ATS Tree Services, LLC (“ATS”) has voluntarily dismissed the lawsuit it filed in April 2024 in the U.S. District Court for the Eastern District of Pennsylvania challenging the Federal Trade Commission’s (“FTC”) Non-Compete Clause Rule (“the Final Rule”), which banned the use of most non-compete clauses in employment contracts.

The dismissal comes after the U.S. District Court for the Northern District of Texas issued a nationwide permanent injunction against the FTC’s Final Rule. ATS filed a Motion to Stay Proceedings (“Motion”) in its Pennsylvania lawsuit until the earliest of: (1) the expiration of time for the FTC to file a notice of appeal of the final judgment in Ryan (the appeal deadline is October 21, 2024), (2) if the FTC appeals the Ryan judgment, a decision on the merits from the U.S. Court of Appeals for the Fifth Circuit, or (3) any other event that changes the effectiveness of the Ryan judgment as to ATS. In its Motion, ATS argued that since the court in Ryan issued a nationwide injunction against the Rule, there is presently no Final Rule for the parties to litigate; therefore, to attempt to do so would be a waste of the parties’ and the court’s resources.

On October 3, 2024, the Pennsylvania Court denied ATS’s Motion. In determining whether to issue a stay, the Court considered three factors: (1) the promotion of judicial economy, (2) the balance of harm to the parties, and (3) the duration of the requested stay.

As to the first factor, the Court held that it has a responsibility in deciding the Final Rule issue as it relates to ATS, and although the Northern District of Texas has issued an injunction, it is not binding on the Pennsylvania Court. On the second factor of balancing the harms, the Court held that granting the stay would give ATS “two bites at the apple,” by allowing ATS to benefit from the Ryan injunction while preserving its right to re-litigate this issue if the FTC appeals the Ryan holding and succeeds on appeal. Further, the Court stated that “[i]f ATS is satisfied with the outcome in Ryan and believes it sufficiently addresses their claims, it is not obligated to continue litigating this case, but if it does not wish to withdraw here, then this Court will move the case forward as is its duty.” With respect to the third factor, the Court held that the duration of stay is essentially unknown, as it is unclear whether the FTC will appeal Ryan.  

In response to that ruling, on October 4, 2024, ATS voluntarily dismissed its lawsuit against the FTC, ending the litigation without a ruling on the merits by the Eastern District of Pennsylvania.  Apparently satisfied with the Texas court’s nationwide ban on the FTC Rule, ATS made the strategic decision to end its case.

Although it is unclear whether the FTC will appeal Ryan, on September 24, 2024, the FTC filed an appeal to the Eleventh Circuit from the August 15, 2024 decision by the Middle District of Florida enjoining the FTC’s enforcement of the Final Rule in Properties of the Villages, Inc. v. Federal Trade Commission.

Ballard Spahr actively advises clients on the drafting, enforcement and state and federal court litigation of non-compete agreements, and other post-employment covenants, such as non-solicitation of customers and employees and confidentiality agreements with former employees.  Ballard Spahr also advises clients on the protection of their trade secrets and state and federal laws, such as the Defend Trade Secrets Act, and the Uniform Trade Secrets Act.