A federal judge in Pennsylvania rejected a request by a tree service company to block the Federal Trade Commission’s (FTC’s) ban on noncompete contracts on grounds of regulatory overreach, diverging from a Texas federal court’s decision that found the FTC exceeded its authority with the ban and setting up a potential showdown before the U.S. Supreme Court.
ATS Tree Services also argued that if the agency has the statutory power to block “unfair” methods of competition, it went, however, too far by declaring all noncompete contracts as “unfair,” which was an “unlawfully capacious” interpretation of the word and so made the FTC rule an act of unconstitutional regulatory overreach.
The FTC argued in legal briefs that it had express authority under the 1914 Federal Trade Commission Act to issue its noncompete rule and that it had properly defined all non-compete contracts as unfair methods of competition.
The judge rejected the plaintiffs’ reasoning.
“While this Court appreciates ATS’s novel argument that ‘unfair methods of competition’ is an unconstitutional delegation when the FTC is utilizing its Section 6(g) substantive rulemaking authority but is a constitutional delegation when the FTC employs its adjudicative authority ... the Court is unpersuaded,” the judge wrote.
Judge Hodge also dismissed ATS Tree Services’s argument that the FTC lacked the power to issue the rule because noncompete clauses have been traditionally governed by state law and the 1914 Federal Trade Commission Act didn’t grant it express authority to overrule state law.
The FTC contended that there is overlapping jurisdiction regarding noncompetes, just as there is in antitrust cases, with the judge siding with that rationale.
“The Court finds that the FTC’s Final Rule banning the majority of non-compete clauses does not exceed its authority, nor does it raise issues of federalism due to its overlap with state laws,” she wrote.
Josh Robbins, an attorney at the libertarian Pacific Legal Foundation, which represented ATS Tree Services, told several media outlets that he and his clients were “disappointed” by the decision and pledged to “continue to fight the FTC’s power-grab.”
“The FTC does not have the statutory authority to rewrite millions of employment contracts by banning non-compete agreements. ATS, a small tree care business, relies on its non-compete agreements to enable it to provide valuable training to its employees. Banning these agreements will significantly harm ATS’s business,” Mr. Robbins said.
The FTC has expressed confidence that it would prevail if ATS Tree Services chooses to appeal.
Douglas Farrar, an FTC spokesperson, told The Epoch Times in an emailed statement that the agency believes the judge’s decision “fully vindicates that precedent and the plain text of the FTC Act clearly provide us rulemaking authority to ban noncompete clauses, which harm competition by inhibiting workers’ freedom and mobility while stunting economic growth.”
The Pennsylvania decision stands in contrast to a July 3 ruling by a Texas federal judge, who partially blocked the FTC rule banning noncompete agreements from taking effect this fall among a handful of employers.
She added that the “role of an administrative agency is to do as told by Congress, not to do what the agency think[s] it should do,” effectively siding with business groups that accused the agency of exceeding its statutory authority in imposing the noncompetes ban.
The Texas judge blocked the FTC from enforcing the rule against the biggest business lobby in the United States—the U.S. Chamber of Commerce—Dallas-based tax firm Ryan LLC, the Business Roundtable, and other business groups, all of whom had filed a lawsuit against the rule.
However, the judge stopped short of banning the rule from going into effect nationwide, saying it was unclear whether such an order was appropriate.
Roughly 30 million people, or 20 percent of U.S. workers, have signed noncompetes, according to the FTC.
