The FTC’s battle to end non-competes is now one against, one for. After a federal court in Texas issued a preliminary injunction against the rule earlier this month, a Pennsylvania-based district court now says the FTC has every right to strike down such contracts.
Non-competes have proven highly controversial for the radio industry, with managers, talent, and sellers all falling on both sides of the issue, but this new lawsuit comes from a more unexpected field.
ATS Tree Services, a Pennsylvania-based landscaping company, traditionally requires new hires to sign a one-year non-compete clause. This clause restricts employees from joining competing tree care services within the same geographic area for one year after leaving ATS.
The company, represented pro bono by the Pacific Legal Foundation, argued that the FTC’s ban on such agreements undermines businesses’ willingness to invest in their employees, fearing they might be poached by competitors.
However, Judge Kelley B. Hodge ruled against ATS, stating that the plaintiff failed to demonstrate irreparable harm and affirmed the FTC’s authority to implement the non-compete ban to prevent unfair competition. Hodge emphasized the FTC’s capacity to enforce both procedural and substantive regulations necessary for curbing unfair competitive methods.
This directly counters the ruling of Judge Ada Brown from the Northern District of Texas, who granted a preliminary injunction on behalf of Ryan LLC, a tax services firm based in Dallas. Judge Brown said a non-compete ban exceeds the regulatory authority granted to the FTC under the FTC Act. According to the injunction, the FTC is not permitted to create substantive rules that define what constitutes unfair competition.
As it stands, the FTC rule will render most existing noncompete clauses unenforceable as of September 4, except for those involving senior executives with salaries exceeding $151,164 and policy-making responsibilities. The rule would also prevent new noncompete agreements with these executives.
Employers would not need to formally rescind current noncompetes but must notify employees that such agreements will no longer be enforced. With precedent now available for and against the FTC, there’s sure to be long legal arguments ahead as the rule moves forward.
