Federal judge upholds FTC ban on noncompete agreements

A federal judge has rejected a tree-trimming company’s bid to block the Federal Trade Commission (FTC) ban on noncompete agreements from taking effect.

The FTC issued a rule in April that would ban all new noncompete agreements and require companies to let current and past employees know they won’t enforce existing agreements, carving out an exception for senior executives covered by existing noncompetes.

Around 18 percent of the U.S. workforce, or 30 million people, are covered by noncompete agreements, according to FTC estimates. The agreements span experience and industries, from fast food workers to physical therapists to CEOs.

ATS Tree Services had asked the court to stay the rule’s Sept. 4 effective date and for a preliminary injunction back in mid-May, and the court held oral arguments on the case earlier this month.

U.S. District Judge Kelley Hodge in Philadelphia said Tuesday that the FTC has the power to “to prevent unfair methods of competition in commerce” under the 1914 Federal Trade Commission Act, including agreements that prevent tens of millions of employees from leaving to work for a competitor or start a competing business.

“The Court finds Plaintiff has 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,” Hodge wrote in her opinion.

FTC spokesperson Douglas Farrar told The Hill that “the 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."

Josh Robbins, an attorney for ATS at the libertarian Pacific Legal Foundation, said he and his clients were “disappointed” by the judge’s decision and vowed to “continue to fight the FTC's power-grab.

"The FTC does not have the statutory authority to rewrite millions of employment contracts by banning non-compete agreements. ATS, a small tree care business, relies on its non-compete agreements to enable it to provide valuable training to its employees. Banning these agreements will significantly harm ATS’s business,” Robbins said.

Tim Bartl, president and CEO of HR Policy Association, which represents nearly 400 human resource executives at some of America’s largest employers, also said he was “disappointed” by the judge’s decision.

“The Association is disappointed in the judge's decision and remains firm in its belief that the FTC's rule is beyond its legal authority,” Bartl said. 

“The Association remains committed to finding a long-term solution to this issue that allows for the continued reasonable use of non-compete agreements while prohibiting their misuse, regardless of whether the FTC's rule goes into effect in September.”

In a separate case brought by the tax services firm Ryan and a coalition of business groups including the U.S. Chamber of Commerce and the Business Roundtable, a federal judge in Texas this month blocked the FTC from enforcing the rule against the plaintiffs.

The U.S. District Court for the Northern District of Texas said it would “rule on the ultimate merits of this action on or before August 30, 2024,” with the rule set to take effect Sept. 4.