FEDERAL JUDGE BLOCKS FTC’S NON-COMPETE CLAUSE BAN NADA UPDATES On Aug. 20, 2024, a federal judge upheld a challenge to the Federal Trade Commission’s (FTC) Non-Complete Clause Rule (Rule), blocking it nationwide. It was originally scheduled to go into effect on Sept. 4. The Rule, which faced numerous court challenges, aimed to invalidate most non-compete clauses in the United States, subjecting violators to fines, penalties and injunctive relief. The court’s decision blocks the Rule nationwide, and businesses do not need to take steps to comply with the rule. MORE ABOUT THIS MATTER On April 23, the U.S. Chamber of Commerce (Chamber) sued the FTC over its Rule. On Aug. 20, 2024, the court granted the Chamber’s motion for summary judgment holding that the FTC’s Rule “shall not be enforced or otherwise take effect” because “the FTC lacks substantive rulemaking authority with respect to unfair methods of competition.” The Rule was scheduled to be effective Sept. 4. The Rule banned new non-compete agreements with all workers. Additionally, it required employers to tell workers (current and former) that existing non-compete agreements were no longer enforceable, although the ban included an exemption for current non-competes covering “senior executives.” WHAT’S NEXT (AS OF THIS WRITING) Dealerships do not have to comply with the Rule and should set aside previous guidance issued by NADA in preparation for the effective date. The FTC has indicated that they may appeal the case, and NADA will keep members updated as necessary. NADA, as part of a broad coalition led by the Chamber, drafted and submitted comments in response to the original proposed rule. These comments challenged, among other issues, the FTC’s authority to issue this rule. MORE NADA RESOURCES Email & Telemarketing Restrictions https://bit.ly/3TLZIPb FTC Actions Warrant Dealers Attention https://bit.ly/4dmEa2w Corporate Transparency Act Reporting Requirements https://bit.ly/4gICy5P CARS RULE SHOWDOWN Key Insights from the Fifth Circuit Oral Arguments and What Dealers Need to Prepare for Now On Oct. 9, 2024, a three-judge panel of the Fifth Circuit Court of Appeals in New Orleans heard oral arguments regarding the Petition for Review filed by the National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association (TADA) challenging the FTC CARS Rule (a.k.a. The Vehicle Shopping Rule). The case is National Automobile Dealers Association & Texas Automobile Dealers Association v. FTC, No. 24-60013, 5th Cir. (Jan. 5, 2024). The FTC CARS Rule is a sweeping trade regulation rule that will introduce strict regulations for motor vehicle dealers. The Rule has numerous requirements that will affect all aspects of dealers’ sales operations including advertising practices, consumer disclosures and recordkeeping, requiring dealerships to make substantial operational adjustments to comply. Although the Rule has been finalized, its implementation has been voluntarily “stayed” — meaning delayed — by the FTC pending the resolution of this legal challenge brought by NADA and TADA. Highlights from the Oral Argument: The oral argument largely revisited the points raised in the briefs, with extensive discussion on federal agency rulemaking. Specifically, the Court and parties debated whether this Rule was a trade regulation under Section 18 of the FTC Act which requires an Advance Notice of Proposed Rulemaking (ANPRM), or if it was, as the FTC contends, issued pursuant to the authority under the Dodd-Frank Act (which does not require an ANPRM), and if the Rule separately required an ANPRM based on the FTC’s own internal rulemaking procedures. The judges asked several questions regarding appellate authority on these issues, the legislative history of the rulemaking process, and whether, if an ANPRM was required for the CARS Rule, the failure to issue an ANPRM was a “harmless error” — meaning the absence of an ANPRM did not cause any significant harm and would not invalidate the Rule. Several of the judges appeared receptive to NADA’s arguments, with NADA appearing better prepared to address the Court’s questions, while the FTC attorney at times hesitated and struggled to provide clear answers to some questions. At times, the judges expressed skepticism about both parties’ contentions on whether the court should or was empowered to act. On the topic of “harmless error,” NADA argued that the error was not harmless, as NADA and dealers lacked sufficient time to respond to the numerous questions raised in the Notice of Proposed Rulemaking (NPRM) and to properly analyze the cost-benefit impacts. The lack of an ANPRM meant BOTH ARTICLES BY DAVID HAMMER, CONTEMPORARY AUTOMOTIVE, NADA DIRECTOR 8
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