On July 23, 2024, federal Judge Kelley Brisbon Hodge of the U.S. District Court for the Eastern District of Pennsylvania upheld the FTC’s ban on noncompete agreements. This ruling contradicts the July Texas federal District Court’s decision to partially block the ban. These rulings leave roughly one in five American workers who are bound by noncompete agreements in a state of limbo.
The FTC enacted the regulations largely banning non-compete agreements in April, and it is set to take effect September 4, 2024. The enactment was followed by several lawsuits. The US Chamber of Commerce and Ryan LLC. – a tax service provider – sued and Trump appointee Judge Ada Brown of the Texas federal District Court ruled in favor of the plaintiffs. She issued a preliminary injunction on the grounds the FTC lacked the constitutional or statutory authority to make such a rule. This injunction only affects the parties involved in the case and does not block the ban nationally. However, the court is issuing a final decision by August 30, 2024, which may expand the injunction to have a nationwide effect.
Despite the Texas ruling, President Biden’s eastern Pennsylvania appointee Judge Hodge upheld the FTC’s rule in ATS Tree Services, LLC v. Federal Trade Commission. ATS Tree Services sought a preliminary injunction, arguing it used noncompete agreements to protect “specialized training” and prevent employees from using this specialized training elsewhere. This argument fell flat as Judge Hodge ruled the plaintiff had not proven it would suffer irreparable harm from the FTC’s rule. ATS also claimed the FTC lacked the legal authority to adopt the ban. Judge Hodge strongly disagreed, writing that federal law grants the “FTC with the authority to promulgate rules prohibiting unfair methods of competition”. Douglas Farrar, a spokesman for the FTC, was thrilled by the decision stating it “fully vindicates” the FTC’s authority to issue a ban on non-compete agreements.
As of now, the FTC’s ban on noncompete is still set to take effect September 4, however, Judge Brown’s supplemental decision could change everything. Furthermore, if the Republicans win in November, the new FTC might be instructed to accept a decision that overturns the regulations, or they might withdraw the .
Brody and Associates regularly advises management on complying with the latest local, state and federal employment laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560
