Active: Federal lawsuit filed to stop FTC’s illegal rulemaking

Adam Servin founded ATS Tree Services in 2014, offering tree removal services and firewood sales in Pennsylvania. His passion for climbing led ATS to expand into tree care services. Juggling a full-time job as a mechanical technician, Adam reinvested ATS’s earnings to grow the business. Today, ATS employs a dozen staff, with David Servin, Adam’s father, serving as CFO.

Adam believes in empowering his employees to reach their full potential and invests in them accordingly, providing good jobs and valuable training. ATS fosters a culture of mutual commitment between ATS and its employees that is key to its success. ATS invests in its employees’ skills and professional development, and those employees in turn perform quality work, earning ATS a reputation in its community as the tree care service for technically difficult projects. As part of that mutual commitment, ATS asks new employees to sign a one-year non-compete agreement, meaning an employee who leaves must wait one year before working at a competitor tree care company in the same geographic area as ATS.

Unfortunately, the Federal Trade Commission sees these agreements differently. In 2024, the FTC issued a new rule banning non-compete agreements in the United States. The FTC views non-compete agreements as a coercive tool employers use to prevent employees from leaving for other opportunities, thereby harming competition in the labor market. This is wrong.

Non-compete agreements are contracts that employees and employers are free to enter into or not. And they benefit both employees and employers. For example, ATS’s employees obtain the significant benefit of specialized training in tree care skills that they can use throughout their lives. In exchange, they agree not to use that benefit to directly compete with ATS for a year after leaving. This gives ATS some confidence that it is not investing in an employee it will immediately lose. That is an entirely fair proposition. In fact, even the FTC recognized in its rulemaking that non-compete agreements encourage employers to provide such specialized training to their employees.

Pennsylvania also recognizes the fairness of non-compete agreements that are reasonably structured to protect legitimate business interests, such as specialized training. Forty-five other states generally agree with Pennsylvania. Yet the FTC believes its judgment supersedes that of nearly all the states and many millions of businesses and employees who have freely entered into non-compete agreements.

In the process, the FTC has ignored the constraints placed on it by Congress. The agency—created in 1914 to address unfair methods of competition—claims the power under the FTC Act to create sweeping rules controlling unfair methods of competition. But the Act only allows the FTC to prevent the use of unfair methods of competition on a case-by-case basis through hearings that take into account all relevant facts in a particular case. The FTC Act does not allow the FTC to make its own laws outlawing common employment arrangements nationwide.

Agencies must operate within the boundaries set by Congress and the Constitution. The FTC’s unilateral decision to ban non-compete agreements undermines Adam’s right to run his business free of unjust government interference. It also wipes out laws in 46 states, blatantly overriding the judgment of state lawmakers and courts, as well as the will of their citizens. And it invalidates millions of existing non-compete agreements and reorganizes the employment relationships of nearly one in five Americans without even a fig leaf of involvement from Congress.

Adam and ATS fear that banning reasonable, limited non-compete agreements like theirs will create a race to the bottom as companies will not have the same incentive to invest in their employees if they can be readily hired away by competitors.

Represented by Pacific Legal Foundation at no charge, ATS is fighting the FTC’s unchecked power grab in federal court to preserve its ability to provide good jobs and valuable training, hold a powerful federal agency accountable to the rule of law, and restore the proper limits of the FTC’s authority as Congress intended.

What’s At Stake?

  • A government agency cannot invent powers for itself that were never given by Congress. Only Congress makes law, and Congress may not delegate that power to the Federal Trade Commission, or to anyone else. This strict separation of powers is designed to protect liberty, including citizens’ freedom to run their businesses as they see fit.

Case Timeline

April 25, 2024
U.S. District Court for the Eastern District of Pennsylvania