A federal judge has rejected a tree-trimming company’s challenge to block the Federal Trade Commission’s (FTC) enforcement of a non-compete agreement.
In April, the FTC issued rules banning all new non-compete agreements and requiring companies to inform current and former employees that they won’t enforce existing agreements, but made exceptions for senior executives who are covered by existing non-compete agreements.
The FTC estimates that about 18% of the U.S. workforce, or 30 million people, are subject to non-compete agreements, spanning people of all experience levels and industries, from fast-food workers to physical therapists to CEOs.
ATS Tree Services asked the court in mid-May to delay the rule’s Sept. 4 effective date and seek a preliminary injunction, and the court heard oral arguments on the matter earlier this month.
U.S. District Judge Kelly Hodge in Philadelphia said Tuesday that under the Federal Trade Commission Act of 1914, the FTC has the authority to “prevent unfair methods of competition in commerce,” including agreements to prevent tens of millions of workers from leaving for competitors or starting rival companies.
“The Court finds that Plaintiffs have failed to establish a reasonable likelihood of success on their claims that the FTC lacks substantial statutory rule-making authority, that the FTC exceeded its authority, and that Congress unconstitutionally delegated legislative power to the FTC,” Judge Hodge wrote in his decision.
FTC spokesman Douglas Faller told The Hill, “The judge’s decision fully vindicates precedent, and the text of the FTC Act clearly gives us rulemaking authority to prohibit non-compete clauses that harm competition by impeding worker freedom and mobility and stifling economic growth.”
Josh Robbins, an attorney representing the ATS at the libertarian group 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 legal authority to rewrite millions of employment contracts by banning non-compete agreements. ATS, a small tree care company, provides valuable training to its employees through non-compete agreements. Banning these agreements would significantly harm ATS’s business,” Robbins said.
Tim Bartle, president and CEO of the HR Policy Institute, which represents about 400 human resources executives from major U.S. employers, also said he was “disappointed” by the judge’s decision.
“The Association is disappointed with the judge’s decision and remains of the belief that the FTC’s rules exceed our legal authority,” Bartle 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 abuse, regardless of whether the FTC’s rules take effect in September.”
In a separate lawsuit brought by tax services company 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 “resolve this case to a final conclusion by August 30, 2024,” with the ruling set to take effect on September 4.
