Federal Trade Commission

Five Stories That Matter in Michigan This Week – October 25, 2024

FTC Announces Final “Click-to-Cancel” Rule

On October 16, 2024, the Federal Trade Commission (FTC) announced a final “click-to-cancel” that will require sellers to make it as easy for consumers to cancel their subscription/enrollment as it was to sign up. The rule is a result of the FTC’s ongoing review and modernization of its 1973 Negative Option Rule, which meant to combat unfair or deceptive practices related to subscriptions, memberships and other recurring-payment programs.

Why it Matters: According to the FTC, the number of consumer complaints related to negative option marketing programs has been steadily increasing over the past five years and in 2024 the Commission received nearly 70 consumer complaints per day on average, up from 42 per day in 2021.

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Intellectual Property and Rebranding: What Business Leaders Need to Know

Rebranding a business is exciting. It’s often done at a time of growth and transformation, such as a merger or acquisition, when a business is launching an important new product, entering a new geographic market, or trying to appeal to a new customer demographic. Whether you’re updating your logo, changing your company name, or overhauling your entire brand identity, it’s a big step that can lead to great opportunities.

Why it Matters: But before you dive into the creative process, it is crucial to consider the intellectual property (IP) law implications of a rebrand. Your brand is one of your most valuable assets, and rebranding involves important legal considerations that can impact your business’s future. In this article, we’ll walk you through some key IP issues you need to consider when rebranding. These considerations will help you protect your new identity and avoid costly legal pitfalls along the way. Read more.

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Michigan CRA Publishes September ’24 Data: Average Price Decreases

Per data released by the Cannabis Regulatory Agency (CRA), the average retail price for adult-use sale of an ounce of cannabis in September was $78.68, a decrease from $80.14 in August. This is a decrease from September 2023, where the average price was $100.14.

Why it Matters: While the prices of cannabis and cannabis-related products continue to decrease and make consumers happy, growers on the other hand are seeing profits decrease resulting in them seeking ways to halt new licenses to be granted in an effort to steady prices.

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Business Education Series: Avoid the Five Business Dangers

On Wednesday, October 30, Tom Hamp, Hamp Business Coaching, will delve into the critical issues of poor leadership skills and their impact on organizational success, explore strategies to overcome underperforming sales, and discuss the consequences of ineffective marketing. Additionally, we will examine the importance of robust human capital management and the detrimental effects of financial mismanagement. This seminar is designed to provide practical solutions and actionable insights to help you navigate and resolve these common business problems effectively.

Why it Matters: Learn how to understand your business’s financials, understand profit and loss and use it to your advantage. Also, learn how leadership impacts staff and how to manage employees better by increasing leadership skills. Full information and to register.

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10 Fraser Trebilcock Attorneys Selected for 2024 List of Super Lawyers, Rising Stars in Michigan

Eight Fraser Trebilcock attorneys have been selected for inclusion on the 2024 Michigan Super Lawyers list, with two additional attorneys named “2024 Rising Stars in Michigan.” Those selected include: Michael S. Ashton, Administrative Law; Michael P. Donnelly, Business Litigation; Mark E. Kellogg, Estate & Probate; Danielle Lofton (Rising Star), Personal Injury – General: Plaintiff; Hon. Paula J. Manderfield (Ret.), Alternative Dispute Resolution; Thaddeus E. Morgan, Business Litigation; Melisa M.W. Mysliwiec, Elder Law; Gary C. Rogers, Personal Injury – General: Defense; Elizabeth M. Siefker (Rising Star), Estate & Probate; and Marlaine C. Teahan, Estate & Probate.

Why it Matters: Only 5% of lawyers make the Super Lawyers list, and 2.5% make the “Rising Stars” list. The selection process for Super Lawyers is multi-phased and includes independent research, peer nominations and peer evaluations. In the United States, Super Lawyers Magazine is published in all 50 states and Washington, D.C., reaching more than 13 million readers. Read more.

Related Practice Groups and Professionals

Business & Tax
Intellectual Property | Andrew Martin
Cannabis Law | Sean Gallagher

FTC Non-Compete Prohibition on Hold Again

Procedural Background and Result

Readers are of course familiar with the background of this matter. Briefly, the FTC issued a Final Rule, scheduled to go into effect on September 4, 2024, placing limitations on non-compete and related employer contracts or policies. That rule has been reviewed by three courts. Previously, the Northern District of Texas invalidated the rule as beyond the authority of the FTC to issue, but issued an injunction barring enforcement of the rule only with respect to the parties to that litigation. Ryan LLC v. Fed. Trade Comm’n, No. 3:24-CV-00986-E, 2024 WL 3297524 (N.D. Tex. July 3, 2024). A second district court in the Eastern District of Pennsylvania, upheld the rule.

U.S. District Judge Ada Brown, sitting in the Northern District Court in Texas, has now held the rule invalid as “arbitrary and capricious.” In comparison to her first ruling, however, this court issued a national injunctive order barring enforcement of the rule in all United States federal court jurisdiction. Ryan LLC v. FTC. LINK. As a result, employers are not required to follow the Final Rule. The duration of this order and status is unknown, but can be expected to be several months or longer, or possibly permanent.

In a significant legal decision, Texas’ Northern District has ruled that the Federal Trade Commission’s (FTC) nationwide ban on non-compete agreements was unenforceable. The ruling issued on August 20, 2024, strikes down the FTC’s attempt to impose a sweeping nation-wide prohibition on these employment contracts, which had been a cornerstone of the agency’s recent regulatory agenda.

Further Background – The FTC Rule

The FTC proposed a blanket ban on non-compete clauses earlier this year, arguing that such agreements unfairly restricted workers’ mobility and suppressed wages. The proposal quickly became one of the most hotly debated regulatory measures in the labor market, with proponents claiming it would empower workers and opponents arguing that it would undermine business competitiveness.

The challenge to the FTC’s rule was brought by a coalition of business groups and industry associations, which argued that the agency overstepped its authority and failed to adequately justify the sweeping nature of the ban. They claimed that the FTC did not fully consider the economic impact of the rule or the potential benefits of non-compete clauses in certain circumstances, such as protecting trade secrets and fostering innovation

Key Findings in the Most Recent Ruling

Judge Brown’s ruling focused on the procedural and substantive aspects of the FTC’s rulemaking process under the Administrative Procedure Act (APA). She found that the FTC failed to provide sufficient evidence to justify the necessity of a nationwide ban, particularly in light of the economic and industry-specific variations across different sectors.

“The FTC dismissed any possible alternatives, concluding that either the pro-competitive justifications outweighed the harms, or that employers had other avenues to protect their interests.,” Judge Brown wrote in her opinion. She emphasized that while the agency has the authority to regulate unfair competition practices, it must do so within the framework of the law, ensuring that regulations are not imposed in an arbitrary manner.

The judge also criticized the FTC for not adequately addressing the concerns raised during the public comment period, particularly those from businesses that rely on non-compete agreements to protect trade secrets and maintain competitive advantage.

Further Implications of the Ruling

The ruling represents a significant setback for the FTC and its Chair, Lina Khan, who has been an outspoken advocate for more aggressive antitrust and labor market regulations. It also sends a clear message to federal agencies about the importance of adhering to procedural norms and thoroughly justifying the economic rationale behind sweeping regulatory changes.

The Final Rule, which was set to take effect on September 4, 2024, is now blocked from enforcement pending further legal developments.

This decision represents a significant victory for employers, especially in industries where non-compete agreements are common. However, the FTC may appeal this ruling, leaving the final outcome uncertain. Businesses should stay informed as the legal landscape around non-competes continues to evolve.

What’s Next?

As the legal battle over non-compete clauses continues, the debate over the balance between worker freedom and business interests is expected to intensify. Labor advocates may push for legislative solutions at the state or federal level, while businesses and trade groups will likely continue to defend the use of non-competes as essential tools for protecting intellectual property and maintaining a competitive edge.

However, companies should take this opportunity to analyze their use of non-compete agreements. No longer can non-competes be considered just another document signed during the onboarding process. Recent criticism and public focus on these agreements puts a greater emphasis on the need to narrowly tailor non-competes to protect legitimate business interests. Indeed, non-compete agreements are only one piece of an overall protection strategy. An integrated program involving the protection of trade secrets, confidential information and intellectual property not only involves proper agreements and policies, but also employee training and systems to enforce such protections.

For now, Judge Brown’s ruling has put the brakes on the FTC’s ambitious regulatory agenda, but the future of non-compete agreements in the U.S. remains uncertain.

This alert serves as a general summary and does not constitute legal guidance. Please contact us with any specific questions.

Fraser Trebilcock Shareholder Dave Houston has over 40 years of experience representing employers in planning, counseling, and litigating virtually all employment claims and disputes including labor relations (NLRB and MERC), wage and overtime, and employment discrimination, and negotiation of union contracts. He has authored numerous publications regarding employment issues. You can reach him at 517.377.0855 or dhouston@fraserlawfirm.com.

Andrew G. Martin is an experienced registered patent attorney with history working in the automotive, electrical, and agricultural industries. He regularly advises startups and small businesses on the patent and trademark prosecution process, assisting clients from start to finish. You can reach him at 517.377.0834 or at amartin@fraserlawfirm.com.

Five Stories That Matter in Michigan This Week – May 3, 2024

Michigan CRA Plans to Open State-Run Testing Laboratory

Crain’s Detroit Business reported this week that Michigan’s Cannabis Regulatory Agency plans to open a new testing lab by January of next year in order to promote and enforce safety standards. While funds have been allocated for the establishment and operation of a testing lab, CRA regulators reportedly are asking Michigan legislators to pass a bill that would give the agency more explicit authority to take this action.

Why it Matters: Having an independent, state-run lab would, according to regulators, help establish trust in products and root out potential corruption in the legal cannabis industry.

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Fraser Trebilcock Attorney Robert D. Burgee Recognized as a ‘Michigan Go To Lawyer’ for Business Transactions by Michigan Lawyers Weekly

Fraser Trebilcock attorney Robert D. Burgee has been recognized by Michigan Lawyers Weekly as a ‘Michigan Go To Lawyer’ in 2024 for business transactions. “I am honored to have been recognized by Michigan Lawyers Weekly as a ‘Michigan Go To Lawyer’ for business transactions,” said Bob.

Why it Matters: Mr. Burgee serves as Co-Chair of the firm’s Business & Tax Department and Chair of the firm’s Employee Benefits Department. He has over a decade of experience assisting business clients and entrepreneurs with startups, acquisitions, succession, and growth planning, as well as more general legal guidance, including navigating civil matters, regulatory compliance, employee benefits, and human relations. Read more.

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June Business Education Series

Most entrepreneurs and business leaders face similar frustrations – employee conflicts, lack of sales, profit woes and inadequate growth. Decisions never seem to get made, or, once made, they fail to be properly implemented. There is a solution, and it is not complicated or theoretical.

Why it Matters: The Entrepreneurial Operating System (EOS) is a practical method for achieving the business success you have always envisioned. More than 100,000 companies have discovered what EOS can do. Learn more and to register.

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Marijuana to be Rescheduled by DEA

It was announced this week that the DEA is planning to reclassify marijuana from a Schedule I drug to a Schedule III drug, following a recommendation from the Health and Human Services Department.

Why it Matters: While this move is still subject for review by the White House Office of Management and Budget, this clears a significant regulatory hurdle. Marijuana will still not be legal on the federal level for recreational use following this reclassification.

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FTC Issues Final Rule Banning Non-Compete Agreements Nationwide

On April 23, 2024, in a 3-2 vote, the Federal Trade Commission (FTC) issued a final rule banning non-compete clauses in most employment agreements nationwide. The rule is scheduled to go into effect 120 days after it is published in the Federal Register.

Why it Matters: Under the final rule, “Non-compete clause” is defined as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from: (i) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (ii) operating a business in the United States after the conclusion of the employment that includes the term or condition.” Read more from your Fraser Trebilcock attorneys.

Related Practice Groups and Professionals

Cannabis Law | Sean Gallagher
Business & Tax | Robert Burgee
Labor, Employment & Civil Rights | David Houston
Business & Tax | Andrew Martin

Five Stories That Matter in Michigan This Week – April 26, 2024

FTC Issues Final Rule Banning Non-Compete Agreements Nationwide

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State and Local Governments Subject to ADA Website Rules

Why it Matters: While staffing at many schools has grown due to pandemic relief funding, student enrollment has dwindled. This report comes on the heels of another report – this one from the Michigan Center for Data and Analytics – projecting the state population could decline by nearly 700,000 residents by 2050.

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Michigan 04/20 Sales Hits All-Time High

Per data from Michigan Cannabis Regulatory Agency, sales of cannabis topped $28.5 million on April 20, 2024, an increase from the reported $21.6 million in sales from the year prior.

Why it Matters: Marijuana sales remain strong in Michigan, particularly for recreational use. However, there still are significant concerns about profitability and market oversaturation that the industry is contending with. Contact our cannabis law attorneys if you have any questions.

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The Limitations of Federal Bankruptcy Law for Marijuana Businesses

Under the federal Controlled Substances Act, marijuana remains classified as a Schedule I drug, making it illegal at the federal level. This creates a unique challenge for marijuana businesses operating legally within their state’s framework, as they are unable to avail themselves of federal bankruptcy protection.

Why it Matters: Federal bankruptcy courts have been reluctant to provide relief to debtors engaged in activities that are illegal under federal law, even if those activities are legal under state law. As a result, marijuana businesses are often left without the benefits of bankruptcy protection, such as the automatic stay, discharge of debts, and court-supervised reorganization.

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Fraser Trebilcock Attorney Secures Victory for Firm Client

Fraser Trebilcock attorney Andrew J. Moore was successful in obtaining summary disposition on behalf of the firm’s client. Plaintiff and their spouse applied for credit life insurance from the firm’s client, a prominent independent insurance company, in conjunction with an RV they purchased.

Why it Matters: The spouse misrepresented their medical history and was in fact diagnosed with and treating for a disqualifying medical condition. The spouse died of heart attack two months after purchase. The firm’s client rescinded the credit certificate, then was sued. Plaintiff claimed RV salesman misrepresented application, eligibility, insurability, and coverage limits, while simultaneously claiming RV salesman was an “agent” of the firm’s client such that they should be held liable for their misrepresentation. After discovery and at summary disposition, the Judge ruled in favor of the firm’s client and dismissed all counts. Learn more.

Related Practice Groups and Professionals

FTC Issues Final Rule Banning Non-Compete Agreements Nationwide

Under the final rule, “Non-compete clause” is defined as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from: (i) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (ii) operating a business in the United States after the conclusion of the employment that includes the term or condition.”

The final rule covers all entities subject to the FTC Act (generally, most for-profit entities, but not non-profit organizations).

Some of the key elements of the final rule include:

- Starting from the effective date, the ban prohibits all new post-employment non-compete agreements between employers and employees across all industries and worker types, including both senior executives and lower-level employees. It does not apply to agreements prohibiting an employee from competing against an employer while employed.
- Post-employment non-compete agreements that are already in place may continue to be enforced, but only for senior executives. The definition of a senior executive is generally an employee who holds a policy-making position and earns an annual salary exceeding $151,164.
  - Policy-making position is defined in part as “a business entity’s president, chief executive officer or the equivalent, any other officer of a business entity who has policy-making authority, or any other natural person who has policy-making authority for the business entity similar to an officer with policy-making authority.”
- While employers are not obligated to formally rescind existing non-compete agreements, they are required to notify employees that post-employment non-compete agreements are no longer enforceable.
- The ban makes an exception for non-compete agreements related to the sale of a business, regardless of the ownership percentage involved in the transaction.
- The ban does not apply to contracts between franchisees and franchisors. However, it does apply to employees working for either a franchisee or a franchisor.

While the rulemaking may be a new step for the FTC, its purpose is in step with the Agency’s recent decisions; an example of which was included in the press release announcing the proposed rule, “This [rulemaking] aligns with the FTC’s recent statement to reinvigorate Section 5 of the FTC Act, which bans unfair methods of competition. The FTC recently used its Section 5 authority to ban companies from imposing onerous noncompetes on their workers. In one complaint, the FTC took action against a Michigan-based security guard company and its key executives for using coercive noncompetes on low-wage employees.”

We anticipate that a number of legal challenges to the FTC’s authority to ban non-compete agreements will be mounted. The US Chamber of Commerce already announced that it will be filing a lawsuit. We will continue to keep you informed of new developments.

This alert serves as a general summary and does not constitute legal guidance. Please contact us with any specific questions.

Robert D. Burgee is an attorney at Fraser Trebilcock with over a decade of experience counseling clients with a focus on corporate structures and compliance, licensing, contracts, regulatory compliance, mergers and acquisitions, and a host of other matters related to the operation of small and medium-sized businesses and non-profits. You can reach him at 517.377.0848 or at bburgee@fraserlawfirm.com.

FTC Proposes Rules Banning Non-Compete Agreements for Workers

On January 5, 2023, the Federal Trade Commission (FTC) published a proposed rule that would effectively ban the use of non-compete clauses in most employment agreements. The FTC’s guidance in proposing the rule says that 1-in-5 American workers are bound by some form of non-compete clause or agreement.

While the rulemaking may be a new step for the FTC, its purpose is in step with the Agency’s recent decisions; an example of which is included in the press release announcing the rulemaking, “This [rulemaking] aligns with the FTC’s recent statement to reinvigorate Section 5 of the FTC Act, which bans unfair methods of competition. The FTC recently used its Section 5 authority to ban companies from imposing onerous noncompetes on their workers. In one complaint, the FTC took action against a Michigan-based security guard company and its key executives for using coercive noncompetes on low-wage employees.”

These regulations (if adopted) will have wide-ranging impacts across many sectors of the economy. Employers should keep a close eye on these rules and be prepared to amend or revise their employment agreements accordingly. The attorneys at Fraser Trebilcock will continue to monitor this situation and provide updates as the rulemaking process unfolds.

This alert serves as a general summary and does not constitute legal guidance. Please contact us with any specific questions.

FTC Safeguards Rule Deadline Extended, But Don’t Wait to Implement Data Security Compliance Protocols

The Federal Trade Commission recently extended the deadline, from December 9, 2022, to June 9, 2023, for compliance with the most stringent requirements of its latest rulemaking, revisions to the Safeguards Rule under the Gramm Leach Bliley Act (“the GLBA”).

The GLBA, which was implemented over 20 years ago, defines how businesses gather, use, and share certain financial information about their customers. The Safeguards Rule establishes certain data security requirements for how a business stores that information. The forestalled revisions to the Safeguards Rule include new requirements for covered companies to:

designate a qualified person to oversee their information security program,
develop a written risk assessment,
limit and monitor who can access sensitive customer information,
encrypt all sensitive information,
train security personnel,
develop an incident response plan,
periodically assess the security practices of service providers, and
implement multi-factor authentication or another method with equivalent protection for anyone accessing customer information.

While there is more time to put these people and practices in place, doing so will not be a simple task.

Businesses should also be mindful that the GLBA and the Safeguards Rule apply to more than just banks and investment houses. Any business whose activities are “financial in nature or incidental to a financial activity” may fall under the regulation; such businesses include, but are not limited to, insurance companies, mortgage lenders and brokers, car dealers, payday lenders and finance companies, collection agencies, credit counselors and other financial advisors.

Contact your Fraser attorney today if you have any questions regarding your business’s duty to comply with these new rules.

Edward J. Castellani is an attorney and CPA with Fraser Trebilcock with over three decades of experience handling business transactions. He may be contacted at ecast@fraserlawfirm.com or 517-377-0845.

Biden Executive Order To Examine Non-Compete Agreements

On July 9, 2021, President Biden issued an executive order aimed at “promoting competition in the American economy.” A press release that preceded the issuance of the executive order stated the White House’s intention to “[m]ake it easier to change jobs and help raise wages” by removing barriers that “impede economic mobility,” including banning or limiting non-compete agreements.

In the days since the executive order was issued, we have heard from a number of clients who are, understandably, uncertain about the status of their current non-compete agreements. In short, the executive order has no immediate effect on existing non-compete agreements. And nothing in the executive order legally prevents an employer from entering into a new agreement with an employee, provided no other law or regulation prohibits it. Non-compete agreements are not limited or banned under federal law—at least not yet.

However, the issuance of the executive order, plus actions being taken by many state legislatures, suggests that there is significant momentum building to take some form(s) of action against non-compete agreements, and employers should pay careful attention to ongoing developments in this area.

The Law of Employment Contracts

As a general proposition, contract law generally, and employment contract law specifically, is left to the states and, except where federal policy concerns exist – for example, regulation of union-management relations with implications for the national economy. So, for starters, this presidential direction to an administrative branch regulatory agency is an attempt to expand the reach of federal governance.

The Impact of the Executive Order

Section 5(g) of the executive order directs the Federal Trade Commission (“FTC”), in conjunction with other federal agencies, to “address agreements that may unduly limit workers’ ability to change jobs.” It also urges the FTC Chairperson to “consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete and other clauses or agreements.”

Accordingly, in plain terms, the effect of the order is to start a process whereby the FTC will pursue a rulemaking process that would ban or limit the use of noncompete agreements as a matter of federal law. It is unclear how broad or narrow the rulemaking will be until actual proposed rules are presented.

Also, there is significant uncertainty as to whether the FTC has authority to regulate non-compete agreements. Such an action would almost certainly call into question whether the executive branch was encroaching congressional lawmaking power, and/or unconstitutionally infringing on the rights of states to make laws governing contracts.

Possible Secondary Effects

Beyond the more straightforward and intended result of a possible ban, second-order effects may arise which, presumably, would be considered by the FTC in the rulemaking process. For instance, tax-exempt employers, such as hospitals, insurance companies, and universities, sometimes rely on non-compete agreements to establish a “substantial risk of forfeiture” under Internal Revenue Code § 457(f) to delay immediate taxation of deferred compensation amounts. While the 457(f) negative tax consequences would primarily fall on the shoulders of the executive, this could also affect the timing of the inclusion of the income for purposes of the 21% excise tax on excess executive remuneration paid by such employers under Code § 4960, which is payable by the employer.

The Tea Leaves

We believe that if any regulation is attempted, it will be months or years in coming. We also believe that in the event regulation is initiated, it is likely to be directed at lower-compensated work and situations where workers do not possess proprietary skills or confidential information learned or obtained at the workplace.

We have counselled that non-compete agreements used by our clients should be well-founded in protecting the legitimate competitive interest of the enterprise, and should be limited to circumstances where that interest is present and properly described in the agreement or covenant. This advice remains pertinent, and review of those policies may be considered.

We will continue to keep you informed of relevant developments. If you have any questions, please contact Dave Houston or your Fraser Trebilcock attorney.

This alert serves as a general summary, and does not constitute legal guidance. All statements made in this article should be verified by counsel retained specifically for that purpose. Please contact us with any specific questions.