Litigation Archives - Page 5 of 107 - The National Law Forum

Arguing Internet Availability to Establish Copyright Infringement Is Bananas

In an unpublished opinion, the US Court of Appeals for the Eleventh Circuit affirmed a district court’s decision finding that a pro se Californian artist failed to establish that an Italian artist had reasonable opportunity to access the copyrighted work simply because it was available to view on the internet. Morford v. Cattelan, Case No. 23-12263 (11th Cir. Aug. 16, 2024) (Jordan, Pryor, Branch, JJ.) (per curiam).A plaintiff alleging copyright infringement may show factual copying by either direct or indirect evidence showing “that the defendant had access to the copyrighted work and that there are probative similarities between the allegedly infringing work and the copyrighted work.” To do so, however, the copyright owner must establish a nexus between the work and the defendant’s alleged infringement. Mere access to a work disseminated in places or settings where the defendant may have come across it is not sufficient.

Joe Morford’s Banana and Orange and Maurizio Cattelan’s Comedian both “involve the application of duct tape to a banana against a flat surface” (see images below from the court decision’s appendix). Cattelan’s Comedian went viral and sold for more than $100,000 at Miami’s Art Basel. Morford claimed that Comedian was a copy. The district court found that Morford failed to show that Cattelan had reasonable opportunity to access Banana and Orange and thus could not establish a copyright claim. Morford appealed.

Orange and Banana, Comedian

On appeal, Morford argued that because he could show striking similarity between Banana and Orange and Comedian, he was not required to proffer evidence of access to show copyright infringement. In the alternative, he argued that he could show substantial similarity and that Cattelan had reasonable opportunity to access Banana and Orange as it was widely disseminated and readily discoverable online.

The Eleventh Circuit explained that in circuits adopting a widespread dissemination standard, that standard requires showing that the work enjoyed “considerable success or publicity.” Morford showed that Banana and Orange was available on his public Facebook page for almost 10 years and featured on his YouTube channel and in a blog post, with views in more than 25 countries. But Banana and Orange’s availability on the internet, without more, was “too speculative to find a nexus” between Cattelan and Morford to satisfy the factual copying prong of a copyright infringement claim, according to the Court.

The Eleventh Circuit also found that Morford failed to meet the high burden of demonstrating that the original work and accused infringement were so strikingly similar as to establish copying. Such similarity exists if the similarity in appearance between the two works “is so great that [it] precludes the possibility of coincidence, independent creation or common source,” but identical expression does not necessarily constitute infringement. In this analysis, a court addresses the “uniqueness or complexity of the protected work as it bears on the likelihood of copying.” Morford argued that he established striking similarity based on the “same two incongruous items being chosen, grouped, and presented in the same manner within both works.” Although the two incongruous items in both works were similar (i.e., a banana and duct tape), the Court decided that there were sufficient differences between Banana and Orange and Comedian to preclude a finding of striking similarity. Banana and Orange had both a banana and an orange held by duct tape, while Comedian only contained a banana.

Litigation Against Pharmacy Benefit Managers

Pharmacy Benefit Managers (PBMs) play a large role in the pharmaceutical medication distribution industry and have faced a great deal of litigation in recent years. This blog entry looks at cases against PBMs brought under the U.S. False Claims Act (FCA), as well as those brought as class actions on behalf of various kinds of groups.

FCA Actions

Cases brought against PBMs under the FCA typically involve allegations of fraudulent billing practices, false statements, and kickback schemes. These cases often address whether PBMs have caused false claims to be submitted to government healthcare programs, such as Medicaid, and whether they have engaged in practices that violate the FCA and other related statutes.

First, PBMs may violate the FCA by failing to pay reimbursements to individuals, other business entities, and/or state or federal agencies. In United States v. Caremark, Inc., the U.S. Court of Appeals for the Fifth Circuit held that the district court erred in finding that the Defendant PBM did not impair an obligation to the government within the meaning of the FCA by unlawfully denying reimbursement requests from state Medicaid agencies.

Second, PBMs may violate the FCA by billing individuals, other business entities, and/or state or federal agencies for services that were never rendered. In United States ex rel. Hunt v. Merck-Medco Managed Care, L.L.C., the U.S. District Court for the Eastern District of Pennsylvania addressed allegations that the PBM billed for services not rendered and fraudulently avoided contractual penalties it would otherwise have had to pay. The Court found that the Complaint sufficiently alleged that the PBM caused false claims to be presented to an agent of the United States, satisfying the statutory requirements of the FCA.

Third, PBMs may violate the FCA by overcharging individuals, other business entities, and/or state or federal agencies for services. For example, in two cases that were settled in 2019 in the Western District of Texas and the Northern District of Iowa, two subsidiaries of Fagron Holding USA LLC settled with the U.S. for over $22 million in connection with such a scheme. In the first, Fagron subsidiary Pharmacy Services Inc. (PSI) and its affiliates were accused of submitting fraudulent compound prescription claims to federal healthcare programs, manipulating pricing through sham insurance programs, paying kickbacks to physicians, and illegally waiving copays. In the second, Fagron subsidiary B&B Pharmaceuticals Inc. faced claims under the FCA for setting an inflated average wholesale price for Gabapentin.

Finally, PBMs may violate the FCA by engaging in kickback schemes with drug manufacturers or other entities. These schemes may also involve waiving copays and the provision of unnecessary services to patients. One notable case involves AstraZeneca LP, a pharmaceutical manufacturer, which agreed to pay $7.9 million to settle allegations that it engaged in a kickback scheme with Medco Health Solutions, a PBM. The allegations included providing remuneration to Medco in exchange for maintaining exclusive status of AstraZenica’s heartburn relief drug Nexium on certain formularies, which led to the submission of false claims to the Retiree Drug Subsidy Program. Similarly, Sanford Health and its associated entities agreed to pay $20.25 million to resolve FCA allegations related to false claims submitted to federal healthcare programs. The allegations included violations of the Anti-Kickback Statute and medically unnecessary spinal surgeries, with one of Sanford’s top neurosurgeons receiving kickbacks from his use of implantable devices distributed by his physician-owned distributorship.

Class Actions

Class action cases against pharmacy benefit managers (PBMs) often involve allegations of deceptive practices, breach of fiduciary duty, and violations of contractual obligations. These cases typically involve issues such as the improper handling of rebates, kickbacks, inflated drug costs, and the failure to act in the best interest of plan participants.

First, PBMs may subject themselves to liability by failing to pass on negotiated rebates or other types of savings to their members. In Corr. Officers’ Benevolent Ass’n of the City of N.Y. v. Express Scripts, Inc., a union alleged that PBM managers failed to pass on negotiated rebates to its members, instead keeping them for their own benefit. The court found sufficient allegations to support claims of deceptive practices and breach of fiduciary duty, allowing these claims to proceed.

Second, and far more commonly, PBMs face liability for engaging in antitrust violations. Such liability typically arises when PBMs collude with one another to fix drug processes or otherwise improperly influence the market for medications and/or other medical services. For example, in In re Brand Name Prescription Drugs Antitrust Litig., a class of retail pharmacies alleged that drug manufacturers and wholesalers conspired to deny them discounts. The court found sufficient evidence of violations to proceed to trial. Similarly, in Independent Pharmacies vs. OptumRx, more than 50 independent pharmacies filed a class action lawsuit against OptumRx, a division of UnitedHealth Group, alleging that OptumRx failed to comply with state pharmacy claims reimbursement laws, leading to illegal price discrimination and reimbursement violations. Lastly, in Elan and Adam Klein, Leah Weav, et. al v. Prime Therapeutics, Express Scripts, and CVS Health, the Plaintiffs brought a action lawsuit against three major PBMs – Prime Therapeutics, Express Scripts, and CVS Health – on behalf of EpiPen purchasers with ERISA health plans for contributing to EpiPen price inflation through rebates and breaching their fiduciary duty to plan members.

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In short, because PBMs play such a large role in the pharmaceutical medication distribution industry, there are many ways that they can subject themselves to liability under the FCA, pursuant to a class action, or otherwise. As the place of PBMs in this marketplace continues to grow, we can expect that litigation against them will do likewise. Potential plaintiffs seeking to bring claims against a PBM should consult with an experienced attorney in order to determine all of the causes of action that may be available to them.

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¹United States v. Caremark, Inc., 634 F.3d 808 (5th Cir. 2011).
²United States ex rel. Hunt v. Merck-Medco Managed Care, L.L.C., 336 F. Supp. 2d 430 (E.D. Pa. 2004).
³ Corr. Officers’ Benevolent Ass’n of the City of N.Y. v. Express Scripts, Inc., 522 F. Supp. 2d 1132.
⁴In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d 599.

Dependent Work Permits – Is the U.S. Catching Up with Other Immigration Destinations?

There are many ways in which the U.S. immigration system is lagging behind those of other countries. We still put physical visas in passports – something Australia stopped doing nearly 10 years ago when they converted to a purely electronic visa system. Our immigration system is predominantly paper-based, with limited options for electronic filings, an area where other countries have fully embraced modern solutions. We also lag behind in other areas including processing times, expedite options, digital nomad immigration pathways, and having an immigration system responsive to changing economic needs for workers in specific occupations and sectors.

For a long time, the U.S. also lagged behind other countries when it came to supporting the immigration of dual-career couples, but that has changed over the last 10 years. This evolution was recently reinforced by the decision in Save Jobs USA v. DHS.

Since 2015, H-4 dependent spouses have been eligible for employment authorization documents (EADs) if they meet certain criteria, including being eligible for a green card but for a long wait due to annual and per-country limitations on green card approvals; criteria most H-4 spouses do not meet until they have been in the US for several years. The plaintiff in Save Jobs USA challenged this extension of work authorization as an unlawful use of the executive power of the Department of Homeland Security (DHS). On August 2, 2024, the Court of Appeals for the D.C. Circuit ruled that this was a lawful use of DHS’s power. Absent an appeal to the Supreme Court, this ends the uncertainty over H-4 EADs. This ruling, combined with a USCIS announcement in April 2024 that extended H-4 EADs for up to 540 days for those waiting for their EADs to be renewed, means that nearly 100,000 H-4 spouses can now pursue careers without fearing unexpected gaps in work authorization.

In addition, since 2021, the US has not required EADs for certain E and L spouses. Although this is not widely known (our team often gets asked about it), starting in November 2021, U.S. immigration agencies began issuing documents that allowed these spouses to work based only on their I-94 entry document, without requiring a separate EAD application. This eliminated lengthy delays and gaps in work authorization that inhibited the ability of dual-career couples to continue their dual pursuits following a relocation to the U.S. With these developments, the US is slowly aligning with other similar economies around the world that allow dependent spouses to work automatically.

There is still more progress that can be made. Currently, the Permits Foundation, an advocacy group focused on “enabling dual careers in the global workplace” characterizes 35 countries as allowing spouses or partners to work freely. The U.S. is included on that list, but the foundation notes that spouses are only allowed to work in certain categories and that work authorizations are often subject to long delays. In the U.S., access to work authorization is not available to all types of dependents. H-4 spouses are excluded until their H-1B spouse reaches a certain point in the green card process (something that takes about 4 years for many, amounting to a major career gap for a trailing spouse). Spouses of J-1 visa holders still need to apply separately for an EAD. Spouses of F-1 student visa holders are not allowed to work, even during the one to three years of post-graduation work authorization granted to international graduates of U.S. universities. We also do not grant any immigration status to unmarried partners. Although many other countries including Canada, the UK, the Netherlands, and Australia, provide an immigration path for non-married partners, there is no option for that when an unmarried couple wants to relocate together to the US (resulting in some interesting conversations and sometimes resulting in the complete cancellation of a proposed relocation). Overall, expanding work authorization to married (and even unmarried) partners of the workers already employed in the US in various non-immigrant categories could be a boon to the labor market. Our team is often asked how they can find new sources of skilled an unskilled workers to fill open positions. Expanding this avenue of work authorization would enable this latent talent pool, many of whom are already here in the US, to enter the US workforce.

Bottom line, if you are an accompanying spouse in one of the limited categories of dependents who do not need separate employment authorization (E or L), rejoice. You are probably be able to work in the US without needing anything more than the entry document issued when you arrive. If you are not one of those lucky ones, review your options with immigration counsel, and hope the U.S. continues to catch up with other immigration destinations.

Court Affirmed Holding That Plaintiffs Did Not Have Standing To Sue Regarding A Charitable Trust

In Dao v. Trinh, a group of five individuals who contributed money for membership in a religious community sued the person who they alleged misapplied their money for the benefit of a different religious community. No. 14-23-00131-CV, 2024 Tex. App. LEXIS 3208 (Tex. App.—Houston [14th Dist.] May 9, 2024, no pet. history). The plaintiffs brought fraud claims for alleged misrepresentations and breach of contract. The defendant filed a plea to the jurisdiction, alleging that the plaintiffs did not have standing to sue. The trial court entered an order dismissed the plaintiff’s claims with prejudice and expressly found that the plaintiffs lacked standing to bring their fraud and breach of contract claims.

The court of appeals affirmed. The court first discussing standing to sue over a charitable trust:

No party disputes that the Cao Dai organization in question, for which Trinh is the founder and director, is a “charitable trust”. This is particularly significant because the attorney general “is the representative of the public and is the proper party to maintain” a suit “vindicating the public’s rights in connection with that charity.” A private individual has standing to maintain a suit against a public charity only if the person seeks vindication of some peculiar or individual rights, distinct from those of the public at large. Moreover, a private individual must similarly establish standing in a case such as this, brought against the trustee of a public charity in connection with their office or service.

Id. The court concluded that whether framed as a fraud or breach of contract claim, the plaintiffs did not have standing to sue for the return of their donations:

Based on the holding in Eshelman, we conclude the Temple Donor Parties’ allegations and proof for their fraud claims pertaining to their donations to a charitable fails to establish standing to bring their claims (whether under a fraud theory or conditional gift theory); that is, the facts alleged and undisputed do not vindicate of some peculiar or individual rights, distinct from any other donor or from the public at large.

Id.

Lyft Owes No Duty To Its Drivers To Do Background Checks On Riders

Al Shikha v. Lyft, Inc., 102 Cal. App. 5th 14 (2024)

While working as a Lyft driver, Abdu Lkader Al Shikra was stabbed by a passenger in a “sudden and unprovoked attack.” Al Shikra sued Lyft for negligence based on its failure to conduct criminal background checks on all passengers. The trial court granted Lyft’s motion for judgment on the pleadings, and the Court of Appeal affirmed dismissal of the complaint after concluding that conducting criminal background checks on all passengers would be “highly burdensome” to Lyft and that the type of harm Al Shikha suffered was not “highly foreseeable.”

The Administration Creates New Pathways for DACA Recipients to Obtain Legal Status

Among the multiple executive actions the White House announced on June 18, 2024, was one stating it was taking steps to facilitate the process for certain Deferred Action for Childhood Arrivals (DACA) recipients to obtain work visas/status. DACA was created in 2012 by President Barack Obama as a means for immigrant youth who met certain eligibility requirements to qualify for work authorizations and obtain “deferred action.”

While DACA protection has enabled hundreds of thousands of individuals to legally work and live in the U.S., the program has faced considerable uncertainty since 2017, when the Trump administration initially sought to terminate the program, but was prevented from doing so in the federal courts.

The program continues to face legal challenges, and additional litigation before the U.S. Supreme Court is likely. Fundamentally, DACA is not a legal status – the reliance on “deferred action” simply reflects the U.S. Department of Homeland Security’s (DHS) decision not to bring immigration removal proceedings against a specific individual. While many DACA recipients and their employers have since sought to transition to a work visa or other legal status that Congress specifically established in the Immigration and Nationality Act (INA), the process for doing so is uncertain, expensive and cumbersome.

Since DACA recipients either entered without authorization or were out of status when they received DACA protection, they are typically ineligible for a transition to a lawful status within the U.S.

Instead, they are required under immigration law to “consular process” outside the U.S. and obtain a work visa at a U.S. consulate. The individual’s departure from the U.S. could trigger removal bars (similar to those described above), requiring the individual to obtain a temporary waiver of inadmissibility from the government. These waivers, known as “d3 waivers” based on the section of the INA to which they relate, can take months to obtain and the outcome of such a waiver is not certain. These cumulative issues have chilled the interest of many employers and DACA recipients in pursuing these waivers.

On July 15, 2024, the U.S. Department of State made changes to the Foreign Affairs Manual (FAM), which is controlling guidance for consular officers at U.S. Consulates on factors to consider when adjudicating waiver requests. The three primary changes that the DOS made to 9 FAM 305.4-3 are:

Expanding the factors that would have a positive effect on U.S. public interests in granting a waiver to include circumstances “where the applicant has graduated with a degree from an institution of higher education in the United States, or has earned credentials to engage in skilled labor in the United States, and is seeking to travel to the United States to commence or continue employment with a U.S. employer in a field related to the education that the applicant attained in the United States….” These changes noted in bold are clearly designed to benefit many DACA recipients.
The second change creates a mechanism for a waiver applicant whose request is denied by a consular officer to request State Department review in circumstances involving “significant public interest,” which in turn cross-references the factors above that are of particular benefit to DACA recipients.
The FAM was also updated to reflect the ability of DACA recipients who have graduated from an educational program in the United States or are seeking to reenter the U.S. with a visa as beneficiaries of an offer of employment to request an expedite of the waiver request. This change is particularly critical as one of the greatest challenges that DACA recipients face when seeking a waiver is the uncertain adjudication period, which often stretches for months.

Collectively, these updates are significant and will benefit several DACA recipients who are beneficiaries of employer sponsorship. These pathways also create a mechanism for U.S. employers to transition DACA recipients from DACA, with its increasing uncertainty, to a more stable work visa. DACA recipients should, of course, plan prudently if considering a departure from the U.S. to apply for such a waiver and should also apply for advance parole before departing the U.S. so as to provide a mechanism for reentering the U.S. if the waiver request is denied.

US District Court Sets Aside the FTC’s Noncompete Ban on a Nationwide Basis

On August 20, the US District Court for the Northern District of Texas held that the Federal Trade Commission’s (FTC) final rule banning noncompetes is unlawful and “set aside” the rule. “The Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024, or thereafter.”

The district court’s decision has a nationwide effect. The FTC is very likely to appeal to the Fifth Circuit. Meanwhile, employers need not concern themselves for now with the rule’s notice obligations, and the FTC’s purported nationwide bar on noncompetes is ineffective. Employers do, however, need to remain mindful of the broader trend of increasing hostility to employee noncompetes.

The Court’s Decision

On April 23, the FTC voted 3-2 to publish a final rule with sweeping effects, purporting to bar prospectively and invalidate retroactively most employee noncompete agreements. The court’s decision addressed cross-motions for summary judgment on the propriety of the FTC’s rule. The court denied the FTC’s motion and granted the plaintiffs’ motion for two reasons.

First, the court held that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition under Section 6(g) of the FTC Act. In reaching its holding, the court considered the statute’s plain language, Section 6(g)’s structure and location within the FTC Act, the absence of any penalty provisions for violations of rules promulgated under Section 6(g), and the history of the FTC Act and subsequent amendments. Because the FTC lacked substantive rulemaking authority with respect to unfair methods of competition, and hence authority to issue the final noncompete rule, the court did not consider additional arguments regarding the scope of the FTC’s statutory rulemaking authority. Notably, the court did not consider whether the final rule could overcome the major questions doctrine.

Second, the court held that the FTC’s final noncompete rule was arbitrary and capricious under the Administrative Procedure Act (APA) because it was “unreasonably overbroad without a reasonable explanation” and failed to establish “‘a rational connection between the facts found and the choice made.’” The court heavily discounted studies that the FTC had relied upon that purported to measure the impact of statewide noncompete bans because no state had ever enacted a ban as broad as the FTC’s ban: “[t]he FTC’s evidence compares different states’ approaches to enforcing non-competes based on specific factual situations — completely inapposite to the Rule’s imposition of a categorical ban.” “In sum, the Rule is based on inconsistent and flawed empirical evidence, fails to consider the positive benefits of non-compete agreements, and disregards the substantial body of evidence supporting these agreements.” The court further held that the FTC failed to sufficiently address alternatives to issuing the rule.

In terms of a remedy, the court “set aside” the FTC’s final noncompete rule. The “set aside” language is drawn verbatim from the APA. The court noted that the FTC’s argument that any relief should be limited to the named plaintiffs in the case was unsupported by the APA. Instead, the court noted that its decision has a nationwide effect, is not limited to the parties in the case, and affects all persons in all judicial districts equally.

Further Litigation

In addition to a likely FTC appeal to the Fifth Circuit, two other cases are pending that likewise challenge the FTC’s final noncompete rule. First, in ATS Tree Services v. FTC, pending in the Eastern District of Pennsylvania, the district court previously denied the plaintiff’s motion for a preliminary injunction. Second, in Properties of the Villages, Inc. v. FTC, pending in the Middle District of Florida, the court enjoined the FTC from enforcing the rule against the named plaintiffs. A final judgment in one of these cases that differs from the result in the Northern District of Texas could eventually reach the courts of appeals and potentially lead to a circuit split to be resolved by the US Supreme Court.

Takeaways for Employers

For now, the FTC’s noncompete rule has been set aside on a nationwide basis, and employers need not comply with the rule’s notice obligations. Noncompetes remain enforceable to the same extent they were before the FTC promulgated its final rule. Depending on how further litigation evolves, the rule could be revived, a temporary split in authority could arise leading to confusion where the rule is enforceable in certain jurisdictions but not in others, or the rule will remain set aside.

An important part of the court’s decision is its rejection of the FTC’s factual findings, which were made in support of the rule, as poorly reasoned and poorly supported. As we discussed in our prior client alerts, we anticipate that employees may cite the FTC’s findings to support challenges to enforceability under state law. The court’s analysis of the FTC’s factual findings may substantially undermine the persuasive authority of the FTC’s findings.

Employers should anticipate that noncompete enforcements in the coming years will remain uncertain as courts, legislatures, and government agencies continue to erode the legal and policy justifications for employee noncompetes. This counsels in favor of a “belt and suspenders” approach for employers to protect their legitimate business interests rather than relying solely on noncompetes.

Deep in the Heart of Texas: Court Blocks FTC Non-Compete Rule

On August 20, 2024, the United States District Court for the Northern District of Texas invalidated the FTC’s rule banning most non-compete agreements. Ryan LLC et al v. Federal Trade Commission, WL 3297524 (08/20/2024). In its highly anticipated opinion, the Court determined the FTC exceeded its authority in promulgating the rule and that the rule is arbitrary and capricious. This decision was not limited to the parties before the Court and blocks the rule from becoming effective nationwide on September 4, 2024. As a result, existing non-compete agreements may still be valid and enforceable when permitted under applicable law.

Ryan, LLC (“Ryan”) filed its lawsuit on April 23, 2024, arguing the FTC did not have rulemaking authority under the Federal Trade Commission Act, that the rule is the product of an unconstitutional exercise of power, and that the FTC’s acts and findings were arbitrary and capricious. Several plaintiffs, including the U.S. Chamber of Commerce, intervened in the lawsuit to challenge the rule.

In July, the Court enjoined the FTC from implementing or enforcing the rule. That ruling, however, was limited in scope and only applied to Ryan and the intervening plaintiffs. Shortly thereafter, all parties filed motions for summary judgment. Plaintiffs asked the Court to invalidate the FTC’s rule, and the FTC sought dismissal under the theory it has express rulemaking authority under the FTC Act.

The Court first examined the FTC’s statutory rulemaking authority and determined the rulemaking provisions under the FTC Act do not expressly grant the FTC authority to promulgate substantive rules. The Court reasoned that although the Act provides some rulemaking authority, that authority is limited to “housekeeping” types of rules. The Court concluded “the text and the structure of the FTC Act reveal the FTC lacks substantive rulemaking authority with respect to unfair methods of competition…” As a result, the Court held the FTC exceeded its statutory authority in promulgating the rule.

Next, the Court considered whether the rule and the promulgation procedure was arbitrary and capricious. The Court was unconvinced by the studies and other evidence relied on by the FTC in promulgating the rule and found that the FTC failed to demonstrate a rational basis for imposing the rule. The Court also noted that the FTC was required to consider less disruptive alternatives to its near complete ban on non-compete agreements. Although the FTC argued it had “compelling justifications” to ignore potential exceptions and alternatives, the Court concluded the rule was unreasonable and the FTC failed to adequately explain alternatives to the proposed rule. Ultimately, the Court opined the rule was based on flawed evidence, that it failed to consider the positive benefits of non-compete clauses and improperly disregarded substantial evidence supporting non-compete clauses.

As a result of this ruling, the FTC’s rule will not become effective on September 4, 2024, short of any additional orders or rulings from a higher court reversing or staying the decision. For the time being, the existing laws governing non-compete agreements will remain in place. In Michigan, employers may enforce non-compete agreements that are reasonable in duration, geographical area and type of employment or line of business. In Illinois, they are regulated by the Illinois Freedom to Work Act, which imposes a stricter regulatory scheme. This should come as a relief for employers who can generally avoid—at least for now—analyzing complex issues regarding the impact that the FTC’s rule would have had on executive compensation arrangements tied to compliance with non-compete agreements, especially in the tax-exempt organization context.

by: D. Kyle Bierlein, Brian T. Gallagher, Barry P. Kaltenbach, Brian Schwartz of Miller Canfield

For more news on the Federal Court Ruling Against the FTC’s Non-compete Rule, visit the NLR Labor & Employment section.

U.S. Sues TikTok for Children’s Online Privacy Protection Act (COPPA) Violations

On Friday, August 2, 2024, the United States sued ByteDance, TikTok, and its affiliates for violating the Children’s Online Privacy Protection Act of 1998 (“COPPA”) and the Children’s Online Privacy Protection Rule (“COPPA Rule”). In its complaint, the Department of Justice alleges TikTok collected, stored, and processed vast amounts of data from millions of child users of its popular social media app.

In June, the FTC voted to refer the matter to the DOJ, stating that it had determined there was reason to believe TikTok (f.k.a. Musical.ly, Inc.) had violated a FTC 2019 consent order and that the agency had also uncovered additional potential COPPA and FTC Act violations. The lawsuit filed today in the Central District of California, alleges that TikTok is directed to children under age 13, that Tik Tok has permitted children to evade its age gate, that TikTok has collected data from children without first notifying their parents and obtaining verifiable parental consent, that TikTok has failed to honor parents’ requests to delete their children’s accounts and information, and that TikTok has failed to delete the accounts and information of users the company knows are children. The complaint also alleges that TikTok failed to comply with COPPA even for accounts in the platform’s “Kids Mode” and that TikTok improperly amassed profiles on Kids Mode users. The complaint seeks civil penalties of up to $51,744 per violation per day from January 10, 2024, to present for the improper collection of children’s data, as well as permanent injunctive relief to prevent future violations of the COPPA Rule.

The lawsuit comes on the heels of the U.S. Senate passage this week of the Children and Teens’ Online Privacy Protection Act (COPPA 2.0) and the Kids Online Safety Act (KOSA) by a 91-3 bipartisan vote. It is unknown whether the House will take up the bills when it returns from recess in September.

Michigan Employers Take Note: New Ruling Impacts Paid Leave and Minimum Wage

Today, July 31, 2024, the Michigan Supreme Court released a highly anticipated opinion in the case of Mothering Justice v. Nessel. This case assessed the constitutionality of the Michigan Legislature’s 2018 “adopt-and-amend” strategy under which the Legislature adopted, and then immediately changed, two ballot proposals that would otherwise have been included on the November 2018 ballot for decision by Michigan voters. The ballot proposals pertained to Michigan minimum wage and paid sick leave requirements, and were originally entitled the Earned Sick Time Act (ESTA) and Improved Workforce Opportunity and Wage Act (IWOWA). The Legislature’s “adopt-and-amend” action had narrowed the original ballot proposal language, and resulted instead in the enactment of the Michigan Paid Medical Leave Act (PMLA) and current minimum wage provisions in effect since early 2019.

After years of legal challenge, the Michigan Supreme Court reversed a 2023 decision of the Michigan Court of Appeals, and ruled that the “adopt-and-amend” approach utilized by the Michigan Legislature violated the Michigan Constitution. The Court determined both of the ballot initiatives as originally adopted by the Legislature should be reinstated in lieu of current, amended versions. In the interests of justice and equity, the Court ordered the reinstatement to occur, but only after a time period the same as that which employers would have been provided to prepare for the new laws absent their improper amendment.

Therefore, significant new legal requirements will become effective February 21, 2025. These include:

The paid leave ballot proposal as initially adopted by the Legislature in 2018, in the form of the ESTA, is reinstated effective February 21, 2025, in place of the PMLA. All covered employers must amend existing paid leave policies or implement new leave policies as applicable that comply with the ESTA by February 21, 2025. Key elements of the ESTA include:
- All Michigan employers, except for the U.S. government, are covered.
- All employees of a covered employer, rather than only certain categories of employees as provided under the PMLA, are covered.
- Covered employers must accrue sick time for covered employees, at a rate of at least one hour of earned sick time for every 30 hours worked.
- Employers with 10 or more employees, as defined by the ESTA, must allow employees to use up to 72 hours of paid earned sick time per year.
- Employers with fewer than 10 employees, as defined by the ESTA, must provide up to 40 hours of earned paid sick time, and are permitted to provide remaining earned sick leave up to the required 72 hours per year on an unpaid basis, rather than paid.
- Employers may not prohibit the carryover or cap the accrual of unused earned sick time.
- Employers may limit the use of earned sick time in any year to 72 hours.
The minimum wage ballot proposal as originally adopted by the Legislature in 2018, in the form of the IWOWA, is also effective February 21, 2025, subject to a phase in of certain requirements that remains to be determined at this time. The IWOWA will replace the narrower amendments that previously were enacted and took effect in 2019. Key provisions effective February 21, 2025, include:
- The state minimum wage rate will be $10.00 plus the state treasurer’s inflation adjustment, which has yet to be calculated and released.
- Future increases will be calculated annually based on inflation as specified in the IWOWA.
- The existing “tip credit” provisions employers of tipped employees currently utilize to calculate whether they have been paid minimum wage will be phased out over a period of years and eliminated entirely by February 21, 2029.
- Employees will have expanded rights as to how they are compensated for overtime work, including “comp time” as an alternative to customary payment of overtime wages.

The above will be applicable absent further judicial, legislative, or voter-driven constitutional action that prescribes a different course. As to judicial action, opportunities for appeal or rehearing of a state Supreme Court decision are limited and discretionary. As to voter-driven constitutional action, such as a referendum, the timing of the Court’s decision may well not permit for such action to be included on the 2024 ballot, even if sufficient support for such action were shown.

In terms of any legislative action to amend, such action could only occur in a future legislative session, meaning January 2025 or later. As to the level of support required, because the ballot proposals were adopted by the Legislature rather than approved by a majority of Michigan voters in an election process, the normal requirements will apply. Had the ballot proposals been approved by a majority of Michigan voters in the election, a 75% supermajority of both houses of the Legislature would have been required for any amendment passage.

by: Luis E. Avila, Maureen Rouse-Ayoub, Stephanie R. Setterington, Elizabeth Wells Skaggs, Hannah A. Cone, and Ashleigh E. Draft of Varnum LLP

For more news on Michigan Employment Laws, visit the NLR Labor & Employment law section.

Category: Litigation

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