In the latest twist regarding the Federal Trade Commission’s (“FTC”) final rule banning non-compete agreements on a nationwide basis[1] (the “Non-Compete Rule”), a federal court in Pennsylvania has refused to block enforcement of the Non-Compete Rule.[2] This decision comes less than a month after a federal court in the Northern District of Texas granted a limited injunction preventing enforcement of the Non-Compete Rule against the party litigants.[3]
In the Pennsylvania case, ATS Tree Services, LLC v. Federal Trade Commission et al, a tree care company challenged the FTC’s rule arguing that the FTC (1) lacked statutory authority to promulgate the Non-Compete Rule; (2) exceeded its statutory authority by issuing the rule, and alleging that the Non-Compete Rule is arbitrary and capricious.[4] ATS Tree Services also argued that the law on which the FTC relied to promulgate the Non-Compete Rule unconstitutionally delegates legislative power to the FTC.[5] These are essentially the same arguments presented by Ryan LLC before the federal court in the Northern District of Texas.
Although the Texas federal court was persuaded by Ryan LLC’s arguments, the Pennsylvania federal court disagreed, holding that (1) the FTC did not exceed its authority in promulgating the rule; (2) the Major Question’s Doctrine is not applicable to the Non-Compete Rule; and (3) the plaintiff’s argument regarding unconstitutional delegation of power lacked merit.[6] In essence, the Pennsylvania federal court preliminarily upheld the FTC’s authority to issue the Non-Compete Rule.
Just a few weeks earlier, the Texas federal court had ruled that the FTC lacked substantive rulemaking authority to issue the Non-Compete Rule and found that the Rule is arbitrary and capricious.[7]
These conflicting federal court decisions are sure to spark not only additional litigation across the nation regarding the FTC’s Non-Compete Rule but are likely to generate inconsistent appellate opinions as well.
Stay tuned for further developments as the FTC’s Non-Compete Rule winds its way through the federal district and appellate courts on its journey to SCOTUS.
[1] The FTC’s rule banning non-competes is located at 89 FR 38342.
[2] Memorandum (Doc. 80), ATS Tree Services, LLC v. Federal Trade Commission et al, No. 2:24-cv-01743-KBH, currently pending in the United States District Court for the Eastern District of Pennsylvania.
[3] Preliminary Injunction (Doc. 154), Ryan, LLC v. Federal Trade Commission, No. 3:24-cv-00986-E, currently pending in the United States District Court for the Northern District of Texas.
[4] See Memorandum (Doc. 80), ATS Tree Services, LLC v. Federal Trade Commission et al, No. 2:24-cv-01743-KBH, currently pending in the United States District Court for the Eastern District of Pennsylvania, at pp. 3 (Reciting Plaintiff’s four claims).
[5] Id.
[6] Id., at pp 35-37.
[7] Memorandum Opinion and Order (Doc. 153), at pp 1, 23, Ryan, LLC v. Federal Trade Commission, No. 3:24-cv-00986-E, currently pending in the United States District Court for the Northern District of Texas.
