In early May, the Federal Trade Commission voted 3-2 to approve a new rule banning most covenants not to compete (widely known as noncompetes) nationwide, with some exceptions. Noncompetes are agreements between employees and employers in which the employee promises not to compete with the employer for a specific period of time or within a particular geographic area should the employment relationship terminate. Many noncompetes bar the employee from working for a competitor for a specified time period after ending employment. The enforceability of the FTC's new rule was challenged in three federal court, and each court ruled differently.

The Ruling of the Federal Court in Pennsylvania

On July 23, 2024, in ATS Tree Services v. Federal Trade Commission, the U.S. District Court for the Eastern District of Pennsylvania denied a motion for preliminary injunction and let the rule stand. The court found that the plaintiff failed to establish irreparable harm or likelihood of success on the merits. The success on the merits turned on whether the FTC has the power to engage in substantive, rather than merely procedural rulemaking. The court stated: "When taken in the context of the goal of the act and the FTC's purpose, the court finds it clear that the FTC is empowered to make both procedural and substantive rules as is necessary to prevent unfair methods of competition." The court further noted that Section 5 of the FTC Act "empowered and directed" the FTC to "prevent" unfair methods of competition and unfair or deceptive acts or practices in competition. The court then reasoned, "If the court adopts plaintiff's interpretation of the act, it would limit the FTC's power to only responsive or remedial methods of addressing unfair methods of competition through adjudication, which is inherently at odds with the ordinary interpretation of the word "prevent." The Pennsylvania federal court has not yet ruled on the plaintiff's request for permanent injunctive relief.