Federal Judge Upholds FTC’s Ban on Noncompete Agreements

Federal Judge Upholds FTC’s Noncompete Agreement Ban

A federal judge in Pennsylvania made a significant ruling on Tuesday by declining to block the Federal Trade Commission’s (FTC) recent ban on noncompete agreements. This decision stands in contrast to a previous ruling by another judge, who expressed skepticism regarding the legal foundations of the FTC’s actions.

The ruling removes a major hurdle for the FTC as it moves forward with its plan to prohibit nearly all noncompete agreements. These agreements, which restrict employees from seeking new employment within the same industry, currently impact approximately one in five workers across the United States. The new regulation is scheduled to come into effect on September 4.

In response to the FTC’s decision, several business organizations promptly filed lawsuits to challenge the ban. They argue that the prohibition will hinder their ability to safeguard trade secrets and confidential information. Among the plaintiffs is ATS Tree Services, a tree-removal company that claimed to rely on noncompete agreements to “provide its employees with necessary and valuable specialized training while minimizing the risk that employees will leave and immediately use that specialized training and ATS’s confidential information to benefit a competitor.”

However, Judge Kelley Brisbon Hodge ruled that ATS Tree Services failed to demonstrate that the enforcement of the new rule would result in irreparable harm to the company. In her denial of the company’s request for a preliminary injunction, Judge Hodge asserted that the lawsuit was unlikely to succeed on its merits.

In a statement following the ruling, Douglas Farrar, a spokesman for the FTC, noted that Judge Hodge’s decision “fully vindicates” the commission’s authority to eliminate noncompete clauses. He emphasized that such agreements are detrimental to competition as they restrict workers’ freedom and mobility, ultimately stifling economic growth.

On the other hand, Josh Robbins, a lawyer representing ATS from the Pacific Legal Foundation, a libertarian law organization, expressed disappointment with the court’s ruling. He indicated that the firm remains committed to challenging the FTC’s authority, although he refrained from commenting on whether an appeal would be pursued.