A federal judge in the Eastern District of Pennsylvania recently declined a request to temporarily block the Federal Trade Commission’s (“FTC”) worker non-compete rule (“Final Rule”). ATS Tree Services, LLC (“ATS”), a tree removal company, had requested that the Court issue a preliminary injunction to block the Final Rule, arguing that ATS needed to prevent employees from leaving and using specialized training and confidential information to benefit competitors. However, the judge ruled that ATS had not demonstrated either irreparable harm or a likelihood of success on the merits. The judge also ruled that the FTC had the authority to implement the Final Rule.
This decision contrasts sharply with a Texas federal court’s ruling earlier this summer, where the judge temporarily blocked the Final Rule’s implementation for the plaintiffs until a final decision on the merits is made by August 30, 2024. The federal district court for the Northern District of Texas held that the FTC lacked the authority to issue the Final Rule but limited the ruling to the plaintiffs in that case. You can read more about the background of the Ryan, LLC lawsuit in our July article.
The presiding judge in the Ryan, LLC lawsuit in Texas was appointed by then-President Trump in 2019. The presiding judge in the ATS Tree Services, LLC lawsuit in Philadelphia was appointed by President Biden in 2022.
In the meantime, a third challenge to the Final Rule has been filed in the federal U.S. District Court for the Middle District of Florida. Similar to the plaintiffs in the Texas and Pennsylvania cases, the plaintiff, Properties of the Villages, Inc. is seeking a preliminary injunction to block the implementation of the Final Rule as applied to the plaintiff. Stated differently, the requested relief is limited to the plaintiff in the lawsuit as opposed to a nationwide injunction. The plaintiff argues that the Final Rule exceeds the FTC’s statutory authority and unlawfully disrupts the substantive statutory and regulatory frameworks of states nationwide. Additionally, they contend that the Final Rule’s impact is impermissibly retroactive, as it would “reshape the contractual relationships between businesses and individuals on an unprecedented scale.”
The presiding judge in the Properties of the Villages, Inc. litigation was appointed by then-President George W. Bush in 2002. As of August 9, 2024, the plaintiff’s motion for preliminary injunction was fully briefed. The Court has set an oral argument for August 14, 2024. Although difficult to predict with certainty, it seems reasonable to anticipate a ruling from the Court prior to the September 4, 2024 effective date of the FTC’s Final Rule.
Currently, the FTC’s Final Rule has been invalidated by one federal court, upheld by a second and awaits a ruling from a third. Thus, it is technically accurate to describe the Final Rule as being of “questionable enforceability.” Ultimately, a definitive, nationwide ruling will be for the U.S. Supreme Court to decide, and it will take time for this issue to make its way up to the top federal court in the land; this Supreme Court has not been particularly receptive to federal agencies expansively using their rulemaking authority.
Practical Takeaways
- Stay Informed: Continue checking our website for updates, as the Ryan, LLC and Properties of Villages, Inc. cases could continue to provide more favorable guidance for employers.
- Work Closely with Counsel: Working with legal counsel will help employers assess risk tolerance, evaluate strategy options and determine recommended next steps and workforce communications that work best for your organization. Keep in mind that there is no “one size fits all” approach.
- Limits on FTC Jurisdiction: Don’t lose sight of the fact that the FTC lacks jurisdiction over nonprofit entities.
- No Private Cause of Action: The Final Rule does not provide a private cause of action to individual workers or employees, which means that an individual (e.g., a physician) who is unhappy with an employer that takes a “wait and see” approach does not have standing under the Final Rule to sue the employer for an alleged violation of the Final Rule. And given the number of legal challenges to the Final Rule that the FTC is currently defending, large-scale enforcement efforts by the FTC, at this time, seem unlikely.
If you have any questions on issues discussed in or related to this post, please contact:
- John Bowen at (317) 429-3629 or jbowen@hallrender.com;
- Dana Stutzman at (317) 977-1425 or dstutzman@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot give legal advice outside of an attorney-client relationship.
