In a decision issued on July 23, 2024, U.S. District Judge Kelley Brisbon Hodge, for the Eastern District of Pennsylvania (the “Court”), denied Plaintiff’s motion for a stay of effective date and preliminary injunction against the Federal Trade Commission’s long-anticipated Non-Compete Rule (the “Rule”).
Amidst nationwide anticipation of the Federal Trade Commission’s Non-Compete Rule, which will invalidate most existing and future non-compete agreements, KingSpry’s Employment Law Chair, Avery E. Smith, Esq., highlights Judge Hodge’s decision and what it means for the future of non-competes in Pennsylvania.
Facts of the Case
ATS Tree Services, LLC (“ATS”) filed a lawsuit against the Federal Trade Commission (the “FTC”) under the Administrative Procedure Act and the United States Constitution, alleging that the FTC has exceeded its authority under the Federal Trade Commission Act and violated the Constitution in enacting the Rule, which bans the use of most non-competes.
More specifically, ATS asserted four (4) claims:
- The FTC lacks statutory authority to promulgate substantive rules to prevent unfair methods of competition;
- If the FTC has substantive rulemaking power, the FTC’s ban on all non-compete agreements exceeds its statutory authority to prevent methods of unfair competition;
- Rendering existing non-compete agreements for non-senior executives unenforceable is arbitrary and capricious; and
- The FTC Act unconstitutionally delegates legislative power to the FTC.
Plaintiff’s Motion
ATS filed a motion for a stay of effective date and preliminary injunction (the “Motion”) against the Rule, which was denied by the Court.
Judge Hodge’s Opinion
In her opinion, Judge Hodge upheld the legality of the Rule and the FTC’s authority to enact such regulations. Judge Hodge suggested that ATS is unlikely to succeed in its challenge against the Rule, writing that Congress provided the FTC with the power “to make rules and regulations” for the purpose of carrying out the FTC Act, which includes “”prevent[ing]…unfair methods of competition.”
Related Challenges
Judge Hodge’s decision differs greatly from a recent decision issued by U.S. District Judge Ada Brown for the Northern District of Texas. In Ryan, LLC v. FTC, Judge Brown granted a preliminary injunction against the Rule for the Plaintiff and Plaintiff-Intervenors, who presented similar arguments against the FTC.
For more on Judge Brown’s decision, check out our previous blog: Texas Court Temporarily Strikes Non-Compete Ban for Plaintiff and Intervenors.
Moving Forward
Although this decision suggests that Pennsylvania Courts intend to uphold the Rule, the question still remains whether another federal court will expand a nationwide injunction before the September 4, 2024 effective date.
In the coming weeks, employers are encouraged to keep abreast of the ongoing challenges to the Rule while proactively preparing for it to take effect.
