Preparing for an Economic Downturn: How Manufacturers Can Prepare

You may ask why we are using the words “economic downturn” in a post.  Most of our manufacturing clients are reporting strong sales and many economic pundits are saying that a recession is still far off into the future.  With that said, this is exactly the time to start thinking about your supply chain and your contracts.  Because, as many manufacturers know, supply chain and customer disputes rear their ugly head when the economy takes a nosedive.

I recently read an article entitled “Can Supply Chains Prepare for a Recession?”, which discusses a study completed by the MIT Center for Transportation & Logistics.  The following quote caught my eye:

Good times are dangerous: Business managers are under constant pressure to bend the rules, be flexible and agree to policies during good times that will cause great pain and suffering when the economy goes south.

The article then goes on to identify seven considerations for how manufacturers can prepare for an economic downturn by understanding how their supply chains will be impacted.  But, I would go back to the quote.

For example, a lot of manufacturers enter into long-term agreements to ensure stability.  Those LTAs are often loaded with conditions that tend to not be enforced during good times.  When the economy tightens, however, it is common for customers and suppliers to start enforcing difficult terms and also seeking to apply those terms retroactively.  For that reason, even if you do not negotiate a term out of a contract, it is important to know it is there.  Hence, why manufacturers are starting to adopt playbooks and checklists to ensure that their contracting personnel understand the risks of what they are signing.

U.S. Government Agencies’ Fast Track Changes to Legal Standards (Part 1)

With the Trump Administration now in its 27th month (half-way through the first term), Federal agencies seem to be picking up the pace of fundamentally altering the legal landscape in which manufacturers operate.  Keeping up with these changes can be a full time job.

In this blog post, I will highlight some of the more important legal changes the National Labor Relations Board (“NLRB”) has implemented with respect to work rules and policies.  Future posts will summarize other changes at the NLRB and changes at the United States Department of Labor and the Equal Employment Opportunity Commission.

In a case called Lutheran Heritage (2004), the NLRB articulated a standard under which facially neutral policies and work rules would nevertheless be found unlawful if a hypothetical employee could “reasonably construe” the rule as prohibiting lawful “union” or “concerted protected” activities.  Between 2004 when the case was decided and November 2017, the NLRB would routinely commence litigation against countless employers challenging neutral workplace practices and policies, even when there was no evidence any employee was prevented from organizing or impacted in the least by the rule.

In The Boeing Co. (2017), NLRB overturned Lutheran Heritage and held that facially neutral work rules (that is, rules which did not expressly prohibit union or protected activity) would be assessed on a case-by-case basis.  The Board stated it would balance the potential impact on employee rights against a manufacturer’s legitimate justification for the rule.

Since the NLRB decided The Boeing Co., the General Counsel (the NLRB’s head prosecutor) has directed regional offices to dismiss or amend an uncounted number of pending lawsuits.  The General Counsel has upheld rules:

  • Prohibiting dissemination of “user data” without authorization;
  • Banning employees from sharing “confidential” information and data;
  • Prohibiting the use of cellphone cameras during working time or in working areas at any time;
  • Restricting the ability of an employee to speak on behalf of the manufacturer on social media;
  • Imposing a “professional” dress code;
  • Prohibiting working for a competitor; and
  • Prohibiting the disclosure of confidential or proprietary information to the media without authorization.

Conveniently, the General Counsel has published a good number of his Advice Memos outlining his views on lawful work rules.  Those memos can be found here:  https://www.nlrb.gov/news-publications/nlrb-memoranda/advice-memos/advice-memoranda-dealing-handbook-rules-post-boeing

Manufacturers should proceed with caution when revising handbooks and workplace policies.  The NLRB’s current approach may not survive after the next election and, even if it does, there is no certainty the courts will uphold the NLRB’s back-and-forth on this score.

OSHA Requesting Public Comment on Powered Industrial Truck Standards

OSHA recently announced that it is considering whether it should revise the powered industrial trucks standards for general, construction, and maritime industries. Powered industrial trucks include forklifts, fork trucks, motorized hand trucks, platform lift trucks, tractors, and other industrial trucks powered by an electric motor or internal combustion engine. The powered industrial trucks standards have not been updated since 1998, and OSHA is currently seeking public input to determine whether these standards should be revisited.

The current powered industrial trucks standards contain requirements for design and construction, appropriate locations for use, maintenance, and training, among others. The standards were originally based on standards from the American National Standards Institute (ANSI) and the National Fire Protection Association (NFPA), both of which have been revised several times since OSHA relied on them for its own standard.

OSHA is now seeking information to help determine what it should do, if anything, to modify, repeal, or replace outdated portions of its powered industrial trucks standards. Some of the questions OSHA hopes to answer include:

  • Do you use the types of powered industrial trucks that are currently covered by the standard?
  • Should new powered industrial trucks should be included?
  • Is your training is performed in-house or by outside specialists?
  • Are OSHA’s current training requirements are inadequate or excessive?
  • Have you implemented a training program that you think is more effective than the OSHA standard?
  • Do you use any aftermarket equipment, such as a back-up camera or perimeter sensor alarm, to reduce accidents related to powered industrial trucks? Are they effective?
  • Do your powered industrial trucks have rollover protection or enclosures?
  • How often do you inspect your powered industrial trucks?
  • What are the most common workplace injuries at your facility involving powered industrial trucks?
  • Which activities (e.g., loading, unloading, traveling) result in the most incidents?
  • Should OSHA’s powered industrial trucks standards be identical across general, construction, and maritime industries?
  • Do the ANFI and NFPA standards ensure that workers are protected from hazards associated with powered industrial trucks?
  • Are you currently in compliance with the ANFI and NFPA standards?
  • If OSHA changes its powered industrial trucks standards, should older powered industrial trucks be grandfathered?

Comments should include data, where possible, as well as information on anticipated additional costs, or cost savings, associated with potential changes to the standards. Comments must be submitted on or before June 10, 2019.

Are the Metal Tariffs Helping or Hurting U.S. Manufacturers?

Earlier this year, we posted our 2019 Corporate Compliance & Litigation Outlook.  In the post, we said the following with respect to tariffs:

2018 was the year of the “tariff” for manufacturers.  You could not read a manufacturing news story without mention of it.  There is a lot of hype around tariffs and other trade regulations.  Some companies have been able to absorb the costs by passing it on to their customers and others have not.  In 2019, I expect that these discussions will continue.

Today, Industry Week posted a story from Bloomberg entitled “A Year On, Trump’s Metals Tariffs Have More Losers Than Winners.”   The key points in the story are that while U.S. steelmakers have seen profits, U.S. producers of aluminum have not.  And, the story references large losses by buyers of steel and aluminum as examples of how U.S. companies have lost due to the tariffs.  While the Bloomberg story focuses on large companies (such as Caterpillar) there is no discussion of how tariffs have impacted small to medium sized companies within the supply chain.

Recently, I hosted a manufacturing executives’ dinner for privately held manufacturers.  Notably, when the subject of tariffs came up, many of the CEOs indicated that either the tariffs were not impacting their sub-sector of the marketplace and/or that the costs were being passed on to the customer.  As a result, I think it is safe to say that the hype about tariffs will continue, but I think it is too early to make generalized predictions about how tariffs are impacting all manufacturers.

 

New DOL Overtime Rule Impacts Manufacturers

The United States Department of Labor finally published its proposed regulation raising the minimum salary to be paid under the “white collar” exceptions to the Fair Labor Standards Act.  To refresh your recollection, virtually every worker must be paid at least minimum wage (currently $7.25 per hour under federal law, with many states having a higher minimum wage) and overtime for all hours worked in excess of 40 hours per week.  Certain employees are “exempt” from these requirements, however, if they are working as executive, administrative or professional employees, are paid on a “salary basis” and earn at least the minimum salary threshold.  Prior to 2016, the minimum salary had been set at $455 per week ($23,660 per year), or $100,000 per year for so-called “highly compensated” workers.

In 2015, the Obama DOL attempted to raise the minimum salary to $913 per week ($47,476 per year).  At the same time, the threshold salary for highly compensated workers was increased to $134,004 per year.  In 2017, a Texas federal court enjoined enforcement of the rule.  The DOL appealed that decision to the Court of Appeals, but asked that the appeal not be heard until it had a chance to review its options.

Those seeking to read prior blog posts on the topic may find them here:  Proposed DOL Rulemaking Means Uncertainty for Manufactures (7/21/15), New Wage and Hour Requirements for Certain Employees of Manufacturers (5/31/16), Time Running Out for Compliance with New DOL Overtime Regulation (9/19/16), Breaking News Manufacturers Breathe Relief as Court Strikes Down DOL Overtime Rule (8/31/17), and Buckle-Up for 2018 New Overtime Regulations Manufacturing Confusion (11/5/17).

On March 7, the DOL published the revised rule.  As expected, the Trump DOL also decided it was time to raise the minimum salary to be paid exempt employees from the current $455 per week to $679 per week ($35,308 annually) (a 49% increase over the current standard).  At the same time, however, the DOL raised the “highly compensated” minimum salary from $100,000 to $147,414 (a 47% increase).  The DOL estimates that raising the salary threshold potentially impacts 1 million American workers.

The  period for public comment on the proposed regulation will end in 60 days (May 6, 2019).  The DOL expects the regulation (if left unchanged) to take effect in January 2020.  It is too soon to say whether business groups will seek to halt implementation of the revised rule.

Manufacturers should examine their workforce to determine the number of employees potentially impacted by the new regulation.  For those currently exempt employees making less than $35,308 annually, an employer may be able to take advantage of a rule provision which permits the payment of a non-discretionary bonus of up to 10% of wages.  Other employees may have to be converted to hourly workers or have their base pay adjusted in order to maintain their exempt status.

TSCA Implementation Update: EPA Releases Updated Inventory and Delays Risk Evaluations

Thank you to my colleague, Emilee Mooney Scott, for this post. Emilee focuses her practice on chemicals and hazardous materials regulation and is counsel in our Environmental & Utilities Practice Group.

As we previously outlined, the Toxic Substances Control Act (“TSCA”) was amended in 2016 to provide EPA with much broader authority to regulate “existing” chemical substances (i.e., those that are already in use in commerce).  While EPA has met its statutory deadlines thus far, several critical deadlines are looming in 2019.  EPA’s progress toward its 2019 deliverables has been delayed by the recent government shutdown and redeployment of resources.

Risk Evaluations and Prioritizations Expected in 2019

TSCA requires EPA to systematically review selected substances that are already active in commerce through a three-step process of prioritization, risk evaluation, and risk management.  The prioritization step identifies chemical substances that may pose an unreasonable risk of injury to health or the environment and designates them as “high priority” for further study.  Those high priority substances are then subjected to a risk evaluation step to determine whether they do indeed pose an unreasonable risk of injury to health or the environment.  Substances that do pose an unreasonable risk must then be subject to a risk management rule to mitigate such risks, though, for example labeling or work practices requirements.

The 2016 TSCA amendments directed EPA to identify a slate of ten substances that would skip the prioritization step and proceed directly to the risk evaluation step.  Those first ten substances were identified in late 2016, and risk evaluation problem formulations were released in the summer of 2017.  Since then, risk evaluations have been underway.  Final risk evaluations are due for the first ten substances by December 19, 2019 (subject to possible six-month extension), so draft risk evaluations must be published by October 20, 2019 to allow for the required sixty-day comment period.

EPA released its first draft risk evaluation under amended TSCA in November 2018, concluding that Pigment Violet 29 does not pose an unreasonable risk to human health or the environment.  EPA was expected to release the rest of the first ten draft risk evaluations this winter to allow ample time for public comment and agency reevaluation.  At a conference this week, Alexandra Dunn, assistant administrator for the Environmental Protection Agency’s Office of Chemical Safety and Pollution Prevention, said that the remaining draft risk evaluations are instead expected this summer.

Earlier this week, the U.S. Government Accountability Office (GAO) released a report detailing some of the factors that have led to EPA’s slower than anticipated progress.  Internal EPA discussions about priorities for the Integrated Risk Information System (IRIS) have led to delays, and amended TSCA places a significantly increased workload on the relevant office of EPA.  The fast timelines imposed by the TSCA amendments have also required EPA to begin implementing the law before internal guidance and procedures are fully in place.  According to GAO, EPA officials “likened it to building an airplane as they fly it.”  Several of EPA’s rules implementing TSCA amendments have been challenged in court, and depending on how the challenges are resolved, additional delays could result.  The government shutdown in late 2018 and early 2019 also delayed EPA’s efforts.

EPA has a significant amount of work ahead of it—dozens of TSCA-related deliverables are due at the end of 2019.  In addition to the final first ten risk evaluations being due by December 19, 2019, by December 22, 2019 EPA is required to ensure that at least twenty risk evaluations on high-priority substances are underway, and must designate an additional twenty substances as low-priority.

Update to TSCA Inventory

EPA has already achieved one of its most anticipated 2019 milestones: release of the revised TSCA Inventory.  The TSCA Inventory is a list, maintained by EPA, of all the existing chemicals in commerce.  If a substance is not listed on the TSCA Inventory it is considered “new” and subject to review before it is introduced into commerce.

In connection with the 2016 amendments to TSCA, EPA was required to revise the TSCA inventory and cull the substances that exist but are not active in commerce.  EPA’s review of the TSCA inventory was informed by reporting by manufacturers and importers in 2012 and 2016, and by “Notice of Activity” forms submitted by manufacturers, importers, and processors of chemical substances in 2018.

In February 2019, EPA released the revised TSCA inventory.  Of the 86,228 substances on the TSCA inventory, only 40,655 were identified as active in commerce.  If there are any substances marked inactive on the revised TSCA inventory, but which are still being manufactured, imported or processed, manufacturers/importers/processors have until May 20, 2019 (90 days from publication of the revised Inventory) to submit a Notice of Activity Form B (through the Central Data Exchange) to prevent the substance from being designated as inactive.  Once a substance is designated inactive, it may not be re-introduced into commerce until EPA receives a Notice of Activity form alerting it to the re-introduction.

Connecticut Company Reaches Settlement With OFAC Regarding Alleged Iran Sanctions Violations

This week, we are pleased to have a guest post from Kevin Daly.  Attorney Daly is a member of the firm’s Manufacturing Industry Group and also its Trade Compliance Team.

On February 21, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) entered into a settlement with Connecticut-based ZAG IP, LLC (ZAG) (formerly known as ZAG International, LLC) arising from alleged violations of U.S. sanctions against Iran.  Federal law presently  prohibits U.S. persons and companies from entering into almost all transactions involving Iranian buyers or sellers or Iranian goods. The settlement resolved allegations that ZAG knowingly bought and resold Iranian-origin goods. The settlement highlights several  critical compliance practices that companies should consider adopting to minimize the risk of sanctions violations.

ZAG’s business involves global sourcing and marketing of cement raw materials as well as providing advisory services for the construction industry. In 2014, ZAG signed an agreement to sell about 400,000 metric tons of clinker (material that is ground to a powder and used as a binder in cement) to a purchaser in Tanzania. The material was to be manufactured by a supplier based in India. After the contract was executed, the supplier informed ZAG that due to technical problems at its plant, it would be unable to deliver a sufficient amount of clinker. When the Tanzanian purchaser refused to permit any delays in shipment, ZAG sought an alternative supplier and identified a company located in the United Arab Emirates. The UAE company offered to supply Iranian-origin clinker, falsely  representing to ZAG that the material was not subject to U.S. sanctions. ZAG purchased the material.

ZAG voluntarily disclosed the potential violations to OFAC, and the settlement that was developed required ZAG to pay a $506,250 monetary penalty. OFAC found that there were both aggravating and mitigating factors regarding ZAG’s conduct. OFAC found as aggravating factors that ZAG acted in reckless disregard of the Iran sanctions, that senior management was aware of the Iranian origin of the goods, that Iran received significant benefits, that ZAG is a sophisticated business, and that ZAG did not have an effective compliance program. As mitigating factors, OFAC found that ZAG had no other violations within the last five years, that ZAG is a small business entity, that ZAG took significant remedial measures, and that ZAG cooperated with OFAC’s investigation. Ultimately, considering the circumstances OFAC determined that the violations were “non-egregious.

There are several takeaways for any U.S. company buying or selling abroad.

  1. First, U.S. Iran sanctions prohibit U.S. companies from importing or purchasing goods of Iranian origin. Although violations based on exports to Iran tend to receive the most attention, U.S companies in the buyer’s seat need to be diligent as well.
  2. Second, a U.S. company buying or selling abroad should have an effective program that includes vetting all transactions for sanctions compliance, even when (as was the case with ZAG) plans change on short notice or business exigencies develop.
  3. Third, companies must be aware of “red flags” in transactions and respond to them appropriately. Generally speaking, when a red flag arises, the company should pause the transaction until the suspicious information can be investigated. In ZAG’s case, ignoring the red flags with the proposed transaction (the knowledge of the Iranian origin of the goods) was the reason OFAC found that ZAG acted recklessly.

 

N.L.R.B. Continues to Re-Examine “Joint Employer” Test – Impacting Manufacturers and the Supply Chain

 

Manufacturers and those in the supply chain may have been watching as the federal courts and the National Labor Relations Board struggle to make sense out of widely different views of the “joint employer” standard.  Whatever result is ultimately reached will carry significant implications for manufacturers.  At stake?  When can a manufacturer be required to bargain over the terms and conditions of employment of a sub-manufacturer’s employees?  Or when can a manufacturer be required to remedy the illegal acts of a sub-manufacturer?

In previous posts, I have noted the radically different views of the N.L.R.B. under the Obama and Trump Administrations.  See N.L.R.B. “Joint” Disarray – Why That Matters to Manufacturers  (March 15, 2018) and The Trump N.L.R.B. Gift Giving Season (December 21, 2017).  Mixed in with this significant policy debate are “conflict of interest” allegations and demands that Board Members of one side or another decline further participation.  Just the sort of Washington, D.C. “inside baseball” news which drives some people mad.

In January, N.L.R.B. Chairman Jonathan Ring responded to a request from Congresswoman Rosa DeLauro and Congressman Robert Scott that the Board withdraw a notice of proposed rule-making on the subject.  In this author’s opinion, Chairman Ring’s response, which can be read here, set out the context of the debate pretty well and makes it clear that the current Board will press ahead to articulate a standard favorable to manufacturers and others.

Manufacturers, suppliers and subcontractors should continue to watch this space.  Whatever test ultimately gets adopted and survives legal challenge could be short-lived.  In case you haven’t noticed, the 2020 Presidential Election has already begun!

EPA Unveils PFAS Action Plan

On Valentine’s Day, EPA showed a little love for per- and polyfluoroalkyl substances (PFAS), announcing a sweeping plan to address PFAS contamination and protect public health. PFAS are a group of man-made chemicals that have been gaining a lot of attention, as described in our 2019 outlook. EPA Acting Administrator Andrew Wheeler announced the PFAS Action Plan in a press conference yesterday, calling it “the most comprehensive, cross- agency action plan for a chemical of concern ever undertaken by the Agency.” The Action Plan is 72 pages, but Acting Administrator Wheeler focused on five key elements, described below:

  1. Work Towards the Development of MCLs for PFOA and PFOS

EPA will propose regulatory determinations for PFOA and PFOS—two of the most common PFAS compounds—by the end of 2019. These regulatory determinations are the first step under the Safe Drinking Water Act (SDWA) towards the development of Maximum Contaminant Levels (MCLs). EPA has not set a time frame for the actual development of the MCLs, instead citing to the timing and procedures required by the regulatory process (including public comment). While EPA committed to issuing regulatory determinations for these two specific compounds, it will continue to evaluate the need to follow this same process for other PFAS compounds.

  1. Continue PFAS Enforcement Efforts

Despite the fact that EPA has not established an MCL for any of the PFAS compounds, it intends to continue enforcement efforts based on the current drinking water advisory of 70 parts per trillion. EPA has already brought eight enforcement actions based on this advisory, and it is assisting state agencies in dozens of other enforcement actions based on state PFAS standards. EPA has also started the regulatory process towards classifying PFOA and PFOS as “hazardous substances” under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), a listing that will allow EPA (and private parties) broader enforcement authority.

  1. Expand PFAS Monitoring Efforts

More data means better understanding, and EPA plans to make use of its authority to expand PFAS monitoring to help guide its decision-making process. EPA plans to propose that PFAS be included in the next round of monitoring under the Unregulated Contaminant Monitoring Program in the SDWA. EPA may also use the Toxic Substances Control Act to require reporting of certain PFAS releases and potentially prohibit the use of certain PFAS compounds.

  1. Expand Scientific Research into PFAS Compounds

EPA plans to use research efforts to “close the gap” on a number of PFAS issues, including:

  • What are the human health and environmental effects?
  • What are significant sources of PFAS in the environment?
  • How do PFAS compounds move through the environment?
  • How can we effectively remediate PFAS?
  • What are the costs of PFAS remediation?

EPA plans to evaluate these issues not only for more common PFAS compounds like PFOA and PFOS, but also for emerging PFAS risks, such as GenX.

  1. Develop PFAS Risk Communication Toolbox

EPA will work with federal, state, tribal, and local partners to develop a comprehensive risk communication toolbox to ensure that PFAS messaging to the public is clear and consistent.

Because the Action Plan is just that—a plan—we will continue to track EPA’s progress. States continue to take a leading role in regulating PFAS, but the new EPA Action Plan now provides a road map for federal action.

Thought The Government was Closed? The Manufacturers’ Smorgasbord!

This week’s post is somewhat breathless because so much happened or is about to happen.  You may have thought the government has been closed for the past 35 days. But just like great magicians who get you to watch their right hand while their left hand is going about the business of the trick, the parts of the federal government and their state counterparts which were opened continued at a breakneck pace.

On the federal level, the National Labor Relations Board continued issuing decisions rolling back Obama-era workplace protections.

Last Friday, in SuperShuttle DFW, Inc. , 367 NLRB No. 75 (Jan. 25, 2019), the NLRB overruled the Obama-NLRB’s interpretation of the independent contractor test, stating it was returning to a more balanced approach to decide when individuals were acting as employees (who are protected under the law and can unionize) as opposed to independent contractors (who are not protected by the law and cannot unionize).  Given the rapid growth in the “gig” workforce, the NLRB’s decision will not be the last voice to weigh in on the issue.

This followed closely on the heels of the decision in Alstate Maintenance, LLC, 367 NLRB No. 68 (Jan. 11, 2019), where the NLRB modified the test for determining when an employee engages in “concerted protected activity.”  The NLRB has long held that employees are protected when they engage in “group action,” even if they are not seeking union representation.  In Alstate, the Board found that the employer did not violate the law by firing a group of baggage handlers who walked off the job after one of them complained that “we” had not received sufficient tips previously.  Finding that use of the word “we” followed by a common act may not be evidence of “concerted” activity, the Board held that the employer could lawfully discharge the workers for leaving their posts.

Legal changes were not restricted to the federal level.  The New York City Council amended the New York City Human Rights Law to prohibit discrimination on the basis of sexual and reproductive health decisions.  These now-protected decisions include fertility-related medical procedures, HIV testing and counseling, emergency contraception, abortion procedures, and sterilization procedures, among others.

In Albany, Governor Andrew Cuomo announced that he will seek to increase penalties for wage theft in his 2020 budget submission.

In Hartford, the state legislature convened and a host of employment-related proposals were introduced, including paid family leave, increasing the minimum wage, and prohibiting confidentiality agreements in sexual harassment settlements.

At this pace, all manufacturers will have to keep an eye out for big changes coming to your workplace.

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