The US District Court for the Eastern District of Pennsylvania has issued a ruling upholding the FTC's authority to issue the broad ban on non-compete agreements that is scheduled to take effect on September 4. Unlike the earlier decision in the lawsuit in Texas federal court filed by the U.S. Chamber of Commerce (Ryan LLC v. FTC, issued July 3), the Pennsylvania judge holds that Sections 5 and 6 of the FTC Act fully empower the FTC to issue substantive antitrust regulations.
The Pennsylvania federal court also departs from the views of the Texas federal court that the plaintiff company would be irreparably harmed by the implementation of the FTC's noncompete ban.
There is now a direct conflict in the federal courts regarding whether the FTC Final Rule outlawing noncompete agreements is or is not beyond the statutory and constitutional powers of the FTC. In the absence of clear guidance from the courts on the validity or invalidity of the FTC's noncompete rule, companies will face a difficult decision regarding whether to revoke existing noncompete agreements as required by the FTC Rule when the effective date of September 4 arrives.
A federal judge rejected a small Pennsylvania company's challenge of the Federal Trade Commission's ban on noncompete contracts, creating a divide in the judiciary over the regulator's powers.
The FTC has clear legal authority to issue "procedural and substantive rules as is necessary to prevent unfair methods of competition," said Judge Kelley Brisbon Hodge of the US District Court for the Eastern District of Pennsylvania. ATS Tree Services has failed to establish it would eventually succeed on the merits of its argument that the agency lacks such power, she said.
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