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On July 22, 2024, Judge Kelley B. Hodge of the United States District Court for the Eastern District of Pennsylvania, who was appointed by President Biden in 2022, ruled on Plaintiff ATS Tree Services, LLC’s Motion for Stay of Effective Date and Preliminary Injunction of the FTC’s Final Rule Banning Non-Competes (<a href="http://www.michaelbest.com/portalresource/ATS_TREE_SERVICES_LLC,_v._FEDERAL_TRADE_COMMISSION" target="_blank" rel="noopener">Opinion</a>).

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Judge Hodge denied ATS’s motion finding both (1) Plaintiff had not shown irreparable harm; and (2) Plaintiff had not shown a substantial likelihood of success on the merits. Judge Hodge noted that unlike the Fifth circuit, the Third circuit does not view unrecoverable business costs that a party will expend to comply with a challenged rule—such as the Final Rule—to constitute “irreparable harm.” It also found the Plaintiff’s expectations of its employees’ reactions to be speculative, and its out-of-pocket expenses to revise its agreements to comply with the Final Rule to be de minimis. Judge Hodge further opined that the clear statutory text gave the FTC the authority to issue the Final Rule.

Judge Hodge’s decision is the polar opposite of Texas court Judge Ada Brown’s preliminary decision in Ryan, LLC wherein on July 3, 2024, she found irreparable harm and a substantial likelihood Plaintiff Ryan would succeed on the merits of its claims that the <a href="https://www.michaelbest.com/Newsroom/344802/Texas-Court-Stays-Effective-Date-of-the-FTCs-Non-Compete-Ban-but-only-for-the-Plaintiff-Refuses-to-Issue-a-Nationwide-Ban">FTC lacked authority to issue the Final Rule.</a>

A third case challenging the FTC Final Rule has been filed in the United States District Court for the Middle District of Florida, Properties of the Villages, Inc. v. FTC. The FTC’s deadline to file its brief in reply to plaintiff’s motion for stay is July 25, 2024. It is unclear when the judge will rule on this motion.

How Do the Dueling Opinions on the FTC Final Rule Impact Your Business?

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While ATS Tree Services may request reconsideration of its motion, businesses should not rely on the Pennsylvania court changing its mind. However, as we reported in our <a href="https://www.michaelbest.com/Newsroom/344802/Texas-Court-Stays-Effective-Date-of-the-FTCs-Non-Compete-Ban-but-only-for-the-Plaintiff-Refuses-to-Issue-a-Nationwide-Ban">previous client alert</a> on July 4, 2024, the Texas court judge in Ryan LLC notified the parties that she will issue a ruling on the merits no later than August 30, 2024. Given her preliminary (yet extensive) ruling that the “FTC lacked statutory authority to promulgate the Non-Compete Rule, and that the Rule is arbitrary and capricious[,]” it seems unlikely that she will change her mind on this substantive issue, even considering the Pennsylvania’s judge disagreement. That said, the Pennsylvania court’s preliminary ruling or a possible decision from the Middle District of Florida could impact Judge Brown’s decision on whether to issue a nationwide ban of the Final Rule.

Moving forward, all eyes are now on Texas Judge Brown’s pending decision on the merits in Ryan LLC and whether she will issue a nationwide ban of the FTC Final Rule on or before August 30, 2024, as well as Florida. In anticipation of the Texas court’s decision on the merits and a possible decision from the Florida court, it is prudent for businesses to discuss with counsel their options based on the potential outcomes in that case.

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Victor J. Allen

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Scott C. Beightol

Kerryann Haase Minton

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Courtney D. Tedrowe

Labor & Employment

Unfair Competition & Trade Secrets

Pennsylvania Court Refuses to Preliminarily Enjoin FTC Final Rule Banning Noncompetes – All Eyes Back on Texas for its August 30, 2024, Pending Decision

Pennsylvania Court Refuses to Preliminarily Enjoin FTC Final Rule Banning Noncompetes – All Eyes Back on Texas for its August 30, 2024, Pending Decision

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