Congressional Decision Looms on U.S. Export-Import (Ex-Im) Bank

For those in the manufacturing community, one of the significant events of the summer was when Congress allowed the authority of the Export-Import Bank of the United States (Ex-Im) to lapse. The main goal of the bank is to provide financing to allow for the export of U.S. products, including working with private banks to help secure financing for overseas sales.  The result of this inaction, as reported by the Bank itself, was that “as of midnight on June 30th the Export-Import Bank of the United States (Ex-Im) ceased processing new applications or engaging in new business.”

Over the past few months, a firestorm of controversy has ensued.  Groups such as the National Association of Manufacturers (NAM), the U.S. Chamber of Commerce, and large companies such as Boeing have voiced their displeasure with the failure of Congress to re-authorize the bank.  Others claim that the Bank is simply a pathway for large corporate welfare.  In this Wall Street Journal article, an opponent of the bank opined that “The Congressional Budget Office reported in May that Export-Import Bank programs, if subjected to the fair-value accounting methods required of private banks, actually operate at a deficit that will cost taxpayers some $2 billion over 10 years, in addition to the bank’s operating costs.”

As Congress comes back from its summer recess, the stakes continue to be high and this issue bears watching by manufacturers and distributors of all sizes — particularly those that export products. We will keep you posted of any developments.

 

Raising Manufacturing Employees’ Wages? Consider the Unintended Consequences

The political discourse focusing on the wage disparity between the rich and the poor has led to efforts to raise the minimum wage for American workers.  Today, more than half the states have minimum wages above the Federal minimum wage, and effective July 1, 2015, the District of Columbia crossed the $10 per hour threshold with a $10.50 per hour general minimum wage. Several local governments elected to phase in even higher minimum wages. For example, Los Angeles County, the City of Los Angeles and the City of Seattle adopted a $15 minimum wage to be phased in by 2021.

The effort to bring higher wages to workers has not been limited to hourly employees. As reported recently in this blog and elsewhere, the United States Department of Labor solicited comments on a proposal to modify (and potentially index) the minimum salary to be paid to exempt employees under the Fair Labor Standards Act, a move which could raise the wages of tens of thousands of managers and supervisors.

Whether you support or oppose higher wages through these political initiatives, increasing the wages of workers may carry unintended consequences which manufacturers should take into account.  See, for example, “A Company Copes With Backlash Against the Raise That Roared” (reported in the New York Times on July 31, 2015) and “Why Raising Employee Wages Sometimes Backfires” (by Michael Wheeler, who teaches at Harvard Business School, and is available on LinkedIn). Published reports have noted that some higher wage earners harbor feelings of resentment when recently hired employees get a “bump.” Some recipients of the higher wages question whether they have or will “earn it.” Finally, customers might question how higher wages impact them, believing that manufacturers will inevitability pass higher wages on to the public.

Many commentators recommend that “messaging matters” in this area. If so, when implementing a minimum or other wage increase, manufacturers should consider:

  • The impact on employees making more than the new minimum – does the manufacturer leave those employees “as is,” raise those employees’ wages by a similar amount or adopt a “middle of the road” approach?
  • The impact of higher hourly wages on working hours and overtime – does the manufacturer reduce hours to compensate for increase costs or otherwise seek to reduce that impact by controlling overtime?
  • What is the overall impact of higher earnings on fringe benefit costs, withholdings, and other “hidden” costs?
  • Whether higher costs should or could be passed on to the ultimate customer?

It does not appear that the pressure for higher wages will go away anytime soon. Manufacturers might be wise to consider these issues now and plan for what may be inevitable.

Does Next Generation Compliance Mean Expanded Enforcement?

EPA is in the process of rolling out Next Generation Compliance, or NextGen, in an effort to make its programs more effective, facilitate compliance, and, ultimately, enhance environmental benefit.  But in many ways, NextGen seems poised to expand enforcement against the regulated community.

NextGen consists of five interconnected components:

  • More Effective Regulations and Permits
  • Advanced Monitoring
  • Electronic Reporting
  • Expanded Transparency
  • Innovative Enforcement

EPA is already using the components of NextGen to guide enforcement actions and settlements around the country (and in fact, EPA case teams have been directed to consider and include NextGen compliance tools in civil judicial and administrative settlements).  These NextGen compliance tools often involve the use of new technology or other advanced practices that are not commonly used or included in settlements.  Specifically, NextGen compliance might include:

  • Advanced monitoring, including the use of technology that is not yet in widespread use in a particular sector or regulatory program;
  • Independent third party verification of a settling party’s compliance,
  • Electronic reporting, and
  • Public accountability through increased transparency of compliance data.

EPA may also try to expand the use of NextGen compliance tools in the settlement context beyond the allegedly violating facility.  For example, if EPA is asking for advanced monitoring in the context of a settlement, there is a good possibility that it will ask for that advanced monitoring on a company-wide (or geographically relevant) basis.

EPA plans to use the increased data gathered under NextGen to develop data analytics tools so that it can evaluate performance on an industry-by-industry basis.  It also plans to develop predictive analytics in an effort to identify potential future risks.  It is not clear how EPA intends to use these analytics tools, or whether they will be available to the public, but it is reasonable to assume that they will be used to guide enforcement priorities.

EPA has developed a Strategic Plan for implementation of NextGen through 2017.  While the mechanics of NextGen are still being developed and implemented, one thing is certain – if you are involved in a compliance or enforcement matter with EPA, you can be sure that NextGen will influence the regulator’s goals.

Department Of Justice (DOJ) Prioritizes Prosecutions Of Food Companies

The post below is a follow-up to an earlier post 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.

In the wake of reports about the government’s investigation of Blue Bell Creameries, the United States Department of Justice has issued an ominous warning to food companies: compliance failures will be aggressively prosecuted.

Last week, the third highest-ranking DOJ official announced that food safety investigations and prosecutions are a priority for the agency.  Noting that both companies and individual employees are subject to prosecution, the DOJ official directed his comments to senior management: “It is easy to think — that could never happen at my company. It is easy to think — that could never be me.”

He then added:

Even a single decision to cut corners can have deadly consequences. The criminal prosecutions we bring should stand as a stark reminder of the potential consequences of disregarding danger to one’s customers in the name of getting a shipment out on time — of sacrificing what is right for what is expedient.

To reinforce the point, the official noted that the government is willing to rely upon criminal laws that are not directly related to food manufacturing, such as those addressing obstruction of justice, and mail and wire fraud.

DOJ has conducted some noteworthy prosecutions in the last two years involving the sale of adulterated food.

  • In one case, the company entered a guilty plea to a misdemeanor violation of the federal Food, Drug, and Cosmetics Act in connection with the sale of a contaminated food product.  The company admitted that some of its employees were aware that the product could be contaminated.  The plea agreement required the company to pay millions of dollars in a criminal fine and forfeiture of assets.
  • In another case, two former company officials were tried and convicted on criminal charges related to the sale of a contaminated product.  The evidence presented at trial established that the defendants misled consumers about the contamination and then fabricated COAs accompanying various shipments.  When FDA officials visited the plant to investigate the outbreak, the defendants then gave misleading or untrue answers to their questions.  Those defendants are still awaiting sentencing.

Blue Bell has entered into voluntary agreements with several state agencies outlining corrective actions necessary to commence selling its ice cream products again, including engaging an expert to oversee sanitation efforts and instituting a “test and hold” procedure that requires it to obtain negative test results before distributing its product for sale.  While the FDA has approved of these agreements and is in discussions with Blue Bell concerning resuming sales of its product, the government has not yet indicated whether it will pursue criminal charges against that company for the three deaths and seven people that were hospitalized as a result of the listeria outbreak.

Regardless, the DOJ’s latest commentary is a striking reminder of the importance of a robust, well-enforced compliance program that addresses all applicable Federal and State rules and regulations.

Proposed DOL Rulemaking Means Uncertainty for Manufacturers

On June 30, 2015, the United States Department of Labor (DOL) issued a Notice of Proposed Rulemaking seeking comments on a proposal to raise the salary threshold for the so-called “white-collar” exemptions from $455 per week ($23,660 annually) to an expected $970 per week ($50,440 annually), as projected by the DOL for 2016. The DOL also proposes that the salary basis track the 40th percentile of the earnings of full-time salaried workers, meaning that if adopted this salary threshold would adjust automatically in the future without further DOL action. The DOL further seeks comments on the current duties tests for determining whether employees are performing work that is exempt from overtime under the executive, administrative, professional, outside sales, and computer exemptions.

Under the federal Fair Labor Standards Act, employers must pay employees overtime pay of one and one-half times their regular rate for any hours worked over 40 in a workweek, unless the employer can establish that the employee is exempt. The salary threshold for “white-collar” exemptions was last updated in 2004. Many states, including Connecticut, Massachusetts, and New York, have separate salary basis and duties tests for determining whether employees are exempt.

The DOL’s proposal did not include proposed changes to the duties tests for comment; rather, it seeks comment on whether any changes should be made to the duties tests for the “white-collar” exemptions. In particular, the DOL noted difficulties in litigating the “primary duty” test, which requires employers to show that an exempt employee’s primary duty involves the performance of exempt tasks. The DOL also noted that some commentators believe it should consider a rule that requires workers to spend at least 50 percent of their time on exempt tasks to qualify for the exemption, as done in California.

If adopted, the DOL’s proposed rule may have a substantial impact on manufacturers. Many working foremen and other professional, administrative and executive staff currently classified as exempt could automatically lose the exemption from overtime as a result of the raising of the salary threshold. Even those who meet that salary threshold in one year could lose it the next simply because their salary did not keep up with the rate of inflation. (To this writer, pegging an increase in the threshold salary to the 40th percentile of all salaried workers would seem to put inflationary pressure on the entire spectrum of salaried positions.) Finally, to the extent the DOL changes the “primary duties” test to require more than 50 percent of the employee’s time be spent on exempt duties, many working supervisors and managers would become eligible for overtime without regard to their salary.

These changes may require manufacturers to modify their payroll and other practices. Employees previously (and properly) exempt from overtime may not have recorded working hours or tasks. Simply speaking there was no need to conduct any job task analysis to prove exempt status. That may no longer be true. Going forward, the failure to track job tasks and time spent may endanger the exempt status of not only the particular employee in question, but the entire class of employees working in the same job classification.

The Notice of Proposed Rulemaking was published in the Federal Register on July 6, 2015, and is subject to a 60-day comment period. Interested parties may submit comments at www.regulations.gov before September 4, 2015. If the proposed rule becomes final, the salary threshold increase is not expected to take effect until sometime in 2016. To view the announcement by the U.S. Department of Labor, click here. To view the Notice of Proposed Rulemaking, click here.

Major Expansion of EPA Rules for Underground Storage Tanks

Thank you to my colleague Brian Freeman for his contributions to this post.  Brian is an attorney in the Environmental & Utilities Practice Group who has significant experience with underground storage tank issues for industrial and petroleum clients.

On July 15, 2015, the United States Environmental Protection Agency (EPA) published a final rule significantly expanding its program for underground storage tank (UST) systems that store petroleum or hazardous substances.

The final rule is lengthy and detailed but focuses on several areas in particular, such as:

  • Expanded secondary containment requirements for new UST systems or existing system components being replaced;
  • Expanded operation and maintenance requirements, including periodic inspections and testing of UST system components;
  • Expanded requirements to confirm compatibility and notify EPA before switching a UST system to store newer fuels such as ethanol blends and biodiesel;
  • Operator training requirements for site owners, managers, and employees; and
  • Release detection requirements for previously-deferred UST systems storing fuel for emergency power generators.

The final rule becomes effective on October 13, 2015. In states without existing, EPA-approved UST regulations, UST system owners and operators must comply with the revised federal regulations as of this date.  Certain requirements must be met immediately. For example, if you store ethanol blends or biodiesel, you must immediately ensure that your UST system is compatible with such fuels. Secondary containment requirements for new UST systems or dispenser systems take effect within 180 days after the effective date. Other portions of the final rule, such as inspection, testing, and training requirements, will take effect three years from the effective date.

States that currently have EPA-approved UST regulations have three years to revise their regulations and have them approved by EPA as meeting the revised federal regulations.

EPA’s website contains a summary of the final rule and other materials that can be useful tools for understanding the new requirements and their applicability.

 

More Federal Money for Manufacturers

As reported by Industry Week, the U.S. Secretary of Commerce recently announced that 12 additional communities will receive designations under the Obama Administration’s Investing in Manufacturing Communities Partnership (IMCP) initiative.  According to Industry Week:

The 12 designated Manufacturing Communities will receive coordinated support for their strategies from the following eleven federal agencies with more than $1 billion available in federal economic development assistance:

  • Appalachian Regional Commission

  • Delta Regional Authority

  • Environmental Protection Agency

  • National Science Foundation

  • Small Business Administration

  • U.S. Department of Agriculture

  • U.S. Department of Commerce

  • U.S. Department of Defense

  • U.S. Department of Housing and Urban Development

  • U.S. Department of Labor

  • U.S. Department of Transportation

The only community in the Northeastern United States on this recent list is in Connecticut.  The Connecticut Advanced Manufacturing Communities Region is focused on supporting aerospace and shipbuilding, which are critical industries in Connecticut.

Although it is important to continually invest in U.S. based manufacturing, the key will be whether the funds and support are truly easy to access.  Many of our manufacturing clients apply for government funding and loans, but often they come with delay and expense.  To encourage true growth, government assistance needs to be streamlined, which often is not the case.

 

Disclosing Violations to EPA in a Digital Age

Thank you to my colleague Bob Melvin for his contributions to the post below. Bob is a partner in the Environmental & Utilities Practice Group whose practice focuses on representing manufacturers with enforcement, compliance, and permitting issues.

Under EPA’s Audit Policy and Small Business Compliance Policy, companies that discover, promptly disclose, and expeditiously correct environmental violations may be entitled to penalty mitigation and other incentives. EPA recently developed a proposed plan for efficient and consistent disclosure of violation discoveries. In the Fall of 2015, the Agency plans to launch its “eDisclosure” portal for the reporting of both Emergency Planning and Community Right-to-Know Act (EPCRA) and non-EPCRA violations under EPA’s Audit Policy. The web-based program would not change any of the Audit Policy criteria, but it would dramatically change the manner in which the Policy is implemented.

To use the eDisclosure portal, a company must register with the system, disclose violations online within 21 days of discovery, and submit an online Compliance Report certifying that it corrected any noncompliance.

The portal will provide for two tiers of disclosures – Tier 1 and Tier 2. Tier 1 disclosures generally include most EPCRA disclosures (not to be confused with tier I and II EPCRA reporting). The online Compliance report must be submitted within 60 days from the date of discovery under the Audit Policy and 90 days from the date of discovery under the Small Business Compliance Policy, with no opportunity for an extension. The system will then automatically generate an electronic Notice of Determination, or “eNOD”, conditionally confirming that the violations are resolved without civil penalties.

Tier 2 disclosures generally include all EPCRA violations not covered by Tier I and all non-EPCRA violations. While the same timelines for submittal of the Compliance Report for Tier 1 disclosures apply to Tier 2 disclosures, there is an opportunity for an extension to those deadlines under Tier 2. The system will automatically issue an Acknowledgement Letter noting EPA’s receipt of a Tier 2 violation. The Acknowledgement Letter will also confirm the Agency’s commitment to determining eligibility for penalty mitigation if and when the Agency considers the matter and decides to take an enforcement action.

EPA’s proposed program seems to be designed to streamline the disclosure process, but companies looking for written resolutions documenting no penalty or enforcement action may be disappointed. In addition, not only is EPA planning to make this web portal the exclusive method for making most Audit Policy disclosures, it also plans to maintain the centralized database out of EPA Headquarters. Information disclosed on the portal is expected to be public and accessible under the Freedom of Information Act.

EPA’s website provides more information on its proposed eDisclosure portal, the process for implementation, and the Audit Policy in general.

Even More Reason for Manufacturers to Update Their Employment Agreements

In an increasingly competitive landscape, a manufacturer’s significant employees may hold the “keys to the kingdom.” Loss of such a worker to a competitor could have a substantial impact on future business growth. Many manufacturers invest significant resources to keep key employees and, by doing so, preserve their market advantage.  Strategic use of employment agreements, post-employment restrictions and confidentiality provisions have been a proven tool to help protect trade secrets, customer relationships and confidential information.

Two recent developments highlight the need for manufacturers to periodically review and update the employment agreements of their key executive, R&D and sales employees.

On June 3, 2015, the Connecticut Legislature adopted a measure effectively making unlawful any confidentiality agreement which would prohibit employees from discussing wages. Misleadingly labeled “An Act Concerning Pay Equity and Fairness,” the law prohibits employers from preventing employees from disclosing their own wages or the wages of any other employee who otherwise voluntarily disclosed it to them. The law does not limit in any way the entity to which this information may be disclosed nor does it require the express consent of the individual whose wages are being disclosed. The Governor is widely expected to sign the legislation and it would become effective on July 1, 2015.

The “Pay Equity” Act, as written, permits an employee to disclose what many could consider to be confidential information to competitors. So, for example, if a key sales-employee casually mentions her or his compensation schedule to a co-worker, that co-worker has license to share that information with anyone else. This means former employees who go to work for a competitor are seemingly free to share the compensation data of their peers and co-workers, helping the competitor recruit future defectors. The “Pay Equity” Act also makes “retaliation” for disclosing such information unlawful and authorizes a private cause of action and an award of compensatory damages, punitive damages and attorneys’ fees and costs.

The second significant development occurred on June 12, 2015, when the New York Court of Appeals refused to apply the parties’ selected choice of law because that law was “repugnant” to the public policy of New York State. Most employment agreements, and especially those which contain provisions restricting an employee’s activities after she or her leaves employment, contain so-called “choice of law” provisions. Under a choice of law provision, the parties can select the law of a particular jurisdiction which they may wish to apply when interpreting the agreement. In Brown and Brown v. Johnson, the parties’ agreement selected Florida law as governing law in any dispute. However, when the plaintiff sought to enjoin its former employee from violating her post-employment restrictions, the defendant argued that New York (not Florida law) should govern. The Court of Appels ultimately agreed, holding that Florida law with respect to post-employment restrictions was “truly obnoxious” and inconsistent with New York’s public policy as Florida law did not give sufficient consideration to the interests of the individual employee.

These two developments show that manufacturers must constantly assess the means and manner in which they protect both employees and information from unfair competition.

Federal Trade Commission (FTC) Continues To Focus On Manufacturers’ Warranties

As readers of the blog know, we have written previously about the importance of periodically reviewing warranty language to avoid scrutiny from the Federal Trade Commission (FTC).   This week, the FTC blog published another article entitled “The latest word of warranties.”

In the post, the FTC offered the following guidance:

If your business offers warranties, here are some steps to consider:

  • Read your warranties to see if they prohibit a consumer from using other sellers’ parts or services – or if consumers might read your warranty to imply that. Conform your policies to the just-announced clarifications to the Warranty Act’s Interpretations.
  • Check your website to make sure your warranties are posted close to the warranted products.
  • Review your warranties and service contracts to ensure all material terms and conditions are disclosed clearly and conspicuously.
  • Read the FTC’s brochure, A Businessperson’s Guide to Federal Warranty Law.

My take on this post is that it reaffirms that the FTC continues to focus on consumer warranties and ensuring that a normal consumer would be able to understand what is and what is not covered.  Ultimately, a warranty is only good if it can be enforced so there needs to be balance between disclaiming liability and offering service to consumers.

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