A Pennsylvania federal court judge denied the motion for a preliminary injunction pushing the effective date of the Federal Trade Commission's noncompete ban, National Law Review reported July 23.
A judge in the U.S. District Court for the Eastern District of Pennsylvania ruled that the noncompete ban fell within the FTC's rulemaking authority, after a Texas federal court held that the ban exceeded its statutory authority, setting up a split amongst federal courts.
With the move, the FTC's rule is set to go into effect September 4, unless the court issues an order delaying its implementation, according to the report.
ATS Tree Services filed a suit two days after the FTC voted in April to issue the rule. The court rejected the plaintiffs argument that the FTC exceeded its statutory authority in adopting the noncompete rule, saying that the FTC has authority to regulate “unfair methods of competition” under Section 6 of the Federal Trade Commission Act of 1914.
The court also rejected the arguments that it would cause "irreparable" harm to plaintiffs' contractual rights and investments in specialized training.
The Texas court ruling provided relief to only the plaintiffs in the Ryan case and did not restrict the FTC from enforcing the ban against other employers, according to the National Law Review. The court stated its intent to issue a ruling by the end of August.
A third challenge was recently filed by a Florida-based real estate residential housing company, Properties of the Villages, which also seeks a preliminary injunction to stay the effective date of the rule. The FTC's response is due July 25.
The FTC's rule would illegal to include noncompetes in employment contracts unless the employer is a nonprofit, requires companies with noncompetes to inform workers that they are void. The move currently faces at least three federal lawsuits.