The Federal Trade Commission (“FTC”) just scored what many view as an unprecedented victory in its efforts to ban the use and enforcement of non-competition agreements across the United States (the “Ban”).

Earlier today, July 23, 2024, the federal court for the Eastern District of Pennsylvania issued its ruling on Plaintiff ATS Tree Services, LLC’s motion to stay and permanently enjoin the enforcement of the FTC’s Ban on Non-Competition Agreements (the “Motion”). Long (39 pages!) story short, the Pennsylvania Court’s ruling was predicated upon two major findings:

1. The Plaintiff failed to demonstrate a substantial likelihood of “irreparable harm” should the FTC Ban on Non-Competition Agreements be allowed to take effect; and

2. Even if the Plaintiff had successfully demonstrated irreparable harm, Plaintiff’s Motion would still necessarily fail, as the Plaintiff failed to demonstrate that the FTC’s Ban exceeded the FTC’s statutory authority.

In other words, the Pennsylvania Court was unconvinced that the FTC’s Ban on Non-Competition Agreements would impose irreparable harm, and in any event, the Court concluded that the FTC has the authority to institute the Ban notwithstanding any amount of harm it may or may not cause.

The ultimate disposition of the FTC’s Ban is an extremely important development to anyone in America who issues or received a W-2. The Pennsylvania Court‘s ruling is a dramatic development, as it’s somewhat at odds with a recent ruling from the federal court for the Northern District of Texas, which held earlier this month that the FTC’s Ban on Non-Competition Agreements did exceed the FTC’s statutory authority… at least insofar as the State of Texas is concerned, because the Texas Court’s ruling - and the resulting temporary stay on any enforcement of the Ban - was limited to Texas’s borders.  

Texas’s ruling is temporary, pending the final disposition of the Texas case on or before August 30, 2024. A little inside baseball for you all: when a Court declares a “substantial likelihood (or unlikelihood) of success on the merits” of a claim, that is usually the Court telling you how it’s going to rule 99% of the time on the case.  Such declarations, including this one, arise out of “preliminary,” temporary”, or “emergency” motions for injunctive relief, where both parties make their very best arguments and provide their very best evidence for why something should (or shouldn’t) happen immediately. 

It is rare for the Court to declare that relief is appropriate because one party is “extremely likely” to prevail, and then change its mind later. For that to occur, the losing party must acquire some new piece of extremely persuasive evidence for its position, and then explain why it did not proffer such evidence at the first hearing.

The situation we are in now is that a federal court in Pennsylvania has effectively announced that it intends to rule in favor of the FTC’s Non-Competition Agreement Ban, and a similarly situated federal court in Texas has effectively announced that it intends to rule against that same FTC Ban. This means that we are speeding towards an inevitable showdown, the results of which will have major implications for the entire country. This is a big deal!  We will continue to keep you informed of the latest developments as they happen. The next major development should occur on or before August 30, when the Texas Court issues its final ruling – we’ll see you then!