Two federal courts split on upholding FTC’s noncompete ban

Last month, we reported that a Texas federal court had stayed (halted) the enforceability of the Federal Trade Commission’s (FTC) final rule implementing a nationwide ban on noncompete clauses in employment agreements but only for the named parties in the lawsuit (see “FTC’s ban on noncompete agreements halted . . . sort of” in the August 2024 issue). We pointed out that a similar challenge had been filed with a Pennsylvania federal court and that rulings in that case could affect whether and how the FTC’s rule might affect employers on a national basis.

The Pennsylvania federal court has now weighed in on the subject and issued its decision.

Two trees

In ATS Tree Services, LLC v. FTC, the Pennsylvania court came to the opposite conclusion as the Texas court and found the FTC was authorized to issue a nationwide rule banning noncompete clauses in new employment agreements and requiring employers to inform current and former employees with noncompete agreements that their agreements will no longer be enforceable.

This split in legal outcomes will undoubtedly lead to appeals and further challenges to the FTC’s rule. But in the meantime, employers find themselves in a tough spot and have to make a difficult decision.

Takeaway