Pennsylvania Judge Rejects Challenge to FTC’s Noncompete Ban

The ruling contradicts an injunction a Texas court scheduled to take effect in September.

There are now two differing court decisions on the Federal Trade Commission’s ban on noncompete contracts for employees, currently scheduled to take effect on September 4.

A judge in the U.S. District Court for the Eastern District of Pennsylvania on Tuesday declined to halt the FTC’s ban, which many in the financial services sector are watching, as it may alter some employment contracts.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

In ATS Tree Services LLC v. Federal Trade Commission, U.S. District Judge Kelley Brisbon Hodge upheld the ruling, saying the tree services provider had failed to establish that the FTC lacked the legal standing to issue “procedural and substantive rules as is necessary to prevent unfair methods of competition.”

Furthermore, the judge ruled that the company failed to show it would suffer harm if it had to rescind noncompete agreements for some of its roughly 12 employees.

The decision comes after the U.S. District Court for the Northern District of Texas earlier this month granted a preliminary injunction and postponed the effective date of the rule for the plaintiffs in Ryan LLC et al. v. Federal Trade Commission.

In that case, the judge ruled that the FTC did not have the authority to issue “substantive” rules regarding contracts, but should therefore  rule on “housekeeping” items or case-by-case rulings based on specific unfair practices. The court also ruled that employers may be harmed should the ban go into effect.

The Pennsylvania judge’s ruling “says exactly the opposite” of what the federal judge in Texas wrote, Jeremy Merkelson, a partner with David Write Tremaine, said via email.

 “Employers are left in legal limbo wondering whether millions of private agreements are going to be enforceable between now and September 4, when the FTC’s ban is set to go into effect,” Merkelson wrote. “As a consequence of this latest ruling, clients want to know: do I have to send notices by September 4 telling current and former employees that their restrictions are no longer enforceable? Do I have to modify existing restrictive covenants agreements?”

His advice to those employers is to “be ready, but don’t move too quickly just yet.”

Merkelson believes that the FTC’s ban will be halted nationally by at least one federal court before the deadline, and then “the process will take several months, probably until mid-2025, before we get a final resolution of this matter from the Supreme Court.”

Many advisers operate with non-solicitation agreements, rather than non-competes, which would circumvent the rules. But various trade organizations and companies, including the business-based U.S. Chamber of Commerce, have argued that the ban will hurt businesses and the economy.

The FTC has contended that roughly 30 million Americans, or one in five workers, are subject to such contracts, which limit their ability to change jobs, earn higher wages and add to a more dynamic labor market.

Americans Want Government to Shore Up Social Security Funding

Ahead of fall elections, Americans have signaled their commitment to Social Security, but whether politicians listen and act remains uncertain, per experts at an NIRS webinar. 

There have been almost weekly changes to the list of issues and topics affecting this year’s U.S. elections, but one topic has solid support from voters: keeping Social Security robust and solvent.

Regardless of the outcome of November’s elections, Americans have expressed strong support that Congress, the next president and leaders in Washington should work together to shore up Social Security and address its financing challenges, said Tyler Bond, the research director at the National Institute on Retirement Security, during the firm’s “Americans’ Views of Social Security” webinar on Tuesday. 

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

“There’s a clear majority that strongly agrees with that sentiment, and that level of support is consistent across party affiliation,” said Bond. “Whether you’re Democrat or Republican or an independent, the public wants Congress and the administration to act on Social Security.”

Bond was citing findings from NIRS’ “Retirement Insecurity 2024: Americans’ Views of Retirement” report released in February, which found that 90% of Americans say it is important for the next government leaders to solve the Social Security financial shortfall. Bond said the findings cut across not only party affiliation, but also gender, age and income. 

Social Security has been batted around by top politicians in the run-up to November—with both sides accusing the other of potentially making cuts to the program. A May report by the Social Security Board of Trustees forecast that the combined asset reserves of the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund should have enough revenue to pay all benefits and associated administrative costs until 2035.

Shore It Up 

NIRS’ report found that 87% of Americans said Congress should act now to shore up funding rather than waiting another 10 years to find a solution. Additionally, 87% said they believe the program must remain a priority no matter the state of federal budget deficits, with 55% strongly agreeing and 32% somewhat agreeing.

Many Americans are willing to pay their share to keep the program, with 58% agreeing that the government should increase the amount workers and employers contribute to Social Security, according to NIRS. When it comes to expanding Social Security, about half (52%) expressed agreement. 

“I think it’s fair to call Social Security perhaps the most beloved programming in the history of American public policy,” said Rebecca Vallas, the new CEO of the National Academy of Social Insurance. “We’re living through what feels like an incredibly polarizing time in American politics. It feels like Americans may not agree on anything right now, but people do actually agree on Social Security.” 

Political Risks 

Although Americans are committed to Social Security, Congress may not be quick to address the financing crisis due to the divided political landscape, said Jason Fichtner, chief economist at the Bipartisan Policy Center and executive director of the Retirement Income Institute, Alliance for Lifetime Income. He said that 10 years ago he believed Congress might act fast, but now he’s not as optimistic.

“Unfortunately, our politics seem more divided than ever,” Fichtner said. “We always talk about market risk, inflation risk, sequence of return risk, longevity risk—we’ve all got to start talking about political risks. Who is going to be in office going into the next several years, especially getting to 2033 and trust fund depletion? Could it be a party or a base that does not want to compromise and is willing to push us over the cliff? I hope not.” 

Fichtner said he can no longer guarantee to people that Social Security is not going to have some sort of financing crisis in 2033. The default is a 20% reduction across the board for everybody, and he said whether that will happen is a toss-up.

“We need to keep pressure [on],” said Fichtner. “Surveys like [the NIRS’] do help put pressure on Congress to act. It shows that the people want them to act. Now we’ve just got to start showing that at the ballot box and the voting box.” 

Conducted by Greenwald Research, information for the study was collected from online interviews from October 10 through 25, 2023. A total of 1,208 individuals aged at least 25 completed the survey. The final data were weighted by age, gender and income to reflect the demographics of Americans aged 25 and older. The sample was selected using Dynata, an online sample provider.

«