Three Regulations Affecting Small Business to Watch in 2025
CORPORATE TRANSPARENCY ACT
Any regular reader of this blog know that I have been preaching about the Corporate Transparency Act for the last year. In December 2024 there were three startling court rulings about this law.
In 2021, the Corporate Transparency Act was passed, requiring most corporations and LLCs to file information about their “beneficial owners” with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury.
This Act was designed to combat money-laundering, terrorism, tax evasion and other corrupt financial activities. Existing companies had until January 1, 2025 to file beneficial ownership reports, and companies formed in 2024 had 90 days from the date of formation to file these reports.
On December 3, 2024, a federal district court in Texas filed a nationwide preliminary injunction (stop everything order) against the Corporate Transparency Act. The plaintiffs in that suit argued that the law is unconstitutional. The judge determined that allowing beneficial owner information filings to continue while constitutionality is determined would cause "irreparable harm" to the business owners and halted enforcement of the law until the case is heard.
Several district courts in other states have denied requests to enjoin the CTA, ruling in favor of the Department of the Treasury.
On December 23, 2024, the U.S. Court of Appeals for the Fifth Circuit granted a stay of the district court’s preliminary injunction, allowing enforcement to continue. The governmental agency overseeing the BOI Report filing extended the filing deadlines until January 13, 2025 to account for the time of the stay when filing was not mandatory.
Three days later, the entire Fifth Circuit Court vacated the December 23rd ruling and is once again implementing a nationwide injunction against enforcement of the CTA and BOI Report filing.
No one knows what this means or what will happen.
NONCOMPETITION CLAUSES
On April 23, 2024, the Federal Trade Commission (“FTC”), which promotes competition and protects customers from unfair or predatory business practices, issued its Final Rule prohibiting non-compete clauses in all agreements between employers and workers. This rule:
Prohibits all new non-competition agreements nationwide with employees and contractors.
Voids most existing noncompetition agreements in place with employees and contractors.
Allows existing noncompetition agreements with “senior executives” (an individual who (1) is in a policy-making position; and (2) had a total annual compensation of at least $151,164 in the preceding year) to stay in effect until the underlying contract expires. They cannot be extended.
The language is sweeping: Section 910.1 of the Final Rule defines “non-compete clause” as “[a] term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from” either seeking or accepting work after the conclusion of employment, or operating a business after the conclusion of employment.
As with the Corporate Transparency Act above, a federal lawsuit was filed alleging this rule is arbitrary and unenforceable. The federal court hearing the case issued an injunction barring this rule from taking effect. The FTC has appealed.
While the FTC’s rule was prevented, states also limit the enforceability of noncompete agreements and other restrictive covenants, employers need to pay attention to this area of law. You may be able to rely more heavily on confidentiality agreements.
CLICK TO CANCEL
Late in 2024, the FTC announced a final “click-to-cancel” rule. It requires sellers to make it as easy for customers to cancel subscription services as it did to sign up in the first place. The rule is set to go into effect in April 2025, although a lawsuit has been filed by internet, telecom and other industry associations, alleging that the FTC does not have the authority to issue this ruling.
Under a negative option plan, your failure to say “no” means in effect you have said “yes”. The burden is on the buyer to opt out of a subscription, rather than to opt in for a renewal. Subscribers are charged for automatic renewals and some businesses make it very difficult to cancel.
The rule requires sellers to provide a simple, clearly labelled cancellation mechanism that allows their customer to easily stop any recurring charges. This mechanism must be as simple and user-friendly as it ws to initiate the charge. For example, if you could call toll-free to start a charge, you should be able to call toll-free to halt the charge. The seller must allow cancellation the same way as it allowed signing up, and may not require additional steps.
The final rule provides a consistent framework for cancelling by prohibiting sellers from:
misrepresenting any material fact made while marketing goods or services with a negative option feature;
failing to clearly and conspicuously disclose material terms prior to obtaining a consumer’s billing information in connection with a negative option feature;
failing to obtain a consumer’s express informed consent to the negative option feature before charging the consumer; and
failing to provide a simple mechanism to cancel the negative option feature and immediately halt charges.
