Accounting
Ryan sues FTC over non-compete rule
Ryan, a Dallas-based international tax firm and software provider, has filed suit against the Federal Trade Commission over the
Ryan said its lawsuit in a federal court in Texas is the first challenge to the FTC’s action, claiming it would impose an extraordinary burden on businesses seeking to protect their intellectual property and retain top talent within the professional services industry. The firm contends the FTC’s rule would upend companies’ IP protections and talent development and retention by invalidating millions of employment contracts and nullifying the laws of dozens of states. Ryan said it tried to dissuade the FTC by submitting a 54-page public comment last spring against the FTC’s proposed rule.
“For more than three decades, Ryan has served as a champion for empowering business leaders to reinvest the tax savings our firm has recovered to transform their businesses,” said Ryan chairman and CEO G. Brint Ryan in a statement last week. “Just as Ryan ensures companies pay only the tax they owe, we stand firm in our commitment to serve the rightful interest of every company to retain its proprietary formulas for success taught in good faith to its own employees.”
Photo: Shannon Faulk
Ryan contends non-compete agreements are an important tool for firms to protect their IP and foster innovation. And without such agreements, firms could hire away a competitor’s employees just to gain insights into their competitor’s intellectual property. Ryan argues that the FTC’s decision to ban an important tool for protecting IP would inhibit firms from investing in that IP in the first place and result in a less innovative economy. The firm’s complaint, filed in the U.S. District Court for the Northern District of Texas, contends the FTC lacks the authority to prohibit non-compete agreements. It also claims the FTC itself is unconstitutionally structured.
Accounting Today asked the firm why it decided to sue the FTC over the rule. “Ryan challenged the FTC’s rule because we recognize the threat it poses to our business, our team members and our industry,” responded Ryan LLC chief legal officer John Smith in an email interview. “The FTC’s ban on non-compete agreements undermines American free enterprise, freedom of contract and the rule of law. At the core of Ryan’s mission is pushing back against government overreach in our area of expertise: taxes on businesses. Through three decades of growing into a global leader in this field, Ryan has proven its skill at such pushback for our clients. This rule reaches beyond the law to harm our own business, as well as our clients’ businesses, so pushing back here comes naturally for Ryan.
“Ryan has been repeatedly recognized both as a great provider of tax services and software, as well as a great place to work, partly because of its commitment to principles that enable entrepreneurs to thrive — investment, innovation, growth, fairness and the rule of law,” he added. “What better way to advance those principles than to stand against a ban that attacks them?”
Does Ryan have proprietary tax strategies that it seeks to safeguard? “Yes,” Smith responded. “We have honed such strategies through decades of accumulated experience, as we apply our expertise to benefit a vast array of clients in virtually every industry with a full range of tax categories.”
Ryan is concerned its employees might take away certain kinds of information with them. “There are a variety of categories of proprietary information,” said Smith. “Examples include proprietary tax-saving methodologies and strategies, and our confidential business arrangements with clients.”
Is Ryan concerned about losing clients if the non-compete agreements are nullified? “Yes,” said Smith. “If the FTC rule stands and nullifies non-compete agreements, an employee may believe they can switch to a direct competitor and take the chance that Ryan would never discover that they are exploiting our confidential and trade secret information to compete unfairly. “Non-compete agreements fill a gap in protecting the confidential information of a business,” he added. “While a non-disclosure agreement (NDA) secures an employee’s promise not to disclose the employer’s confidential information or IP, not all employees honor NDAs, and they are hard to enforce. Ryan has learned it can be difficult and expensive to uncover breaches of NDAs, let alone litigate them. Because the competitor’s work product and that employee’s contributions to it are not visible to the original employer, the breach may remain hidden while irreversible harm occurs. By contrast, non-competes are much easier to enforce in practice since determining a violation involves straightforward, available information: what new job the former employee has taken, and what business that new employer performs.”
What kinds of intellectual property need to be protected in the tax profession? “We need to protect the integrity and goodwill associated with our brand, our confidential information, including methodologies, strategies, formulas and compilations related to our tax business, our patented technologies and our copyrighted digital solutions,” said Smith.
Ryan’s
The Biden administration gave carmakers a partial reprieve in finalizing electric-vehicle tax credit rules intended to loosen China’s grip on battery materials crucial to the car industry’s future.
Starting in 2025, plug-in cars containing critical minerals from businesses controlled by U.S. geopolitical foes, including China, will be ineligible for up to $7,500 tax credits, the Treasury Department said Friday. Automakers will get an extra two years, however, to shore up sourcing of graphite and other materials considered difficult to trace to their origin.
The rules put finishing touches on President Joe Biden’s push to develop an alternative to China’s preeminent EV and battery supply chains. The administration is imposing stringent sourcing requirements for raw materials and components in order for electric cars to qualify for the tax credits that are a powerful draw for consumers otherwise put off by
“These actions provide a strong signal to automakers that we want to see EVs built here in America with components and critical minerals sourced from the U.S. and our allies and partners,” White House Climate adviser John Podesta said.
The two-year exemption speaks to the challenges automakers have had reducing their reliance on Chinese suppliers of materials such as
The Biden administration’s rules don’t allow tax breaks for vehicles with batteries containing critical minerals from foreign entities of concern, a term referring to businesses controlled by US geopolitical foes such as China, North Korea, Russia and Iran. Those requirements take effect in 2025, as proposed.
But Biden has given auto and battery manufacturers some flexibility on this front, too.
Automakers will now have until 2027 to curb the use of certain difficult-to-trace materials from FEOCs, provided that they submit plans to comply after the two-year transition and it’s approved by the government, the Treasury Department said.
“FEOC exemptions for any battery materials should be temporary,” said Abigail Hunter, the executive director of the Center for Critical Minerals Strategy at SAFE, a Washington think tank. “We need a clear exit strategy, lest we continue our dependencies on adversaries and further undermine the competitiveness of U.S. and allied critical minerals projects.”
The rules release concludes two years of work on requirements that already have reduced the number of EVs eligible for tax credits. About 20 models qualify today, compared to as many as 70 previously. Treasury Department officials said Friday they expect the number of qualifying vehicles to continue to fluctuate as companies adjust their supply chains.
Automakers including Tesla Inc., General Motors Co. and Toyota Motor Corp. have lobbied for additional flexibility to meet requirements. A lobby group representing automakers based outside the US praised the additional two years provided for the difficult-to-trace materials.
“It will take time for the global production and sourcing of graphite and other critical minerals needed to produce EVs to match the strict standards required by automakers,” Autos Drive America President Jennifer Safavian said in a statement.
Senate Finance Committee Chairman Ron Wyden, D-Oregon, demanded
The glitch,
“Fixing this error will require identifying all affected Oregonians, notifying them, and ensuring they can be made whole,” said the senator. “In part because of TurboTax’s various guarantees and market share, Oregonians who overpaid due to TurboTax’s error likely assumed the software opted them into claiming state standard deduction to minimize their taxes. That assumption was wrong. And because the vast majority of taxpayers understandably dread filing season and avoid thinking about taxes after it ends, many of those affected will not learn on their own that they overpaid. Intuit must act to inform them and help them get the full tax refunds they are entitled to receive.”
Tiffany Hagler-Geard/Bloomberg
An Intuit spokesperson said the company is currently working to resolve the issue, referencing their tax return lifetime guarantee.
“As part of our
The senator has also asked Intuit for an explanation of how this glitch happened in the first place, as well as an approximate timeline for the steps it took once it became aware of it. He has also asked for a count of precisely how many people were affected, as well as Intuit’s plans for both addressing this problem and what the company will do to prevent it in the future.
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