who do not fall into the category of “senior executives.”
The two decisions came out of the Northern District of Texas and the Eastern District of Pennsylvania.
On July 3, 2024, the Northern District of Texas ruled that the FTC’s ban on non-competes was potentially unlawful, and that the plaintiffs had proven that they had a likelihood of success in proving that the FTC exceeded its authority by adopting a rule that bans non-compete agreements. However, the Texas Court stopped the enforcement of the rule only with respect to the Plaintiff and Defendants in that case, Ryan LLC v. Federal Trade Commission.
Texas Federal Judge Ada Brown ruled that Ryan LLC was entitled to an injunction, halting the FTC’s enforcement of the ban against Ryan LLC, because they were likely to succeed on the merits of their claim that the FTC lacks the rulemaking authority to enforce a nation-wide ban on noncompete agreements.
Almost three weeks later, on July 23, 2024, the Federal Court in the Eastern District of Pennsylvania reached the opposite conclusion in ATS Tree Services, LLC v. Federal Trade Commission, et al.
As background, ATS Tree Services required all its 12 employees, which include low-level employees who are not senior executives, to sign agreements prohibiting them from working in the same type of business for one year, within that geographic region, if they quit or separated from ATS Tree Services. All of these non-compete restrictions would be invalid as of September 4, 2024, so ATS Tree Services sued the FTC.
Judge Hodge from the Pennsylvania Federal Court denied ATS Tree Services’ request for an injunction against the FTC, stopping the enforcement of the rule.
The Pennsylvania Federal Court concluded ATS Tree Service did not prove that they would be “irreparably harmed” if the non-compete ban went into effect. Their argument that they now must change their employment contracts, and that employees would leave and work for competitors, did not qualify as irreparable harm for the purpose of seeking an injunction.
Further, and most importantly, the Pennsylvania Court concluded that the FTC had the power and authority to issue rules banning non-competes.
The Court denied the request for an injunction because “Plaintiff has failed to establish a reasonable likelihood that it will succeed on the merits of its claims that the FTC lacks substantive rulemaking authority under its enabling statute, that the FTC exceeded its authority, and that Congress unconstitutionally delegated legislative power to the FTC.”
Both the Texas and Pennsylvania courts focused on Sections 5 and 6(g) of the enabling statute (the “FTC Act”), to reach opposite conclusions. Section 5 gives the FTC the power to “prevent persons, partnerships, or corporations. . . from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce. 15 USC 45(a)(2).
As both judges acknowledged, Section 6(g) gives the FTC the power “to make rules and regulations for the purpose of carrying out the provisions of this subchapter.” 15 U.S.C. § 46(g).
Even though these are conflicting decisions, there is no Court Order banning the FTC rule from going into effect nationwide on September 4, 2024. Depending on the outcome of any appeal, the rule banning non-competes for all employees, other than senior executives and others exempted from the rule, is poised to go into effect on September 4, 2024.
The information provided on this blot does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. For more inforrmation or questions about your particular issue, contact Law Office of Laura Wong-Pan PLLC, 845-218-1288.
