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Every week, AccountsRecovery.net brings you the most important news in the industry. But, with compliance-related articles, context is king. That’s why the brightest and most knowledgable compliance experts are sought to offer their perspectives and insights into the most important news of the day. Read on to hear what the experts have to say this week.
Court Blocks FTC’s Noncompete Rule from Going into Effect
A District Court judge in Texas has invalidated the Federal Trade Commission’s rule banning most noncompete agreements, dealing a major blow to one of the agency’s signature initiatives. More details here.
WHAT THIS MEANS, FROM LESLIE BENDER OF EVERSHEDS-SUTHERLAND: The Federal Trade Commission (“FTC”) released a final rule in April, 2024, flexing its rulewriting powers under Section 5 of the FTC Act. Under the FTC’s noncompete rule, the FTC intends to ban all new noncompete agreements employers intend to enter into with all workers including senior executives effective September 4, 2024. In brief, the FTC determined that noncompetes are an unfair method of competition and therefore employers who enter into noncompetes with workers are violating the rule – and Section 5 of the FTC act.
A month ago, Manny Newburger, Joanne Needleman and I had the privilege of speaking in one of Mike Gibb’s webinars about the potential reaches of the Supreme Court’s decision in Loper Bright Enterprises versus Raimando, 603 U.S. ____ (June 28 2024). At the time of our lively conversation, Judge Ada Brown writing for a federal court in Texas had just scrutinized the FTC’s rulewriting authority through the new Loper Bright lens. Judge Brown temporarily halted the FTC’s noncompete rule in July, for a limited audience, with a preliminary ruling just days after the Supreme Court decided Loper Bright. She questioned whether the FTC had exceeded its authority in announcing a rule banning noncompetes in employment agreements. On August 20, 2024, Judge Brown firmed up her preliminary ruling and blocked the FTC from implementing its nationwide ban on employer noncompetes relying upon the Administrative Procedures Act.
What’s interesting here is that there was not complete harmony at the FTC about the noncompete rule that was approved in a 3-2 vote along party lines back in April. Nor is there harmony among courts in other parts of the country about the fate of the FTC’s noncompete rule. While the FTC decides whether to appeal the Ryan LLC decision to the Fifth Circuit, it is important to know that a federal district court judge in the Middle District of Florida had tentatively ruled against the ban issuing a very limited plaintiff-specific injunction in an unrelated challenge. In the Properties of the Villages, Inc. v. Federal Trade Commission Case (5:24-cv-00316), Judge Corrigan agreed that the FTC has broad regulatory power over unfair methods of competition – but disagreed that this ban was within the FTC’s authority. Meanwhile, in Pennsylvania faced with a motion to stay the effective date of the noncompete rule and issue a preliminary injunction, a federal district court in Pennsylvania did not put a halt to the FTC’s ban on noncompetes. See, ATS Tree Services, LLC v FTC, 2024 WL 3511630 (E.D.PA. July 23, 2024).
Some legal experts expect that challenges to the scope of the FTC’s rulemaking could potentially make it to the Supreme Court given the various positions courts in Texas, Florida and Pennsylvania have taken.
The FTC’s rule was set to take effect September 4, 2024, and its future now is anything but certain. Historically states have been responsible for legislating whether or not noncompete agreements are enforceable and under what circumstances. At least 47 states have noncompete law where courts generally look at the facts and circumstances surrounding a noncompete in determining when it might be valid and enforceable.
Here are some things you may want to consider if either you are a party to a noncompete with your current (or a past) employer – or if you are an employer who has historically relied upon covenants not to compete in your employment arrangements with all or some of your employees:
If you are an employer, keep in mind that antitrust laws may still apply. Employers may have a legitimate interest in protecting company secrets, proprietary information, know how, and other training and goodwill you may have developed on the job.
If you are subject to a noncompete (or if you generally have your employees sign them), you may want to review what it requires. As a general rule these provisions restrict employees from working for competitors within a specific geographic distance of your employer’s business and for a set period of time. What is important to consider is what may lead to your (or your employee’s) separation from employment? Is it a lay off? Has your employer closed down your division or department? Did you leave voluntarily? Were you separated for cause? Has your employer offered you a separation agreement? Note: just because an agreement is not titled “noncompete” does not mean it does not contain a covenant not to compete. Review any employment agreement, confidentiality agreement, or other document carefully. If you are an employer and you offer these provisions – now may be a good time to review these provisions carefully to see if they are reasonable in light of the role of specific employees and the nature of your business.
Become familiar with the laws of the states in which your employees reside related to noncompete agreements. Even if courts ultimately strike down the FTC’s new rule, 47 states have laws about noncompete agreements and you may want to assure your agreement complies with the laws of the states in which your employees live. As a result of the pandemic, many employers allow employees to work remotely from a wide range of states. Now may be a good time to assure you are up to date on where your employees live and what the laws in those states do and do not permit.
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Missouri Appeals Court Denies Motion to Compel Arbitration, Rules Clear Link in Chain of Assignments Lacking
For the second time, the Missouri Court of Appeals has denied a motion to compel arbitration filed by a debt buyer seeking to discharge a Fair Debt Collection Practices Act suit, ruling that the plaintiff has not done enough to support the chain of assignments that led to its ownership of the account. More details here.
WHAT THIS MEANS, FROM JESSICA KLANDER OF BASSFORD REMELE: This case is a valuable precedent for countering a plaintiff’s attempt to compel arbitration. The defense effectively highlighted the shortcomings in the plaintiff’s affidavits and documentation, demonstrating that there was no solid foundation for enforcing arbitration. By showing that the plaintiff’s affidavit was too vague and failed to establish a clear connection between the involved companies, the defense underscored that the arbitration clause was not applicable. This ruling reinforces the defense’s position and provides strong support for challenging efforts to enforce arbitration clauses.
Judge Upholds Jury Ruling for Defendant in FDCPA Case Over BK Search
A District Court judge in New Jersey has denied a plaintiff’s motion for judgment notwithstanding the verdict in a Fair Debt Collection Practices Act case, ruling the jury did not act unreasonably when it ruled that the defendant had proved that it had reasonable procedures in place to scrub accounts to ensure the plaintiff had not filed for bankruptcy protection. More details here.
WHAT THIS MEANS, FROM JAY TILLMAN OF FROST ECHOLS: Although in many jurisdictions, raising the “good faith error” defense under the FDCPA opens a door for invasive discovery, if you do have good policies and procedures and they are documented and well followed, raising the defense may pay off, as it did for this collector.
Here, U.S. District Judge Shipp could only accept the jury’s decision that defendant proved beyond a preponderance of evidence that it followed its policy and procedure with respect to the consumer plaintiff.
After the jury found that defendant’s error in attempting to collect a debt discharged in bankruptcy was made in good faith and therefore not actionable, the consumer moved for judgment notwithstanding the jury’s verdict, thereby asking for a new trial, and stating that the jury could not have based its decision on the evidence presented making its decision a miscarriage of justice.
Judge Shipp found there was sufficient evidence for the jury to find as it did, the detailed testimony regarding the defendant’s procedures, and the jury is allowed to make reasonable inferences from facts proven.
This is a great example of how good policies and procedures, well documented and followed, along with good lawyering, won the day.
Appeals Court Reverses Decision for Defendant in FCRA Case Over Dispute Investigation
The Court of Appeals for the Sixth Circuit has reversed a lower court’s ruling in favor of a defendant that was sued for violating the Fair Credit Reporting Act, ruling that the defendant did not follow reasonable procedures to ensure the accuracy of information in the plaintiff’s credit report. More details here.
WHAT THIS MEANS, FROM SARAH DOERR OF MOSS & BARNETT: The Berry Court seems to adopt the consumer’s position that, in the face of conflicting data, the CRA must report the least negative version of the disputed account. Whether this approach actually furthers the FCRA’s mandate of accuracy seems an issue ripe for further refinement and litigation. In the meantime, CRAs and furnishers should implement policies and procedures to document supplemental data received from consumers regarding the accuracy of reported accounts.
Appeals Court Affirms Ruling for Defendant in FCRA Case Over Plaintiff’s Lack of Standing
Standing isn’t just for Fair Debt Collection Practices Act cases anymore. The Court of Appeals for the Sixth Circuit has affirmed a lower court’s ruling in a Fair Credit Reporting Act case, upholding that the plaintiff, who alleged a procedural violation by the defendant, lacked constitutional standing. More details here.
WHAT THIS MEANS, FROM VIRGINA BELL FLYNN OF TROUTMAN PEPPER: In Merck v. Walmart, Inc., Thomas Merck alleged that Walmart wrongfully failed to give him a complete consumer report, and attempting to maintain his suit based on an informational-injury theory. When Merck applied for a job with Walmart, he did not disclose an old misdemeanor conviction. Walmart offered him employment which was conditional upon successful completion of a background check. A third-party vendor identified the misdemeanor conviction on a consumer report. Merck received an incomplete version of the report that listed his misdemeanor and indicated that he was “not competitive” for a job at Walmart, but which omitted the self-disclosure code. After Walmart revoked the conditional job offer, Merck brought this Fair Credit Reporting Act class action, alleging that he suffered a procedural injury when Walmart failed to give him the full consumer report.
Following the Supreme Court’s decisions inTransUnion LLC v. Ramirez, 594 U.S. 413 (2021) and the Sixth Circuit’s decision in Ward v. Nat’l Patient Acct. Servs. Sols., Inc., 9 F.4th 357 (6th Cir. 2021), Walmart moved for summary judgment, arguing that Merck lacked constitutional standing. InWard, the Sixth Circuit applied the TransUnionframework on how to assess a plaintiff’s constitutional standing in a Fair Debt Collection Practices Act action. Specifically, the Sixth Circuit held that a procedural violation, standing alone, does not create a concrete injury in fact under TransUnion’s constitutional standing doctrine. The district court granted Walmart’s motion for summary judgment, finding that Merck’s alleged statutory injury did not resemble a harm that has been recognized in American courts, as is required under TransUnion. The district court determined that Merck failed to show any independent concrete injury that flowed from the statutory violation. Lastly, the district court found that Walmart’s failure to provide the full report did not cause the adverse employment action because the report was not inaccurate and Walmart testified that it would not have hired Merck even if he had been able to explain that he had mistakenly omitted the misdemeanor from his paperwork.
The Sixth Circuit affirmed, holding that Merck had not suffered an injury in fact under constitutional standing doctrine. It found that Merck had failed to identify specific facts sufficient to support his informational-injury theory of standing at the summary judgment stage. The Sixth Circuit particularly focused on Merck’s failure to point to any evidence that (1) he would have been able to use the information about the self-disclosure code to his benefit, (2) he would have used the withheld information to do anything differently in subsequent applications to Walmart, and (3) he would have used the information to understand why his application had gone wrong while searching for other employment. With more specific evidence in the record, Merck might have prevailed on his informational-injury theory of standing, but he was unable to satisfy the second element of the informational-injury test—that he suffered adverse effects from the denial of that information.
This case is another prime example of TransUnion and its progeny, but does leave a warning that more specific evidence could have moved this case beyond the summary judgment stage. Although a procedural violation, standing alone, does not create a concrete injury in fact to satisfy constitutional standing, sufficient evidence of an injury in fact coupled with such violation could surpass the bar.
I’m thrilled to announce that Bedard Law Group is the new sponsor for the Compliance Digest. Bedard Law Group, P.C. – Compliance Support – Defense Litigation – Nationwide Complaint Management – Turnkey Speech Analytics. And Our New BLG360 Program – Your Low Monthly Retainer Compliance Solution. Visit www.bedardlawgroup.com, email John H. Bedard, Jr., or call (678) 253-1871.
