Split court decision on FTC noncompete ban adds uncertainty
While a Texas court preliminarily decided the FTC noncompete ban isn't enforceable, a Pennsylvania court decided it is, leaving businesses without a set direction.
A Pennsylvania court's decision to side with the Federal Trade Commission over its ban on noncompete agreements has heightened uncertainty for businesses about what will happen between now and Sept. 4, when the rule takes effect.
U.S. District Court Judge Kelley Hodge of the Eastern District of Pennsylvania decided this week in ATS Tree Services LLC v. Federal Trade Commission that the FTC had the authority to issue its noncompete ban and that ATS Tree Services failed to show irreparable harm to attain an injunction against the rule. Hodge's decision contradicted an earlier court decision in Texas, where U.S. District Court Judge Ada Brown of the Northern District of Texas decided to grant a preliminary injunction against the FTC noncompete ban, with a final decision expected by the end of August.
Split court decisions on an issue like the FTC noncompete ban create "total uncertainty" for employers and provide no definitive guidance with the rule set to take effect in a little over a month, said John Siegal, a partner at law firm BakerHostetler. The FTC noncompete ban prohibits nearly all such agreements between employers and employees.
"Right now, all anyone can do is watch with their eyes wide open," Siegal said.
What a split court decision means
The split court decision has left employers in a quandary when it comes to understanding the best course forward, said Michael Wexler, a partner at law firm Seyfarth Shaw.
"You have one court saying the FTC didn't have authority, you're having another court saying it did have authority, and everyone is stuck in the middle," he said.
Siegal said he expects the plaintiffs will appeal the Pennsylvania decision and that other plaintiffs will bring cases against the FTC noncompete ban. Another issue he expects is that judges will have two different court decisions to consider in any lawsuits brought against the FTC once the noncompete ban goes into effect. Siegal said that could result in a "wide range of results."
Right now, all anyone can do is watch with their eyes wide open.
John SiegalPartner, BakerHostetler
"I expect that if this situation persists, the enforceability of the Federal Trade Commission rule will become an issue in virtually all of those cases," he said.
Siegal said companies will need to do a hard assessment of their agreements, including noncompete agreements, and consider other types of agreements that will protect company operations without risking FTC enforcement action.
Given the legal challenges the noncompete ban faces, the FTC could decide to stay the final rule's effective date. However, businesses shouldn't count on that, Siegal said. The FTC planned the noncompete ban for years and likely anticipated that there would be legal challenges, he added.
Following the ruling, FTC spokesman Douglas Farrar said in a post on X, formerly Twitter, that the Pennsylvania judge's decision "fully vindicates that precedent 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."
Makenzie Holland is a senior news writer covering big tech and federal regulation. Prior to joining TechTarget Editorial, she was a general assignment reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.
