Federal Trade Commission (FTC)
On April 23, 2024, the Federal Trade Commission issued a final rule effectively concluding that it is an unfair method of competition, and therefore a violation of Section 5 of the FTC Act, for employers to enter into non-competes with workers and to enforce certain non-competes.
Except for senior executives, the final rule provides that it shall be unlawful to enter or attempt to enter into a non-compete provision, enforce or attempt to enforce a non-compete provision, or represent that a worker is subject to a non-compete provision.
The final rule is set to become effective in September 2024. The FTC vote to approve the issuance of the final rule was 3-2 with Commissioners Melissa Holyoak and Andrew N. Ferguson voting no. Commissioners Rebecca Kelly Slaughter, Alvaro Bedoya, Melissa Holyoak and Andrew N. Ferguson each issued separate statements.
How Does the Final Rule Define “Non-Compete?”
The final rule defines a “non-compete” provision 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 after the conclusion of their employment; or (ii) operating a business in the United States after the conclusion of their employment.
What is the Purpose of the FTC Non-Compete Rule?
The final rule is intended to promote competition by banning non-competes nationwide,
On April 10, 2024, the Federal Trade Commission issued a report to Congress detailing the FTC’s law enforcement cooperation with state attorneys general nationwide and presenting best practices to ensure continued effective collaboration.
The report, directed by the FTC Collaboration Act of 2021, “Working Together to Protect Consumers: A Study and Recommendations on FTC Collaboration with the State Attorneys General” makes legislative recommendations that would enhance these efforts, including reinstating the FTC’s authority to seek money for defrauded consumers and providing it with the independent authority to seek civil penalties.
“Today’s consumer protection challenges require an all-hands-on-deck response, and our report details how the FTC is working closely with state enforcers to share information, stop fraud, and ensure fairness in the marketplace,” said FTC attorney Samuel Levine, Director of the Bureau of Consumer Protection. “We look forward to seeking new opportunities to strengthen these ties and confront the challenges of the future.”
In June 2023, the FTC announced a request for public information seeking public comments and suggestions on ways it can work more effectively with state attorneys general to help educated and protect consumers about and from deception and fraud. After reviewing and analyzing the comments received, the FTC developed the report to Congress.
The report is divided into three sections: (i) the FTC’s Existing Collaborative Efforts with State Attorneys General to Prevent, Publicize and Penalize Frauds and Scams; (ii) Recommended Best Practices to Enhance Collaboration;
On March 7, 2024, the Federal Trade Commission announced a final rule extending telemarketing fraud protections to businesses and updating the rule’s recordkeeping requirements as a result of developments in technology and the marketplace.
FTC lawyers also announced a proposed rule that would provide the agency with significant new tools to combat tech support scams.
Both actions are part of the FTC’s current review of the Telemarketing Sales Rule (TSR), which includes the Do Not Call Registry (DNC) rules and provisions banning nearly all telemarketing robocalls to consumers.
Importantly, the FTC also affirms the TSR’s prohibitions on robocalls using voice cloning technology.
“Today’s changes provide important new protections for small business and will help ensure that the FTC can take action against deceptive marketers who use AI robocalls and other emerging technology,” said FTC attorney Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “We look forward to comments from the public on the additional proposals that would deter tech support scams and aid the Commission’s efforts to put money back into the pockets of defrauded consumers.”
The TSR became effective in 1995 and applies to virtually all “telemarketing” activities, both in the United States and international sales calls to consumers in the United States. The rule generally applies only to outbound calls made by telemarketers to consumers, with some exceptions, and protects consumers in a range of ways.
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The Federal Trade Commission Bureau of Consumer Protection welcomes an open dialogue with parties cooperating with its investigations. According to FTC lawyers, such dialogue allows the agency to make more informed decisions on whether to recommend an enforcement action and, if so, whether such an action can be resolved without the need for protracted litigation.
However, the Federal Trade Commission is also mindful of and believes that delays in investigations can undermine the public interest by allowing alleged lawbreaking to continue and by depriving consumers of redress for harms they may have suffered. Consequently, the FTC has made it clear that while substantive engagement is welcome and constructive, the FTC is prepared to pivot more quickly to litigation if undue delay comes at the expense of redress for consumers.
Delay causes particular concern to the agency in matters where the conduct extends beyond the statute of limitations period. In these cases, the FTC’s ability to provide refunds to injured consumers may be barred in whole or in part.
This risk has become more acute following the Supreme Court’s decision in AMG Capital Management, LLC v. FTC, 141 S. Ct. 1341 (2021). Because of AMG, the FTC can no longer seek monetary relief under Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), which does not have a statute of limitation. Instead, the FTC must often rely on Section 19, 15 U.S.C. § 57b, which authorizes courts to order defendants to provide redress only when violations occurred within three years of the initiation of the Commission’s action.
On October 18, 2023, the Federal Trade Commission announced that it has agreed to a $3.4MM settlement with New Jersey for-profit Sollers College over alleged deceptive ads that lured prospective students into unlawful contracts, purportedly falsely touting relationships with prominent employers and inflating job placement rates. The charges were brought by the FTC and the state of New Jersey.
According to the FTC’s complaint, Sollers, and its parent company, used their website, social media, and email campaigns to falsely advertise their partnerships with prominent employers in the fields of information technology, clinical research and drug safety. According to the complaint, Sollers falsely claimed that its partnerships with prominent employers, such as Pfizer, Weill Cornell Medicine, and Infosys, resulted in jobs for its graduates at those companies. Many of the businesses featured on Sollers’ website had no partnership with the school at all, says the FTC.
The complaint states that, since at least 2018, Sollers advertised that the vast majority of Sollers graduates are placed in jobs. For example, the company purportedly advertised, “90% of our students are placed within 3 months of graduation,” on its website. In reality, the job placement rate for Sollers graduates is substantially lower than the 80 percent, 82 percent, 90 percent or “near perfect” rates featured prominently on its website and in its advertising campaigns, the FTC states. According to the FTC, the school’s own data suggests that the current job-placement rate for graduates of its Life Sciences programs remains as low as 52 percent.
On September 21, 2023, the Federal Trade Commission announced that it has joined the Federal Communications Commission in signing a renewed memorandum of understanding (MOU) between public authorities who are members of the Unsolicited Communications Enforcement Network (UCENet). The MOU aims to promote cross-border collaboration to combat unsolicited communications, including email and text spam, scams, and illegal telemarketing.
“The FTC is committed to using all of its tools to fight robocalls and other unsolicited communications that try to prey on consumers,” said FTC attorney and Chair Lina M. Khan. “This scourge does not respect borders, and our recommitment to this MOU underscores the importance of international communication and cooperation to combat this problem.”
UCENet members agreed to renew and make evergreen the MOU, a non-binding instrument which the FTC and its partners signed in 2016.
The 2016 MOU was aimed at facilitating information sharing, capacity building, and enforcement assistance among the partners. For the past seven years, it also has facilitated communication about emerging threats and complaint trends related to spam, scams, and illegal telemarketing.
The UCENET MOU is part of the FTC’s continuing to work to fight harms that can arise from unwanted messages. According to the announcement, unsolicited communications in the form of illegal and spoofed robocalls, text messages, and emails are often the source of scams that harm millions of consumers in the United States each year. The revised MOU also has been signed by UCENet partners in Canada,
On August 22, 2023, the Federal Trade Commission announced that as a result of an FTC lawsuit, a federal court has temporarily shut down an alleged business opportunity scheme that purportedly lured consumers to invest $22 million in online stores, using alleged unfounded claims about income and profits.
The operators of Automators also claimed to use artificial intelligence to ensure success and profitability for consumers who agreed to invest with Automators, according to the agency.
In addition to offering consumers high return as “passive investors” in profitable e-stores, Automators, which previously used the names Empire and Onyx Distribution, also offered to teach consumers how to successfully set up and manage e-stores themselves using a “proven system” and the powers of artificial intelligence, according to the FTC.
“The defendants preyed on consumers looking to provide for their families with promises of high returns and the use of AI to power such returns,” said FTC attorney Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Their lies caused consumers to lose tens of thousands of dollars, with many losing their life savings. The FTC is working to hold defendants accountable and to secure redress for their victims.”
The FTC’s complaint against defendants Roman Cresto, John Cresto, and Andrew Chapman, through their companies Automators AI, Empire Ecommerce and Onyx Distribution, claims that the vast majority of defendants’ clients did not make the promised earnings or even recoup their investment. Instead, most clients allegedly lost significant amounts and Amazon and Walmart have routinely suspended or terminated the stores that defendants operated for repeated policy violations,
On August 14, 2023, the Federal Trade Commission announced that it will require Experian Consumer Services, which offers consumers access to their Experian credit information, to pay $650,000 to settle charges it sent consumers unsolicited email without offering them a way to opt out of such messages, as required under the CAN-SPAM Act.
In a complaint filed by the Department of Justice on behalf of the FTC, the agency says that California-based Experian Consumer Services (ECS), also known as ConsumerInfo.com, Inc., spammed consumers with marketing offers after they signed up for an account with the company in order to manage their Experian credit report information.
In the emails, the FTC alleges that the company failed to provide clear and conspicuous notice of consumers’ ability to opt out of receiving additional marketing messages and a mechanism for doing so, in violation of the CAN-SPAM Act, according to the complaint.
“Signing up for a membership doesn’t mean you’re signing up for unwanted email, especially when all you’re trying to do is freeze your credit to protect your identity,” said FTC lawyer Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “You always have the right to unsubscribe from marketing messages, and the FTC takes enforcing that right seriously.”
Consumers who wish to freeze or take other steps to manage their Experian credit information online must create an account with ECS. The complaint charges that consumers who signed up for a free membership account with ECS were then sent emails promoting Experian’s products and services such as one touting Experian Boost,
FTC advertising compliance and defense attorney Richard B. Newman was recently quoted in an article for Cybersecurity Law Report titled “Xbox and Alexa COPPA Case Lessons: Avatars, Biometrics and Other New Expectations.”
The article discusses the FTC’s recent privacy enforcement run and how it reinforces regulators’ expanding expectations for companies using video and audio recordings, smart devices and AI. The article further discusses recent agency settlements with Microsoft, Amazon and educational technology provider Edmodo that drew $51 million in penalties, broke new ground on the Children’s Online Privacy Protection Act Rule enforcement and signaled new expectations for all companies’ privacy compliance.
In discussing how COPPA is a tool for financial penalties and how these cases highlight the value of COPPA enforcement to the FTC versus its Section 5 authority under the FTC Act, Mr. Newman noted that “[i]n Amazon, obviously, the $25‑million settlement amount leaps out” for Alexa’s improper retention of voice recordings in violation of COPPA.
Mr. Newman further shared that “not just the FTC, but state attorneys general are becoming increasingly interested in expanding regulation of the use and sharing of consumer data, including geolocation data.”
While the FTC contests the issue at the federal level, data brokers and those that interact with them should expect that the plaintiffs’ class action bar and state AGs may lodge claims under state “little FTC acts” that echo the FTC’s July 2022 statement about geolocation data or the biometric one,
The United States District Court for the Middle District of Florida, Ocala Division, issued an order permanently banning the defendant from offering for sale or selling any protective goods or services, after granting the FTC’s motion for summary judgment.
The order also includes two monetary judgments against the individual, who has allegedly done business under different corporate names. The first judgment is for $989,483.69, to be returned to consumers allegedly harmed by his violations of the FTC Act and the Commission’s Mail Order Rule. The court also entered a second civil penalty judgment of $2,562.21 for his alleged violations of the FTC Act with regards to the COVID-19 Consumer Protection Act.
In a complaint filed in June 2021, the FTC alleged that he preyed upon consumers’ fear of COVID-19 by advertising the availability and quick delivery of PPE, including N95 facemasks, even though he had no basis to make those promises.
The complaint stated that he failed to deliver PPE on time (if at all), failed to notify consumers of delayed shipments, failed to offer the cancellations and refunds required by the Commission’s Mail Order Rule, and failed to honor refund requests.
When the individual eventually did deliver the products, he often sent supplies that were inferior in quality to what consumers ordered, according to the complaint. Based on this conduct, the complaint alleged that his deceptive and unfair conduct violated the Mail Order Rule, the FTC Act, and the FTC Act with regards to the COVID-19 Consumer Protection Act.
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About This Blog and Hinch Newman’s Advertising + Marketing Practice
Hinch Newman LLP’s advertising and marketing practice includes successfully resolving some of the highest-profile Federal Trade Commission (FTC) and state attorneys general digital advertising and telemarketing investigations and enforcement actions. The firm possesses superior knowledge and deep legal experience in the areas of advertising, marketing, lead generation, promotions, e-commerce, privacy and intellectual property law. Through these advertising and marketing law updates, Hinch Newman provides commentary, news and analysis on issues and trends concerning developments of interest to digital marketers, including FTC and state attorneys general advertising compliance, civil investigative demands (CIDs), and administrative/judicial process. This blog is sponsored by Hinch Newman LLP.