Dueling Federal Court Decisions on the FTC’s Non-Compete Ban – Now What?

As many employers know, the Federal Trade Commission has issued a final rule that imposes a near-total ban on non-compete provisions in employment agreements, applicable to for-profit employers (the FTC generally does not have jurisdiction over non-profit employers) with certain limited exceptions (as discussed in our April 24, 2024 E-lert). The rule was immediately challenged in several different courts and, in early July, a Texas federal judge issued a preliminary injunction that blocked the rule as to the plaintiffs in that case – the U.S. Chamber of Commerce, several other trade associations, and a private company, Ryan LLC – as discussed in our July 5, 2025 E-lert. The Texas judge indicated that she thought the FTC lacked the necessary authority to issue the rule and that the rule is likely arbitrary and capricious. But now, a Pennsylvania federal judge has come to the opposite conclusion.

The Pennsylvania Court’s Decision. In ATS Tree Services v. FTC, like the plaintiffs in the Texas case, the plaintiff company argued that the FTC lacked substantive authority to issue the rule, and that Congress unconstitutionally delegated legislative power to the FTC, and also argued that the FTC exceeded its authority. The company requested the Pennsylvania federal judge to issue a preliminary injunction to prevent the rule from being applied to it. However, the Pennsylvania federal judge rejected the request, finding that the company was unlikely to succeed on the merits of its claim or that it would suffer irreparable harm absent an injunction.

Reading the Tea Leaves? With the Texas court’s limited injunction and the Pennsylvania court’s refusal to issue an injunction, the FTC’s rule is currently scheduled to take effect for most employers on September 4, 2024. The Texas court has stated that it intends to issue a ruling on the merits of the case before it by August 30, prior to the effective date, and many legal commentators expect the Texas court to enjoin the rule – but the extent of any injunction is unclear. It is possible, although unlikely, that the Texas court could uphold the rule. If not, the Texas court could issue a nationwide injunction, an injunction that applies only in its jurisdiction of Texas, or only as to the plaintiffs in the case before it (with some question as to whether it might apply to the U.S. Chamber’s and other trade associations’ members or only the entities themselves).

And just to muddy the waters further, another lawsuit has been filed in a Florida federal court, with a request for injunction. No ruling has yet issued in that case.

What Next? In the meantime, covered employers should prepare for the possible implementation of the rule: evaluate current agreements that contain non-compete provisions to determine if they are subject to the ban and, if so, how to modify them to comply with the ban; consider (legal and enforceable) confidentiality, non-disclosure, and non-solicitation provisions that can protect company interests in lieu of non-compete agreements; and plan on whether/how to provide the required notice of non-enforcement to current and former employees with existing non-compete agreements (in consultation with counsel).