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Pillsbury’s communications lawyers have published the FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month’s issue includes:

  • FCC Proposes $8,000 Fine for Contest Rule Violations
  • Business Communications Company Settles Business Radio Investigation by Agreeing to Compliance Plan and $100,000 Penalty
  • FCC Issues $16,500 Fine to Alabama FM Translator for Multiple Rule Violations

California FM Station Receives $8,000 Proposed Fine for Contest Rule Violation

The FCC proposed a fine of $8,000 against the licensee of a California FM radio station for violating the FCC’s Contest Rule.  Specifically, the FCC issued a Notice of Apparent Liability for Forfeiture (NAL) asserting that the licensee failed to conduct the contest substantially as announced.

Section 73.1216 of the FCC’s Rules requires a licensee to “fully and accurately disclose the material terms” of a contest it conducts or promotes and to conduct the contest “substantially as announced and advertised.”  Material terms include, among other things, eligibility restrictions, the means of selecting winners, and the extent, nature, and value of prizes.  Prizes must also be awarded promptly, and in the past the FCC has found Contest Rule violations where a station failed to award prizes in a manner consistent with the advertised rules.

The FCC received a complaint alleging that the station did not award a cash prize to the winner of a contest conducted in October 2019.  To investigate the complaint, the FCC issued a Letter of Inquiry (LOI) to the station.  In response, the station admitted that there had been “undue delay,” with the prize being awarded after the announced timeline.  The station’s contest rules indicated prizes were to be awarded to winners “within thirty (30) business days of the date the winner completes all required Station documents.”  The station acknowledged that it received all required documentation on January 16, 2020, and thus it should have issued the prize by March 2, 2020, but did not issue the prize until May 2021.  The station cited three separate events as the cause of the undue delay: (1) difficulty accessing necessary files after the COVID-19 pandemic led to employees working from home; (2) a ransomware attack that affected corporate IT systems between October 2020 and March 2021; and (3) a lack of staff after the ransomware attack that prevented the station from completing work in a timely manner.

Despite these defenses, the FCC found that the station apparently willfully violated Section 73.1216 of the FCC’s Rules when it failed to award the prize in accordance with the advertised contest rules, and therefore failed to conduct the contest “fairly and substantially as represented to the public.”  The FCC explained that “timely fulfillment of the prize” was a “material term of the Licensee’s own contest rules” and the station delayed issuing the prize for over a year.  The FCC disagreed with the station’s justifications for the delay, finding that they did not excuse the failure to award the prize in compliance with the announced contest rules.  In particular, the FCC pointed out that the station’s first justification for the delay (the pandemic transition to work-from-home) occurred in mid-March 2020 – after the station should have already issued the prize by March 2, 2020.

The FCC’s base fine for violations pertaining to licensee-conducted contests is $4,000.  In this case, the FCC found a single violation of Section 73.1216 of the FCC’s Rules resulting from the station’s failure to issue the prize within the timeframe established by the contest rules.  However, considering the totality of the circumstances, and in line with the FCC’s Forfeiture Policy Statement, the FCC determined an upward adjustment was warranted, emphasizing that “large or highly profitable companies should expect to pay higher forfeitures for violations of the Act and the Commission’s rules” to ensure that the fine is an “effective deterrent and not simply a cost of doing business.”  The FCC therefore concluded that an upward adjustment of the proposed fine from $4,000 to $8,000 was appropriate.  The station has 30 days from release of the NAL to pay the fine or file a written statement seeking reduction or cancellation of it.

Rule Violations by Business Communications Company Result in Consent Decree with Compliance Plan and Six-Figure Penalty

A nationwide business communications company settled an FCC investigation by admitting that it failed to seek approval from the FCC before transferring control of business radio licenses and that it conducted business radio operations without authorization.  The company entered into a consent decree that requires implementation of a compliance plan and payment of a $100,000 civil penalty. Continue reading →

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On Tuesday, the Federal Trade Commission announced a new rule banning employee non-compete agreements, treating them as harmful and an “unfair method of competition.”  This includes non-competes in the broadcast industry, where they serve a vital purpose that was given short shrift by the FTC.  Stations spend large sums of money and airtime promoting their on-air talent, building that employee’s brand with local viewers and listeners and conferring on them by association the public goodwill the station has built up in its community over many decades.  It becomes far more challenging to make that immense investment if your anchor can move across the street to a competitor and immediately transfer all of the goodwill associated with that tremendous multi-year investment to a competing station.

In adopting the ban, the FTC effectively treated non-competes as what lawyers call a “contract of adhesion”– one which a potential employee has no choice but to sign without negotiation, regardless of how draconian the terms.  That is, of course, a poor description of contracts with on-air personalities, which are often heavily negotiated with commensurate levels of compensation.  It is also worth noting that in adopting its one-size-fits-all ban, the FTC bemoaned the fact that a non-compete forces a departing employee to leave the area if they wish to continue doing the same type of work.  Of course, moving to a different market to advance a career is the norm rather than the exception in broadcasting, regardless of any non-competes, particularly given the small number of employers hiring on-air talent in any one market.

This was not an accidental oversight by the FTC.  It specifically discussed broadcasting in its Order adopting the new rule, quoting a commenter who said:

I am a professional broadcast journalist subject to a non-compete agreement with every employment contract I have ever signed, which is the industry standard.  I understand the need for contractual agreements with on-air talent and some off-air talent, but non-compete agreements have historically offered nothing to employees besides restricting where they work, and how much money they are able to earn . . . [while] knowing that employees would have to completely relocate if they wanted to seek or accept another opportunity.

Despite the fact that the comment quoted in the Order specifically acknowledges the need for non-competes with regard to “on-air talent and some off-air talent,” the FTC declined to make an exception for such non-competes, saying:

The Commission declines to exclude on-air talent from the final rule.  The Commission finds the use of non-compete agreements is an unfair method of competition as outlined in Part IV.B, and commenters do not provide evidence that a purported reduction in investment in on-air talent would be so great as to overcome that finding.  Specifically, the success of on-air talent is a combination of the employer’s investment and the talent of the worker, both of which benefit the employer.  As noted in Part IV.D, other less restrictive alternatives, including fixed duration contracts and competing on the merits to retain the talent, allow employers to make a return on their own investments. Moreover, as stated in Part II.F, firms may not justify unfair methods of competition based on pecuniary benefit to themselves.  Employers in this context do not establish that there are societal benefits from their investment in on-air talent, but only that the firms benefited.

That whooshing sound you hear is the FTC missing the point.

But broadcasters shouldn’t feel singled out, as pretty much the only exception the FTC did permit to its blanket ban on non-competes is to allow continued enforcement of existing non-competes for “senior executives” (those earning more than $151,164 annually who are in policy-making positions).  Oddly, however, the FTC Order still prohibits entering into any new non-competes with such senior executives after the new rule goes into effect.

Barring court intervention (and some appeals have already been filed), the rule will be effective 120 days after it is published in the Federal Register.  After that, broadcasters will have to abide by the new restrictions unless a court says otherwise.

That is not, however, all of the bad news for broadcasters and other employers.  In implementing the ban, the FTC is using a particularly broad definition of who qualifies as a “worker” and therefore can’t be asked for a non-compete.  It includes not just current and former employees, but anyone that “works or who previously worked, whether paid or unpaid, without regard to the worker’s title or the worker’ status under any other State or Federal laws, including but not limited to, whether the worker is an employee, independent contractor, extern, intern , volunteer, apprentice, or a sole proprietor who provides a service to [the business].”  So even outside parties simply rendering a service to the broadcaster cannot be asked to sign a non-compete once the new rule goes into effect.

In addition, businesses must identify those workers with which they have entered into non-competes and provide “clear and conspicuous notice to the worker, by the effective date, that the worker’s non-compete will not be, and cannot legally be, enforced against the worker.”  This notice “must be on paper delivered by hand to the worker, or by mail at the worker’s last known personal street address, or by email at an email address belonging to the worker, including the worker’s current work email address or last known personal email address, or by text message at a mobile telephone number belonging to the worker.”

For those interested in more specific details on the ban, and complying with these sweeping new requirements, I’d encourage you to read Pillsbury’s Alert on the subject (Employers Beware: FTC Announces Final Rule Banning Worker Non-Competes).

While broadcasters and other employers should begin taking steps to prepare for the ban on the assumption it will go into effect as scheduled, there is reason for optimism that the courts will step in to block some or all of the new requirements.  The FTC’s Order is unusually broad for an agency order, with sweeping assertions that find limited support in the record.  Also notable is the fact that the FTC didn’t merely establish a presumption that non-competes are an “unfair method of competition” that might be rebutted in a particular factual situation; the new rule simply deems all non-competes to be a form of unfair competition regardless of the actual facts.

In truth, many non-compete provisions are the result of extensive negotiations, with the employee bargaining for greater compensation in return for agreeing to a non-compete clause.  The FTC’s treatment of all non-competes as simply agreements involuntarily forced on workers without any corresponding compensation or other benefit to the worker (like enjoying the unflinching promotional support and trust of the station) conflicts with reality.  Courts typically require stronger and more detailed proof than general assertions that non-competes are bad for competition in all circumstances, particularly given the extensive disruption that will be caused by suddenly making them unenforceable in a matter of months.  So as the saying goes, hope for the best, but plan for the worst.