/>iBy now, we all know that the FTC proposed a rule that will ban nearly every noncompete agreement and that a number of companies have filed legal challenges to it. This week, a federal judge in Pennsylvania weighed in, denying a request to enjoin the rule. This essentially causes a split among two federal courts on this issue.
What Happened in Pennsylvania?
ATS Tree Services has noncompete agreements with many of its 12 employees that it believes are important to its business. Given the impending FTC Rule (set to go into effect on September 4), ATS asked the federal court in Philadelphia to grant a preliminary injunction against the FTC Rule.
A preliminary injunction would stop the FTC Rule from going into effect until the court could have a trial on the merits of the claim. To get a preliminary injunction, a party has to show, among other things, that it would suffer “irreparable harm” if the court does not stop the action (in this case the FTC Rule going into effect) and a likelihood of success on the merits.
In rejecting ATS’ motion, the court said that the FTC has the legal authority to issue “procedural and substantive rules as is necessary to prevent unfair methods of competition.” Given this finding, the court found that ATS did not establish it would eventually succeed on the merits (i.e., establishing that the FTC does not have that power). The court also held that ATS had not established that it will suffer irreparable harm if the rule goes into effect.
Absent the injunction, the FTS Rule will go into effect and ATS’ employees will not be bound by their noncompete agreements. ATS can continue to pursue its claim against the FTC, but it will have to comply with the FTC Rule unless or until a court orders otherwise.
Now What?
As we reported earlier, a federal judge in Texas granted a preliminary injunction in favor of a tax firm and the U.S. Chamber of Commerce, blocking the FTC Rule as to them. In that case, the judge held that the “FTC lacks substantive rulemaking authority with respect to unfair methods of competition” under the FTC Act. So, the Texas and the Pennsylvania judges disagree.
The Texas judge intends to rule on the merits of the case by the end of August. She could issue a nationwide injunction against the FTC Rule, or not.
In the meantime, if you have senior executives and want to get an enforceable noncompete that could survive the FTC Rule, you need to do so before September 4.
