FTC Noncompete Ban: Uncertainty Remains

On April 23, 2024, the Federal Trade Commission announced its Final Rule prohibiting the vast majority of noncompete agreements in the employment context (the FTC Ban).  While facing significant headwinds in the form of legal challenges, the FTC Ban still stands for now.  Absent any intervening action by the courts, the following restrictions will go into effect on September 4, 2024.

1. Noncompete agreements entered into on or after the effective date – all such agreements will be unenforceable, regardless of the position held or the salary earned by the worker.
2. All existing noncompete agreements – i.e. those entered into prior to the Final Rule’s effective date – all such agreements will be unenforceable with the exception of noncompete agreements entered into with “senior executives”. The rule defines this term to refer to workers earning more than $151,164 annually who are in a “policy-making position.”

Notable in the transportation industry, the FTC Ban will not apply to qualifying common carriers.  More specifically, the FTC does not have rulemaking authority over certain common carriers engaged in common carrier activities.  However, with the sunset of the ICC and the elimination of the distinction between common carrier and contract carrier authorities issued by the U.S. Department of Transportation, the full extent to which the FTC Ban applies to motor carriers is unclear – and will likely be debated.

For now, there is much uncertainty concerning whether the FTC Ban will take effect, as there remains a real possibility that a court will issue an injunction halting the FTC Ban.  Indeed, on July 3, 2024, the U.S. District Court for the Northern District of Texas granted a limited preliminary injunction of the FTC Ban, applicable to the parties in that case only.  Ryan, LLC v. FTC (C.A. No. 3:24-cv-00986).  In this preliminary ruling, the court found that (1) the FTC lacked substantive rulemaking authority, (2) the Plaintiffs were likely to succeed on the merits of the case; and (3) there was a substantial likelihood that the FTC Ban is arbitrary and capricious.  The court expressly declined to issue a nationwide injunction at this stage, but it indicated that it would issue its final decision on the merits by August 30, 2024.  Many anticipate the court’s above findings on the preliminary injunction signal the potential for a nationwide injunction in its upcoming ruling on the merits – which could yet come as little as five days before the scheduled implementation date.  There are similar challenges in other courts, and it is possible that an injunction could be issued in those cases based on the reasoning in Ryan.

We will continue to monitor these developments closely.  If you have any questions about the FTC Ban, or, more importantly, how to address the uncertainty in implementation that the FTC has wrought, feel free to contact us.

FMCSA Holds Discussion on Fees Charged for Commercial Towing Services

On June 21, 2024, the Federal Motor Carrier Safety Administration held a public meeting on the transparency of fees being charged for commercial towing services. The meeting served as a forum for stakeholders to interact and identify towing practices and invoicing trends to promote transparency and curtail predatory towing practices.  The FMCSA has taken the position that predatory towing practices negatively impact trucking companies and their drivers and are detrimental to the industry.

The meeting was an outgrowth of the Federal Trade Commission’s (FTC) proposed rule entitled, Trade Regulation Rule on Unfair or Deceptive Fees If adopted, the proposed rule would prohibit unfair or deceptive practices relating to fees for goods or services. Specifically, it would prohibit misrepresenting the total costs of services by omitting mandatory fees from advertised prices and preclude misrepresentations regarding the nature and purpose of fees.

On February 7, 2024, the FMCSA submitted a comment in support of the FTC proposal, noting that the proposed rule “may significantly benefit FMCSA’s regulated community, specifically as it relates to predatory towing practices.” The FMCSA’s comment generally endorsed the proposed rule and expressed concern regarding the negative impact predatory towing practices have on motor carriers.

The FMCSA has opened a docket and will accept comments on the transparency of commercial motor vehicle towing fees until August 1, 2024.

TSA Proposing to Update Security Programs

The Transportation Security Administration (TSA) has notified members of the air-cargo community that it intends to update its security programs to address various regulatory and operational issues.  With regard to air forwarders, the updates will impact the Indirect Air Carrier Standard Security Program and the Certified Cargo Screening Standard Security Program. The proposed updates are classified as Sensitive Security Information (SSI) and cannot be fully shared in this article, but impacted clients are advised to review TSA’s notification of the changes posted to the Indirect Air Carrier Management System. Scopelitis has prepared an SSI summary of the agency’s proposed changes that is available to clients upon request. The comment period is open through July 31. Members of the air-forwarding community are encouraged to submit comments to the agency identifying concerns, questions, and requests for clarification regarding the proposed changes.

Impact of DOJ’s Proposed Reclassification of Marijuana is Unclear

In May, the Department of Justice issued a notice of proposed rulemaking (NPRM) that proposed the reclassification of marijuana from a Schedule I to a Schedule III controlled substance under the Controlled Substances Act. The DOJ’s notice follows the recommendation of the Department of Health and Human Services (HHS) to reclassify marijuana. The NPRM is silent on what impact the reclassification of marijuana as a Schedule III drug will have on federally mandated drug testing for transportation workers, although U.S. Transportation Secretary, Pete Buttigieg, suggested in testimony before Congress the Department of Transportation would continue to require marijuana testing. If the DOJ eventually reclassifies marijuana to a Schedule III drug, the DOT will need to provide guidance about the impact the reclassification may have on motor carriers, if any.

FMCSA Registration System Modernization

FMCSA has made significant changes to its online registration system over the past year, and many more changes are forthcoming. On May 29, 2024, FMCSA held an industry stakeholder meeting addressing some of these changes. The following highlights a few particularly noteworthy changes. First, FMCSA is in the process of adding technology tools to enhance verification of individuals, businesses, and locations. Second, a broker’s or freight forwarder’s authority may automatically be suspended if the available financial security falls below $75,000. Third, FMCSA may require MCS-150 filings to be made annually rather than biennially. Fourth, FMCSA is strongly considering eliminating the MC number, leaving the USDOT number as the sole operations identifier. These are only four of the many changes expected, and FMCSA has advised some changes will be implemented without notice.

Scopelitis Attorney Kiefer A. Light

Scopelitis Transportation Consulting Co-Director P. Sean Garney

Spotlight: Non-Asset Logistics

Providing non-asset logistics services is inherently complicated because the non-asset logistics service provider occupies the middle ground between the shipper/customer and the underlying transporting carriers. Further complicating matters, many non-asset logistics providers offer to arrange transportation through the use of various modes and may also arrange or provide storage and handling services. Each of these modes and services is potentially subject to different licensing and authority requirements, governing legal standards, and industry norms. All those moving parts require sound operating practices and technology integrations that can trigger data privacy and confidentiality concerns.

At Scopelitis, our Brokerage & Non-Asset Logistics practice serves the unique needs of our non-asset logistics service provider clients and understands the complex environment in which these clients operate. The Firm works with clients that offer an array of industry services ranging from:

• Full truckload, LTL and partial brokerage
• Domestic surface freight forwarding
• Operating as TSA-approved indirect air carriers
• Arranging ocean transportation pursuant to Ocean Transportation Intermediary licenses issued by the Federal Maritime Commission
• Providing customs brokerage services
• Performing (or arranging) warehousing and cross-docking services

Given the Firm’s client base offers a wide variety of services through various modes of transportation, we regularly assist clients with a diverse array of business and legal matters, including but not limited to:

• Assisting clients with licensing applications
• Strategic guidance regarding corporate structure and asset protection
• Drafting applicable terms of service
• Negotiating customer contracts
• Insurance coverage review
• Commercial dispute resolution (including cargo claims and freight charge disputes)
• Regulatory compliance
• Mergers and acquisitions (including integrations)
• Data privacy counseling
• Risk assessment and mitigation
• Auto accident defense

The Firm understands the unique challenges non-asset logistics providers face, and if you want to put the Firm’s experience to work for you, please contact Nathaniel Saylor, Andy Light, Allie Boyd, or Cliff Lauchlan.