Avoiding a Rocky Road: Lessons For Manufacturers From Blue Bell Creameries’ Listeria Investigation

The post below was written by my colleagues, Edward Heath and Kate Dion.  Edward is my partner and is Chair of Robinson + Cole’s White-Collar Defense and Corporate Compliance Practice.  Kate is a litigation associate who routinely handles government and internal investigations for manufacturing clients.

Ice cream maker Blue Bell Creameries has found itself in a sticky situation that underscores the importance of a having a comprehensive and robust compliance program, even for companies who do not manufacture consumer products.

Blue Bell sells its ice cream throughout much of the United States and numerous foreign countries.  It is reportedly the third highest-selling ice cream brand in the United States.  Unfortunately, according to documents released as part of a Food and Drug Administration investigation, Blue Bell is also reported to have known of listeria in its Oklahoma plant as early as March 2013 but failed to issue any recalls or warnings or halt production until this year after the products were publicly linked to listeria illnesses, which resulted in three deaths in Kansas.  

In a recent statement, Blue Bell acknowledged that it did not adequately improve its cleaning and manufacturing practices even after it learned that its machinery was testing positive for listeria.  The FDA’s investigation report cited many shortcomings of Blue Bell’s compliance program.  In April, Blue Bell recalled its products and halted all sales. Extensive employee layoffs and furloughs followed, along with considerable negative media attention.

Comprehensive compliance programs include not only provisions that adopt industry standards and good manufacturing practices for day-to-day operations, but also processes for properly investigating potential compliance failures.  A conflict-free individual is designated to receive compliance concerns and then report them to management, who then would insure that an independent, thorough, and complete investigation is conducted.  The internal investigation gathers and preserves the relevant evidence, assesses the extent of any failures, analyzes potential criminal and civil liability, and may propose remedial measures.  The results are sometimes memorialized in a report, although it is not always appropriate to do so.

Compliance programs may provide for management to decide whether outside counsel will be retained to conduct the internal investigation. One critical factor in that decision is whether future criminal or civil litigation, or a government investigation is likely, since maintaining the confidentiality of the investigation is greater if it is conducted by outside counsel.

Done early and properly, an internal investigation may best position a manufacturer to avoid a costly, public crisis that has the potential to devastate sales, damage the brand’s reputation, trigger Government investigations and sanctions, foster resource-draining class action lawsuits, and cause management and other employees to lose their jobs.

This is true for all manufacturers, not just those who make consumer goods like Blue Bell.

OSHA Hazard Communication Standard Deadline Fast Approaching – Say Hello to New Safety Data Sheets

It seems like so long ago (just over three years, to be exact) that OSHA revised its Hazard Communication Standard (HCS) to align with the United Nations’ Globally Harmonized System of Classification and Labelling of Chemicals (GHS). But an important HCS deadline is fast approaching – it is time to say goodbye to the Material Safety Data Sheet (MSDS).

The revised HCS requires that all chemical manufacturers, importers, employers, and distributors replace Material Safety Data Sheets (MSDS) with new, GHS-approved Safety Data Sheets (SDS). The information contained in a SDS is largely the same as in a MSDS, but it is laid out in a consistent, 16-section format set forth in this OSHA Brief.

Manufacturers and importers must provide the new SDSs for all hazardous chemicals they manufacture or import by June 1, 2015. But what about manufacturers or formulators that rely on raw materials from other suppliers? According to a recent Guidance Memo, OSHA “will exercise its enforcement discretion”, allowing a “reasonable time period” for downstream users to come into compliance with the new requirement. In exercising this discretion, OSHA will evaluate whether the downstream user has exercised “reasonable diligence” and “good faith efforts.” But what does that mean? According to OSHA Guidance, manufacturers and importers must be prepared to show significant efforts to:

  • Obtain the classification information and SDSs from upstream suppliers in a time frame that would have allowed for compliance with the June 1, 2015 deadline,
  • Find hazard information from other sources (such as chemical registries), and
  • Classify the data themselves.

OSHA will expect to see both oral and written documentation of these efforts in order to avoid enforcement. In addition, the manufacturer or importer will need a clear timeline for when it expects to be in compliance.

Distributors of hazardous chemicals may continue to ship chemicals with the old MSDSs until December 1, 2015, to allow time to clear stock. Of course, some distributors will likely find themselves without SDSs from suppliers come December 2 for the very reason described above – a manufacturer or importer cannot comply with the June 1, 2015 deadline, despite “reasonable diligence” and “good faith efforts” to obtain the information. In this situation, the distributor will also have to show its own “reasonable diligence” and “good faith efforts” to comply in order to avoid enforcement. Distributors that are able to do so will be permitted to ship with prior-compliant MSDSs until December 1, 2017.

The revised HCS mandates that employers ensure that their employees have easy access to the SDSs for the hazardous chemicals in their workplace. The OSHA Brief provides some examples for how employers can satisfy this requirement, including using binders or computers to store the SDSs. Compliance requires that employers make sure employees have immediate access to the SDSs, and that a back-up is available.

The Manufacturing Law Blog Welcomes New Authors

It is my pleasure to announce that the Manufacturing Law Blog will have two new authors going forward.  With the departure of our friend and colleague, Pam Elkow, Matt and I have asked Megan Baroni and Earl Phillips to join our team.  Both Megan and Earl are members of our firm’s Environmental + Utilities Group, which Earl has chaired for many years.  In addition to environmental issues, Earl will also be commenting on OSHA issues, which remain on the front burner for all manufacturers and distributors.  We know that Megan and Earl will be an added resource for the readers of this Blog.

Welcome Megan and Earl!

“Light Duty” Work Assignments in Doubt: Supreme Court Adopts New Pregnancy Discrimination Standard Affecting Manufacturers

The United States Supreme Court issued its much anticipated decision in Young v. United Parcel Service, (U.S. Sup. Ct., March 24, 2015), in which the Court set forth a new standard for litigating pregnancy discrimination claims and arguably injected considerable uncertainty into “restricted duty” or “light duty” work programs.

Factual Background

Peggy Young worked for UPS as a part-time driver. Part of Young’s day-to-day responsibilities included lifting boxes weighing as much as 70 pounds without assistance. Young became pregnant and, in the course of her routine pre-natal care, Young’s doctor advised that she not lift more the 20 pounds during the first 20 weeks of her pregnancy and 10 pounds for the remainder of her pregnancy. The record shows that Young had previously experienced several miscarriages, but there is nothing to suggest Young’s then-current pregnancy was “high risk,” a-typical or otherwise presented medical complications unique to Young. With doctor’s note in hand, Young requested UPS accommodate her lifting restrictions. At the time, UPS had a formal “light duty” work assignment policy under which it would accommodate medical restrictions of employees who were injured “on the job” or those suffering from a “disability” under the Americans with Disabilities Act. In addition, UPS accommodated workers unable to drive because they lost DOT-required driving certifications. Because Young’s medical condition (her pregnancy) did not fit within any of the categories recognized by UPS, UPS declined to provide her with light duty, instead placing Young on an unpaid leave of absence for the duration of her pregnancy.

Young sued UPS under Title VII claiming that UPS discriminated against her on the basis of her pregnancy and gender by refusing to provide her with a light duty work assignment which UPS otherwise provided workers with “similar” restrictions.

EEOC Issued New Guidance

While the case worked its way through the courts, the EEOC adopted a controversial Pregnancy Discrimination Enforcement Guidance. Over the vocal dissent of two EEOC Commissioners, the EEOC opined that Title VII and the Pregnancy Discrimination Amendments to Title VII mandated that employers treat pregnancy-related medical restrictions in the same manner as medical restrictions unrelated to pregnancy. Thus, the EEOC Guidance reasoned, if an employer accommodates the medical restrictions of some workers, that employer must provide the same accommodations to workers with similar restrictions caused by pregnancy. (For Robinson+Cole’s Alert on the EEOC Guideline, click here.)

Availability of Restricted Duty Programs

A significant number of manufacturers and other employers have created formal restricted duty work assignment programs designed to continue employing employees unable to perform the full-range of their normal work duties because of medical restrictions.. Workers compensation carriers often encourage employers provide these alternative assignments to reduce workers compensation costs, reasoning that it is better to receive some economic benefit from the worker than to compensate an otherwise productive employee who is inactive. Other employers have adopted such programs to meet the requirements of the Americans with Disabilities Act, which require an employer to reasonably accommodate a worker suffering from a covered disability. Even if an employer has not adopted a formal policy providing for restricted duty work assignments, many employers have informal, ad hoc arrangements which relieve a worker of required tasks for various periods of time due to medical or other issues, for example, reassigning a worker who has driving responsibilities after the suspension of her or his drivers’ license.

Given the significant number of companies with restricted work assignment policies, the EEOC’s Guidance and the anticipated Court decision drew considerable attention.

The Court’s Decision

Rejecting the legal standards offered by every party involved in the case (Young, the United States as a “friend of the court,” and UPS), the Court crafted an entirely new standard for assessing the legality of employer restricted duty work policies when challenged as discriminatory on the basis of gender and pregnancy.

First, the Supreme Court rejected Young’s and the EEOC’s position as over-reaching, explaining that nothing in the legislative history of the Pregnancy Discrimination Act or Title VII suggested that Congress intended to extend to pregnant employees a “most favored nations” status. The Court rejected the EEOC’s Guidance, noting that it was adopted after the Court granted review in the case, was addressing a topic on which the EEOC had been silent for a lengthy period of time, and advanced a position inconsistent with that advanced by the EEOC in litigation over the years.

Having rejected the position advanced by Young and the EEOC, the Court also rejected the position advanced by UPS – that its policy was lawful on its face because it treated in the same manner all non-work-related medical restrictions (those cause by pregnancy and those caused by other non-work related medical issues). That approach, the Court wrote, ignores the clear Congressional intent in adopting the Pregnancy Discrimination Act – a mandate that employers treat pregnant employees the same as other employees experiencing “similar” medical issues.

The Court crafted a new test. The Court held that an employee challenging an employment policy on the basis of pregnancy discrimination could establish a threshold case of discrimination by showing that the employer failed to accommodate her and accommodated others with “similar” medical restrictions. The employer could defend that claim by showing that it had a legitimate, non-discriminatory reason for distinguishing between the two classes of workers – a reason which the Court said normally could not simply be that it was more expensive or less convenient to include pregnant employees in the group accommodated. If the employer met this burden, the plaintiff could still prevail if she could convince a jury that either the employer’s articulated reasons were not true or that employer’s program imposed a significant burden on pregnant workers and the employer’s reasons were not sufficiently strong to justify the burden on pregnant workers.

Practical Impact

The Supreme Court’s Young decision, barely one month old, will force employers to globally address formal or informal restricted duty work assignment policies. The decision makes clear that considerations of cost and convenience, regardless of the size of the employer, normally will not be sufficient to justify any difference in treatment. Furthermore, by suggesting that it is for the jury to decide whether an employer’s proffered reasons for any difference in treatment are “sufficient” in light of the burden on pregnant workers, the Court seemingly precludes summary judgment for employers once an employee sets forth a threshold case of discrimination.

Manufacturers and their legal counsel should undertake a thorough review of their “restricted duty” or “light duty” policies in light of this significant case development.

Recent OSHA Enforcement Actions – Implications for Manufacturers

A good way to get a sense of OSHA’s priorities and focus is to look at the citations it’s recently issued. So this post will highlight just a few of the recent enforcement actions by OSHA Region 1 (MA, CT, VT, NH and ME).

Bantam, Conn. – U.S. Chutes Corp. was cited for nine repeated and 15 serious violations, with a proposed penalty of $94,248. U.S. Chutes is a manufacturer of galvanized laundry chutes. The hazards cited included an out of date respiratory protection program, and other respirator standard violations, the lack of a hazard analysis for personal protective equipment, violations of the hexavalent chromium standard, guarding and electrical issues. The repeat violations are due to similar citations issued in November 2009.

Wallingford, Conn. – R+L Carriers Shared Services LLC, a Wallingford freight shipping terminal, was cited for failing to provide training and personal protective equipment to employees who were exposed to a highly flammable and explosive chemical highly flammable and explosive chemical, tetrahydrofuran. The violations were discovered after a spill to which the employees responded, but without training or proper PPE or equipment. The company faces $86,900 in proposed fines. The repeat violations are due to the fact that OSHA cited the company for similar violations during a 2011 inspection of an R+L terminal in Chicago.

Auburn, Maine – Formed Fiber Technologies LLC uses a variety of machines, including robots, to make polyester carpets and thermoformed trunk liners for the automotive industry. OSHA cited the company for failure to proper safeguards on the machines the employees operate. Specifically, the company was cited for violations of the lock out/tag out and guarding standards. The citations included 2 repeat violations, following a citation by OSHA in 2013 at the company’s Sidney, Ohio, production facility, and five serious violations. The company faces a total of $108,800 in proposed fines.

Nationwide – Central Transport LLC, which has 170 freight shipping terminals nationwide, was cited following multiple inspections over the last several years by OSHA that found that Central Transport repeatedly left dangerously defective forklifts in service in at least 11 shipping terminals in nine states: Connecticut, Georgia, Illinois, Massachusetts, Nebraska, New Jersey, Ohio, Pennsylvania and Wisconsin. OSHA alleged that the company has known of the hazards since 2006, when OSHA inspections resulted in 11 citations and final orders requiring Central Transport to remove damaged forklifts from service. However, OSHA inspections in 2014 of company freight terminals in Billerica, Massachusetts, and Rock Island and Hillside, Illinois, found that the company, despite its awareness of the hazards involved, knowingly allowed this dangerous practice to continue at multiple locations.

I’ve tried to write a conclusion several times – and all I can come up with is that these are companies that just missed on the basics. None of these standards – PPE, fork lifts, guarding – are new or exotic or all that complicated. So the lesson – don’t forget the basics.

The Year of Change Continues: New NLRB Election Rules Take Effect April 14

Barring a last minute surprise (and this writer is not betting on anything), the National Labor Relations Board’s new union representation case rules will take effect April 14. Capping a lengthy campaign to revamp the process by which manufacturers (and other employers) may be compelled to recognize and bargain with unions, the NLRB’s new rules substantially change the way union election campaigns will be conducted.

In preparation for the April 14 effective date, the NLRB’s General Counsel is expected to issue a comprehensive guidance memo to assist practitioners and the NLRB’s regional officers have been offering training programs to those who regularly practice before the Board.

Highlights of Major Changes

The new election rules “modernize” and shorten the entire representation election process. An NLRB chart comparing the new and old rules can be found here.

Among other things, the NLRB’s new election rules provide:

  • Electronic filing and service of election petitions and forms;
  • Mandatory posting of pre-election notices within two (2) business days of filing;
  • Mandatory electronic notices to all employees if the employer sends other notices to its employees electronically;
  • Automatic scheduling of pre-election hearings for a date within eight (8) days of the initial filing, which can be adjourned for a maximum of two (2) additional days;
  • Waiver of right to contest most issues unless the employer files a Statement of Position by 12 noon, local time one business day prior to the pre-election hearing;
  • Limited litigation of issues at the pre-election hearing – limiting issues to fundamental questions concerning representation and the NLRB’s statutory jurisdiction, and deferring all eligibility issues pending the outcome of the election;
  • Limited right to appeal issues to the full NLRB in Washington, which will grant review only in limited circumstances;
  • New Voter Eligibility List mandate, requiring employers to provide in electronic format an alphabetic and sortable list of eligible employees and their full names, work locations, shifts, home and personal telephone numbers, and personal email accounts;
  • Post-election objections challenging the fairness of the election, along with all supporting evidence or offers of proof, must be filed within seven (7) days of the election;
  • Post-election objections hearing (if warranted) to be held within 21 days of the election;
  • Limited right to challenge decision following hearing on election objections.

Implications of Revised Rules

While electronic filing and requiring that manufacturers use corporate email systems to communicate government postings both represent major changes in case processing, the biggest impact on manufacturers with be the shortening of the time period between the initial petition and the election hearing, the date of the election, and the deadline for filing evidence in support of election objections.

The new procedures and time-lines, as a practical matter, require manufacturers to be “on their toes.” If a union electronically files an election petition late on Friday afternoon (sending a copy to the employer by fax or email), the representation hearing will be held one week from the following Monday. To the extent that the notice of the representation petition gets sent to an unmonitored general email account or the account of a senior leader on vacation or in the hospital, a company may not even learn of the filing until a day or two before the hearing. The new rules also mandate that employers file a pre-hearing Statement of Position by noon one business day prior to the hearing. If the hearing is to be held on Monday (following the election petition filed the previous Friday), the Position Statement is due at noon on the Friday before the hearing – less than five business days after the petition was filed. Failure to file a Statement of Position precludes the company from introducing evidence, calling witnesses or cross-examining adverse witnesses on most issues. Even under the best of conditions a company may be hard pressed to determine what issues to contest and organize a defense in five business days. If the petition gets filed on a Friday, an employer which waits the weekend to call its legal counsel has effectively used one-quarter of its time doing nothing.

Equally challenging, following a representation election, an employer will have a total of seven days (including weekends and holidays) to file both election objections and any evidence in support of election objections. Again, failure to meet the deadline precludes an employer from contesting the election.

It seems inevitable that the combined effect of these changes will be to shorten the time period for an employer to present its message to employees. Nationally, the median time between the filing of a representation petition and an election is 38 days. Under the new rules, an election can be ordered to take place within 22 days after the petition gets filed and, if the union waives its right to the Voter Eligibility List, the election can be held in as little as 15 days after the petition gets filed.

Only time will tell whether the NLRB will have the manpower and resources to meet the aggressive time-tables set out in the new rules. One thing seems certain, 2015 promises to be a year when the traditional labor practitioner better not make any non-refundable vacation plans!

Another Mandate for Manufacturers/Distributors: Conflict Minerals Disclosure

In 2010, the U.S. Congress passed a law called the “Dodd-Frank Wall Street Reform and Consumer Protection Action of 2010 (the Dodd-Frank Act).” The Dodd-Frank Act is generally known as the legislative response to the financial crisis that existed from 2007-2010 and it included widespread changes to the regulation of financial institutions.

So you might ask: why are we writing about it in the Manufacturing Law Blog?

The answer is that “buried” in the Act itself is a mandate requiring the Securities and Exchange Commission (SEC) to develop a rule that impacts countless manufacturers/distributors in either a direct or indirect way. That rule, which was adopted in 2012, requires all publicly traded companies to publicly disclose their use of “conflict minerals” that orginated in the Democratic Republic of the Congo or an adjoining country. Examples of the “conflict minerals” are tantalum, tin, tungsten, and gold.

Does this Rule Impact Publicly Traded Companies?

Yes. According to the SEC, if a company files a report under the Exchange Act, it is required to disclose its use of conflict minerals if those minerals are “necessary to the functionality or production of a product” manufactured by those companies. Click here to see the SEC form. As with any regulatory mandate, the analysis that goes into the filing of this report can be complicated so seeking legal advice from both in-house lawyers or your manufacturing counsel is essential. In addition, if you have not done so, you should consider whether to develop a “Conflicts Mineral Policy” to distribute to those in your supply chain.

Does this Rule Impact Privately Held Companies?

Most Likely. Although privately held companies are not regulated directly, that does not mean that they are not impacted by the SEC rule. Simply stated, if you operate inside a supply chain that involves the manufacture of products that use conflict minerals, it is likely that you will be asked to provide documentation supporting your compliance with the SEC rule at some point. Indeed, the SEC rule requires “due diligence” for the reporting companies and as a result, many entities pass this diligence down the supply chain. As a result, it is advisable to develop a framework for responding to these requests now instead of later.

TSCA Reform and Its Implications for Manufacturers

Even if you’re well-versed in environmental statutes, one you might not spend a lot of time thinking about is the Toxic Substances Control Act, or TSCA.  That’s because, with a few notable exceptions (PCBs being a good example), TSCA currently focuses on regulating new chemicals as they are introduced into commerce, or on significant new uses for existing chemicals, issues that are not generally of concern to manufacturers.   That may soon change.

TSCA has not been updated since it was passed in 1976.  There have been efforts at reform, spurred on by both the chemical industry, which feels that TSCA is stymieing innovation, and from those concerned about the extent of possible harmful and unregulated chemicals in the marketplace, who would like TSCA to more robustly regulate existing chemicals.   For many reasons, not the least of which is these competing interests, TSCA has not changed.  But TSCA reform has gotten more attention recently, and adoption does seem possible.

The Frank R. Lautenberg Chemical Safety for the 21st Century Act was introduced this week in the Senate by Senator David Vitter (R-LA) and Senator Tom Udall (D-NM).  This is clearly a bipartisan bill, co-sponsored by 8 Republicans and 8 Democrats. The bill itself is lengthy, and as a rewrite of an existing law, dense.  That said, here are a few key takeaways, excerpted from the Vitter press release.

  • Strengthens the Safety Standard by mandating that EPA base chemical safety decisions solely on considerations of risk to public health and the environment.
  • Mandates safety reviews for new and existing chemicals
  • Strengthens Protections for the Most Vulnerable – specifically infants, children, pregnant women and the elderly
  • Creates additional requirements and sets reasonable limits on Confidential Business Information claims
  • Preserves Existing Private Rights of Action
  • Balances State and Federal Regulations

We’ll be watching the progress of TSCA reform, and considering how this bill, if passed, will impact manufacturers. As a minimum, by changing the way we regulate chemicals in the US, it may result in the removal of certain chemicals from commerce, as too dangerous, and will require anyone who uses chemicals in any process to reevaluate their use.

A View From the Foxhole: The Practical Side of the NLRB’s New Election Rules

Having recently completed my latest National Labor Relations Board (“NLRB”) post-election representation hearing, I found myself contemplating the impact of the NLRB’s new election rules (which some have dubbed the “Quickie Election Rules”). Whether you love them (as most labor unions and labor practitioners seem to do) or hate them (which seems to be the universal response from employers and the management bar), this practitioner predicts that the new election rules will challenge all parties in unexpected ways. Manufacturers would be well served to contemplate the “new world” created by the “new rules.”

Old Rules

The current election rules call for the prompt processing of union representation cases. Generally, if the parties are able to agree on the issues involved in an election, a union representation election will be held with 42 days (6 weeks) of the filing of the petition. Any post-election challenges to the election must be filed within 7 days of the election and the evidence supporting the election objections must be filed within an additional 7-day period. If the NLRB orders a hearing on the objections, the hearing generally will be held within four weeks of the election. Post-hearing briefs must be filed with 7 days of the close of the hearing, with an additional (discretionary) 7 days which can be granted on a showing of “cause.”

Because a union organizing campaign usually takes place in secret, as a practical matter, a manufacturer seeking to present an alternative to the “vote yes” message of organized labor has about six weeks to organize and present its side. Six weeks may seem like a great deal of time, but in the context of an organizing campaign, that time always goes by quickly. Once the election is held, any party challenging the fairness of that election (i.e., whether a union or a manufacturer that claims that the employees did not have a fair opportunity to express their choice) has a reasonable period of time to present arguments and evidence before a neutral fact-finder.

The pace of the current process has been questioned by labor professionals on both sides of the debate. Because manufacturers do not know when an election petition is about to be filed (union campaigns being by their nature secret), often the speed by which the current process moves requires both the employer and its counsel to “drop everything” to focus on the representative election. Getting ready to take the sales team to that long-planned and hard-to-arrange pitch meeting? Sorry, your presence is required elsewhere. Celebrating your child’s wedding at a remote location? Hold on, there are legal proceedings afoot. Annual shareholders’ meeting next week? Well, maybe you can appear by video-conference.

New Rules

While the old election rules generally required the parties to drop everything, the new election rules will require them to move at warp speed. With an April 15, 2015 effective date, the new election rules will require elections to be held within 15 days of the filing of the petition (and if the union consents, within 10 days of the petition). If the parties are unable to agree on all the legal issues involved, a hearing will be held on those issues within 8 days of the filing of the petition and a position statement regarding the issues must be filed one day prior to the hearing. (Failure to file a position statement results in the waiver of all legal issues which could have been raised.) Election objections will still be due within 7 days of the election, but now all evidence in support of those objections must be filed at the same time.

The NLRB has provided a comparison of some of the differences between the old and new rules.

Practical Impact

The practical effect of the new election rules will be to penalize manufacturers and others that are either unaware of union organizing efforts or fail to react quickly when a case is filed. The pace of the NLRB’s processes require key decision-makers and their counsel to be on “speed dial” at the first sign of an organizing campaign or lose the right to present an alternative view. Paradoxically, the rules may also reward manufacturers that more closely monitor the union sentiments of their employees, as those aware of an organizing effort from the beginning will have a distinct advantage over others. In the view of many, the new election rules elevate speed over every other consideration – including employee free choice and fundamental due process.

Time will tell whether the NLRB will be able to match the rapid pace it expects from the parties in a representation election. With no disrespect intended to the women and men who serve the NLRB, the NLRB’s new election process would be ill-served if it requires the parties to “hurry up” only to find NLRB decisions tied up in the seeming endless decision-making process. In this respect, “only time will tell.”

How Will The Commercial Use of Drones Impact Manufacturers/Distributors?

The Federal Aviation Administration (FAA) has issued a series of proposals for the use and regulation of drones (i.e., Unmanned Aircrafy Systems (UAS)) for commercial purposes.  In conjuction with these proposals, the White House released a memorandum that attempts to ensure the privacy of data obtained by drones.  Note that it may take 2-3 years for these proposals to become final and they may face strong opposition from the civil rights community and also from commercial airline pilots, among other groups.  Much of the discussion thus far has been on whether Amazon will be able to deliver packages via drones.

Yet, manufacturers and distributors should keep track of drones as things develop for several reasons:

  1. Diversification Into New Markets:  If drones are able to be used widely in the commercial realm, the growth of the drone manufacturing industry may explode.  If that occurs, component part manufacturers (particularly, those in aerospace markets) may benefit.  As many of our clients look for ways to diversify, these developments are worth watching.
  2. Impact on Distribution:  The use of drone technology could have a significant impact on the delivery of goods as exemplified in Amazon’s interest in the subject.  In addition, there has been discussion about the use of drones within a warehouse.
  3. Surveillance:  There have been a number of news stories over the last several years that have claimed that companies should be concerned about government agencies and other third parties who may use drone technology to “spy” on private property.  We will continue to monitor the legal developments in this area, but needless to say, manufacturers and distributors should be aware that it is possible that drones could be used in ways that can be adverse to a company’s interests.
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