# ATS Tree Services v. FTC: The Court That Let the Non-Compete Ban Stand

> A Pennsylvania federal court refused to enjoin the FTC's non-compete rule, splitting with Texas on the agency's power. The rule later died anyway.

Topic: Trade Secrets  |  Author: Lidiia Levitska  |  Source: Intellectual Property Law (outsideipcounsel.com)
Canonical: https://outsideipcounsel.com/blog/ats-tree-services-v-ftc-noncompete-rule-upheld/


*ATS Tree Services, LLC v. Federal Trade Commission*, No. 2:24-cv-01743 (E.D. Pa. July 23, 2024), is the one federal decision that sided with the FTC on the biggest employment-law question of 2024: whether the Commission had the power to ban nearly all non-compete agreements by rule. Judge Kelley Brisbon Hodge of the United States District Court for the Eastern District of Pennsylvania denied a tree-care company's motion to stay and preliminarily enjoin the FTC's Non-Compete Clause Rule, holding that the company had shown neither irreparable harm nor a likelihood of success. Three weeks earlier, a Texas court had gone the other way. The clash made *ATS Tree* a fixture of the litigation map even though the rule it defended would not survive the year.

## At a glance

- **Case:** *ATS Tree Services, LLC v. FTC*, No. 2:24-cv-01743 (E.D. Pa. 2024)
- **Court:** U.S. District Court for the Eastern District of Pennsylvania
- **Decided:** July 23, 2024, by Judge Kelley Brisbon Hodge; motion for stay and preliminary injunction denied
- **Holding:** The plaintiff failed to establish irreparable harm, which alone defeated the motion, and separately failed to show a likelihood of success: the court concluded the FTC likely does possess substantive rulemaking authority over unfair methods of competition under Section 6(g) of the FTC Act, and that the major questions doctrine is not applicable.
- **Status:** The rule was later set aside nationwide in *Ryan LLC v. FTC* (N.D. Tex.); the FTC dropped its appeals in September 2025 and removed the rule from the CFR effective February 12, 2026. ATS Tree Services voluntarily dismissed its own case in October 2024.

## The rule that started the fight

In April 2024 the Federal Trade Commission issued a final rule declaring it an unfair method of competition to enter into or enforce non-compete clauses with workers, subject to narrow carve-outs. The rule would have voided most existing non-competes and barred new ones, a sweeping displacement of state contract law that has traditionally governed restrictive covenants. Employers challenged it almost immediately. The central legal question was one of administrative power: does Section 6(g) of the FTC Act, which authorizes the Commission to make rules to carry out the Act's prohibition of unfair methods of competition, support binding substantive rules, or only procedural ones? Layered on top was the major questions doctrine, under which courts hesitate to read a vague statute as delegating decisions of vast economic and political significance without a clear statement from Congress.

## ATS Tree's challenge and the court's answer

ATS Tree Services, a Pennsylvania tree-care business, used non-competes with employees it trained and sought to halt the rule before its effective date. It argued that compliance would cost money, that it would lose the benefit of its existing covenants, and that the FTC had exceeded its statutory authority. The court rejected each pillar of the preliminary-injunction showing.

On irreparable harm, the court held that the compliance costs and lost contractual benefits ATS identified were the kind of ordinary, recoverable, or speculative injuries that do not justify emergency relief. Monetary and business burdens that can be quantified are not irreparable, and the harm ATS described was neither immediate nor beyond repair.

On the merits, the court held that ATS was unlikely to succeed. Reading the text and history of the FTC Act, the court concluded that Section 6(g) confers substantive rulemaking authority to define and prohibit unfair methods of competition, not merely housekeeping power. It found that the Commission had exercised competition rulemaking before and that the statutory structure supported the broader reading. The court then held that the major questions doctrine did not apply, reasoning that the rule fell within the FTC's core competition mandate rather than reaching into an unrelated domain, so no clear-statement problem arose.

## The split with Texas

The decision matters because of what happened three weeks earlier. On July 3, 2024, in *Ryan LLC v. FTC*, the United States District Court for the Northern District of Texas granted a preliminary injunction limited to the named plaintiff and intervenors against the same rule, concluding that the challengers were likely to prevail because the FTC lacked substantive competition-rulemaking authority and because the rule was arbitrary and capricious. *ATS Tree* reached the opposite conclusion on the same authority question. For a brief period the federal courts were openly divided, with Pennsylvania validating the FTC's power at the preliminary stage and Texas denying it. A Florida court soon added a third data point by enjoining the rule as to the plaintiff before it.

That divide made *ATS Tree* the strongest judicial statement in the FTC's favor. But a preliminary-injunction ruling decides only likelihood of success, not the ultimate merits, and it binds only the parties before the court. Its influence depended on the litigation that followed.

## What happened to the rule

The rule did not survive. On August 20, 2024, the Northern District of Texas issued a final judgment in *Ryan* setting the rule aside on a nationwide basis, holding that the FTC had acted beyond its statutory authority and that the rule was arbitrary and capricious. That judgment, not *ATS Tree*, controlled the rule's fate. The FTC initially appealed, then, after a change in administration and Commission composition, requested stays to reconsider its position. In September 2025 the Commission voted to dismiss its appeals and accede to vacatur, and the Fifth Circuit dismissed the appeal. The FTC then formally removed the Non-Compete Clause Rule from the Code of Federal Regulations effective February 12, 2026. ATS Tree Services itself had voluntarily dismissed its case back in October 2024, once the nationwide vacatur made its own injunction request moot.

As of July 2026, there is no federal non-compete ban. The Commission has signaled it will instead police the most abusive covenants through case-by-case antitrust enforcement, leaving the field otherwise to state law.

## Open questions

*ATS Tree* leaves a doctrinal residue even though the rule is gone. The core interpretive dispute, whether Section 6(g) authorizes substantive competition rules, was never resolved by an appellate court on the merits, because the FTC abandoned the appeals. That question remains live for any future Commission that might try competition rulemaking on a different subject, and *ATS Tree* and *Ryan* stand as dueling district-court authorities with no controlling resolution. The major questions analysis is equally unsettled: reasonable judges disagreed over whether a nationwide reordering of employment contracts is the kind of major question that demands a clear congressional statement. And the episode leaves open the practical question of how aggressively the FTC can attack individual non-competes through adjudication rather than rulemaking, a strategy that avoids the Section 6(g) problem but reaches far fewer agreements.

## Implications for employers and employees

- **For employers:** The federal ban is dead, so non-competes rise or fall under state law again. Audit covenants against the law of each state where workers sit, because that patchwork, not a single federal rule, now controls enforceability.
- **For workers:** A signed non-compete is not automatically void. The federal rule that would have swept most covenants away never took effect, so challenges must run through state doctrine and any applicable state statutes.
- **For compliance teams:** Do not rely on notices or policy changes made in anticipation of the rule. With the rule removed from the CFR, revisit any communications that told employees their covenants were unenforceable.
- **For observers of agency power:** Watch for renewed enforcement actions targeting the most restrictive covenants. The FTC signaled a case-by-case antitrust approach, which tests a different theory of its authority than the rulemaking *ATS Tree* endorsed.

## Frequently asked questions

**Did ATS Tree Services v. FTC uphold the non-compete ban permanently?** No. The court denied a preliminary injunction, meaning it declined to block the rule while the case proceeded and found the plaintiff unlikely to win. It was not a final judgment on the rule's validity, and the rule was later set aside in separate litigation and formally removed by the FTC.

**Why did the Pennsylvania court reach a different result than the Texas court?** The Eastern District of Pennsylvania read Section 6(g) of the FTC Act as granting substantive rulemaking authority over unfair methods of competition and found the major questions doctrine inapplicable. The Northern District of Texas in Ryan v. FTC read the statute narrowly and concluded the FTC lacked that authority.

**Is the FTC non-compete rule in effect now?** No. As of July 2026 the rule is dead. The Northern District of Texas set it aside nationwide, the FTC voted in September 2025 to drop its appeals, and the Commission removed the rule from the Code of Federal Regulations effective February 12, 2026. Non-competes remain governed by state law.

## Authorities and sources

- *ATS Tree Services, LLC v. FTC*, No. 2:24-cv-01743 (E.D. Pa. July 23, 2024): [memorandum denying stay and preliminary injunction, ECF No. 80 (govinfo PDF)](https://www.govinfo.gov/content/pkg/USCOURTS-paed-2_24-cv-01743/pdf/USCOURTS-paed-2_24-cv-01743-0.pdf).
- Davis Polk, [FTC avoids preliminary injunction of non-compete ban](https://www.davispolk.com/insights/client-update/ftc-avoids-preliminary-injunction-non-compete-ban).
- Littler Mendelson, [Pennsylvania Federal Court Declines to Block FTC's Non-Compete Rule](https://www.littler.com/news-analysis/asap/pennsylvania-federal-court-declines-block-ftcs-non-compete-rule).
- Ogletree Deakins, [FTC Noncompete Ban Rule Survives Challenge in Pennsylvania Federal Court](https://ogletree.com/insights-resources/blog-posts/ftc-noncompete-ban-rule-survives-challenge-in-pennsylvania-federal-court-but-still-contested-in-florida-and-texas/).
- Federal Trade Commission, [FTC Files to Accede to Vacatur of Non-Compete Clause Rule (Sept. 2025)](https://www.ftc.gov/news-events/news/press-releases/2025/09/federal-trade-commission-files-accede-vacatur-non-compete-clause-rule).
- Federal Trade Commission, [Revision of the Negative Option Rule, Withdrawal of the CARS Rule, Removal of the Non-Compete Rule To Conform These Rules to Federal Court Decisions, 91 Fed. Reg. 6507 (Feb. 12, 2026) (PDF)](https://www.govinfo.gov/content/pkg/FR-2026-02-12/pdf/2026-02866.pdf).