Pennsylvania Court Upholds Non-Compete Ban

Published: July 26, 2024

On July 23, a federal judge in the Eastern District of Pennsylvania dismissed a legal challenge brought by a small Pennsylvania company against the Federal Trade Commission’s (FTC’s) prohibition on non-compete agreements.

Judge Kelley Brisbon Hodge affirmed in ATS Tree Services, LLC v. Federal Trade Commission that the FTC possesses clear legal authority to establish both procedural and substantive rules aimed at preventing unfair competitive practices. In her decision concerning ATS Tree Services, a company which employs 12 individuals most of whom are subject to non-compete agreements, Judge Hodge stated the company failed to show it would suffer irreparable harm from application of the non-compete Rule.

Judge Hodge is the second federal judge to preliminarily rule in matters challenging the FTC Non-compete Rule which is scheduled to become effective September 4, 2024.

Judge Hodge’s ruling contradicts U.S. District Court Judge Ade E. Brown’s July 3 decision to grant a stay of the non-compete ban. (Read more in “FTC Non-compete Meets Setback.”) The two orders evidence the divide on the scope of the FTC’s regulatory powers and legality of the Rule.

What happens next? Neither Judge Hodge’s nor Judge Brown’s orders apply nationwide.  However, Judge Brown announced her intention to release a final decision on the Texas-based challenge to the Rule by August 30. It is anticipated that decision will address the Rule’s application nationwide, and the indications from her prior order suggest that she stay enforcement of the ban.

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Until it is known if the FTC’s rule will be stayed, employers need to be prepared to address the changes and requirements the FTC’s rule will implement if not stayed. Employers should consult with legal counsel to discuss options and determine best next steps.