A federal judge in Pennsylvania on Tuesday denied a request to block enforcement of the Federal Trade Commission’s final rule banning noncompete agreements in most instances.
The judge’s decision “fully vindicates” the federal agency’s authority, “and the plain text of the FTC Act clearly provide us rulemaking authority to ban noncompete clauses, which harm competition by inhibiting workers’ freedom and mobility while stunting economic growth,” FTC spokesman Douglas Farrar told the McKnight’s Business Daily on Wednesday.
The Pennsylvania decision, however, is a different conclusion than one reached earlier this month by a federal judge in Texas, who issued a stay and preliminary injunction for some employers in the Lone Star State. That judge subsequently declined to expand the scope of her ruling.
The FTC’s rule, set to take effect Sept. 4, prohibits employers across the country from using the clauses in most instances. Existing noncompetes for most workers no longer would be enforceable. Existing agreements with senior executives — defined as employees in policy-making positions and earning more than $151,164 annually — could remain in force, but employers would be banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives.
The latest ruling comes in response to a lawsuit filed by ATS Tree Services of Pennsylvania, which had requested an injunction. The company, which employs only 12 people, alleged that the FTC “cast off its statutory and constitutional restraints and unilaterally declared non-compete agreements nationally to be unfair and therefore banned.”
Judge Kelley Hodge of the US District Court for the Eastern District of Pennsylvania ruled Tuesday that the tree service “failed to establish a reasonable likelihood that it will succeed on the merits of its claims that the FTC lacks substantive rulemaking authority under its enabling statute, that the FTC exceeded its authority, and that Congress unconstitutionally delegated legislative power to the FTC.”
“The Pennsylvania court’s decision did not analyze the Ryan decision [in Texas], which reached contrary conclusions. It is likely that the dispute will ascend to the Third and Fifth Circuits, respectively,” said attorneys from Prauskauer.
