Pennsylvania Judge Declines to Stop FTC Noncompete Ban

A judge in the U.S. District Court for the Eastern District of Pennsylvania declined on July 23 to halt the Federal Trade Commission’s (FTC’s) ban on noncompete agreements. The decision comes after the U.S. District Court for the Northern District of Texas earlier this month granted a preliminary injunction and postponed the effective date of the rule for the plaintiffs in that case.

“We’ve had two rulings and two different results. There is now total uncertainty facing employers, employees, and the employment market,” said John Siegal, an attorney with BakerHostetler in New York City. “Enforceability of the FTC rule banning noncompetes will not be determined by the date when the rule takes effect on Sept. 4.”

We’ve gathered articles on the news from SHRM Online and other outlets.

FTC Wins in Pennsylvania

In siding with the FTC in the noncompete challenge brought by ATS Tree Services, the Pennsylvania district court created a divide in the federal judiciary on the agency’s powers. The judge in Pennsylvania said ATS Tree Services failed to establish it would eventually succeed on the merits of its case. Unlike the Texas plaintiffs, ATS did not seek a nationwide injunction. The Pennsylvania case is ATS Tree Services LLC v. Federal Trade Commission, E.D. Pa., 2:24-cv-01743.

(Bloomberg)

Judge Affirms Agency’s Power to Make Rule

The FTC has “the authority to promulgate rules prohibiting unfair methods of competition,” the Pennsylvania court wrote. The plain text of the Federal Trade Commission Act “provides no express limitations on the FTC’s rulemaking authority and the court will not read in such limitations.”

(Pennsylvania district court’s opinion)

Texas Court Ruled Differently

In Texas, the organizations that sued to block the FTC’s final rule prohibiting most noncompete agreements from taking effect will not have to abide by the rule until their litigation is resolved, a federal district judge ruled July 3. The court said it would rule on the merits of the rule on or before Aug. 30.

“As this litigation progresses, SHRM will continuously identify strategic opportunities for employers’ voices to be heard, ensuring that the perspectives of HR professionals, business leaders, and workers are central in the court’s final decision,” SHRM said. SHRM also favored a nationwide injunction “so that HR professionals, business leaders, and workers avoid confusion and ensure smooth business operations while the matter continues to move through the court system.”

(SHRM Online)

Noncompete Rule Has Wide Scope

The FTC’s rule bans most new noncompete clauses in employment contracts—a sweeping rule affecting millions of workers. The rule also makes all existing noncompete agreements except for those covering senior executives unenforceable and requires employers to provide notice to current and former workers that their noncompete clauses are no longer in effect. The FTC defines the term “senior executive” to refer to workers earning more than $151,164 annually who are in a policymaking position.

In submitted comments on the rule when it was still a proposal, SHRM offered the FTC less restrictive alternatives to its ban on noncompetes, such as establishing a minimum salary threshold for workers, limiting the types of employees who can enter into noncompete agreements, and prohibiting the use of noncompetes in certain industries.

(SHRM Online)