Trap for the Unwary: How A Manufacturer Can Assure Itself That New York Law Will Apply To Its Contracts

We review a lot of manufacturing contracts for our clients.  As most people know, there are often clauses that dictate what law will apply if there is a dispute (a.k.a. “choice of law” clauses) and where that dispute will be litigated (a.k.a. “forum selection” clauses).  Under most circumstances, the party with the most leverage will choose a forum most convenient to them, which typically is a jurisdiction where they are located.

It is not always as simple when deciding what law will apply.  Often, manufacturers and other corporations will pick a jurisdiction that is perceived to be “pro-business” or “pro-manufacturer,” which may be a state (for instance) that has no connection to the parties or the transaction itself.

One state that we often see selected is the State of New York, which tends to have more sophisticated commercial law.  So, you might think that if you note in your contract that the laws of New York will apply, then the courts will enforce it.  Not necessarily.

By statute, parties with no connection to New York may select New York as the forum if (1) the case relates to a contract of $1 million or more (note:  the dispute can be less than $1 million as long as the contract surpasses the threshold), (2) the contract includes a New York choice-of-forum clause, and (3) the contract includes a New York choice-of-law clause.  NY General Obligations Law § 5-1402.  Therefore, if you want to be sure that New York law will apply, you need to also ensure that any dispute will be litigated in New York as well.  If one or more of the conditions of the statute are not met, the other party can challenge it on the basis that there is no connection to New York.

Outside of New York, states differ in their treatment of the issue.  For example, in Florida, courts have consistently held that contractual forum selection clauses, without more, do not confer personal jurisdiction over a nonresident party.

In the end, it is important to take some extra time to ensure that the contractual provisions that you negotiate are actually enforceable.

Buckle Up for 2018: New Overtime Regulations Manufacturing Confusion

Readers of this blog may recognize I have spilled a good deal of ink over the last two years discussing the impact of the Obama Administration’s efforts to increase the minimum salary for  certain employees to be considered exempt from minimum wage and overtime requirements.  See “Breaking News: Manufacturers Breathe Relief as Court Strikes Down DOL Overtime” (August 31, 2017); Time Running Out for Compliance with New DOL Overtime Regulation” (September 19, 2016); and “New Wage and Hour Requirements for Certain Employees of Manufacturers” (May 31, 2016).

Under current DOL regulations employees whose primary duties meet the standards for an exempt executive, administrative or professional employee will be exempt from minimum wage and overtime so long as they are paid on a “salary basis” (meaning they get the same salary every week regardless of the number of hours they work) and earn at least $455 per week ($23,660 annually).  In 2016, the Obama Administration sought to increase this salary threshold to $913 per week ($47,476 annually).  Last August, a Texas Federal Court struck down that regulation, holding that the U.S. DOL lacked the legal authority to act absent Congressional action.

Now, in a surprising move, the Trump Administration has appealed the Court’s decision and simultaneously signaled that it would seek to delay the appeal until a new Overtime Regulation could be promulgated.  See Announcement here.

The DOL’s appeal brings more uncertainty for the manufacturing community in 2018.  In striking down the Obama Administration’s authority, the Court held that the DOL could not change the salary threshold without Congressional direction.  The Trump Administration’s challenge to that ruling, if successful, would mean Congressional action was not necessary.  I would expect the Trump DOL would adopt a salary threshold in the mid-range, about $684 per week ($35,568 annually).  But the rationale would open up the prospect that the next administration (whether Democrat, Republican or Unaffiliated) could change the threshold yet again.

2018 looks to be shaping up to be a very interesting year.

Settlement with Swedish Telecom Giant Falls Just Short of First $1 Billion FCPA Resolution

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.

In September, the U.S. government announced a nearly $1 billion FCPA (Foreign Corrupt Practices Act) settlement with the Swedish telecommunications company Telia.  The total monetary payment in this global resolution makes it the largest such settlement to date.  It is also the first major FCPA settlement under the Trump Administration.

The settlement involved both Telia itself and its Uzbek subsidiary, Coscom.  The settlement resolved allegations that the two companies paid over $330 million in bribes to an Uzbek government official in an attempt to enter the telecommunications market in Uzbekistan.  The official had influence over the Uzbek agency that regulates the telecommunications industry.  Telia and Coscom also allegedly concealed the bribes by routing them through shell companies.

The settlement was a global resolution involving the Department of Justice, the Securities and Exchange Commission, as well as Swedish and Dutch authorities.  It imposed total civil and criminal monetary penalties of over $965 million.  Telia entered into a deferred prosecution agreement, agreed to implement internal controls, and agreed to cooperate with the government’s ongoing investigation.  Coscom pleaded guilty to one count of conspiracy to violate the FCPA.

Ever since the Trump Administration began in January, observers of government anti-corruption policy have sought to predict whether FCPA enforcement would change under the new administration.  One cannot draw too many conclusions from a single settlement, and it is unclear whether any other settlements of this magnitude are on the horizon.  But, for the time being at least, the era of major global anti-corruption resolutions continues.

The Department of Justice’s press release announcing the Telia settlement can be found here.

New York City’s Salary History Ban Takes Effect October 31

Effective October 31, 2017, New York City becomes another jurisdiction making it unlawful for manufacturers and other employers to ask most job applicants for information about their prior or current salary, compensation or benefits.  Adopted by the City Council earlier this year, the new law seeks to eliminate wage inequality experienced by women and minorities by making it unlawful to inquire about or rely on a job applicant’s salary history.  In anticipation of the October 31 effective date, the New York City Commission on Human Rights published two Fact Sheets – one for job applicants available here, and one for employers available here.

The Fact Sheets make clear that manufacturers and other employers hiring in New York City are permitted to ask job applicants about salary expectations if hired or may advise the applicant about the salary range or starting salary of the position.  The Fact Sheets also make clear that a manufacturer or other employer may verify the accuracy of any statements the applicant makes about her or his prior salary, so long as the applicant offered this information without prompting by the employer.

Curiously, the job applicant Fact Sheet asserts that the city law applies to both independent contractors and interns.  Some might question this interpretation because the Amendment itself bans inquiries into “the salary history of an applicant for employment” or reliance on the salary history “for such an applicant.”  See New York City for 2017  Local Law No. 67, Section 1, (amending Administrative Code Section 8-107(25)(b) (1), (2)(emphasis added).

One significant issue not addressed by the Fact Sheets concerns whether the salary inquiry ban applies to manufacturers and other employers in New York City when hiring for positions located outside New York City.  For example, the manufacturer attending a job fair being held in New York City for positions in Pennsylvania may have to comply with the salary inquiry ban.

Manufacturers should consider these issues and the impact of the law on their operations.

 

The Rise of Vapor Intrusion

Thank you to my colleague Jim Ray for his contributions to this post. Jim is a partner in our Environmental & Energy Practice Group.

We have all been involved in investigating and remediating sites with soil and groundwater contamination. But another form of contamination has been recently gaining attention—vapor intrusion.

Vapor intrusion is the migration of volatile chemicals from soil or groundwater into soil gas and, ultimately, indoor air. The presence of these chemicals in indoor air can cause human health concerns. While regulatory guidance regarding acceptable indoor air levels and vapor intrusion mitigation varies across jurisdictions, vapor intrusion considerations are showing up with more frequency in site investigations.

When evaluating the potential for vapor intrusion, it is important to begin by identifying whether a migration pathway exists. Sampling indoor air will not always answer the question of where the vapors may be coming from—and how to stop them. Indoor air can be contaminated by a number of sources, none of which may involve the migration of volatile chemicals from the subsurface. Oftentimes, the investigations begin with soil and/or groundwater sampling to determine if there could be a subsurface source, followed by evaluation of a structure or building to determine if it is susceptible to vapor migration.

If contaminants are detected in indoor air above a certain level, and it is determined or presumed that those vapors are migrating from the subsurface, both short and long term abatement measures may be required. Because of the potential for human health impacts, immediate action to stop the vapor migration may be required. While these actions do not typically eliminate the source, they aim to prevent the migration of vapors into a building or structure. Long term remediation may require source identification and remediation, such as soil removal or groundwater remediation.

The recent focus on vapor intrusion is impacting sites that are currently under investigation as well as sites that may have already been investigated and/or remediated. Because of this, it is important to evaluate both current and legacy sites to determine whether vapor intrusion is or could be a concern.

Robinson+Cole Hosts Market Briefing on Export Opportunities in Indonesia

Melissa Grosso, Senior International Trade Specialist; Andrew Billard, commercial attaché at the U.S. Embassy Jakarta; and Jeffrey J. White, chair of Robinson+Cole’s Manufacturing Industry Team

On September 19, 2017, our Manufacturing Industry Team proudly hosted an informal market briefing on export opportunities in Indonesia with Andrew Billard, commercial attaché at the U.S. Embassy Jakarta. Presented by the U.S. Commercial Service Connecticut office, the program offered insight into the Indonesian market, Southeast Asia’s largest economy, and provided an overview of export opportunities. In addition, Mr. Billard met with attendees to discuss their company’s market potential in Indonesia.

Thank you to both Andrew and Melissa for an outstanding program!

WHY INDONESIA?

Indonesia ranks 8th in the world based on purchasing power parity, and averaging over 5% growth over the last decade. Growth is projected by the IMF to reach 5.1% for 2017 due to strong private consumption. President Joko Widodo (known as “Jokowi”) took office in October 2014 and has pledged to improve infrastructure, diversify the economy, and reduce barriers to doing business in Indonesia as a means of increasing economic growth.

More background on the Indonesian market is available in the Country Commercial Guide.

MARKET OPPORTUNITIES: A SNAPSHOT

  • Consumer-related market opportunities continue to lead growth in the world’s fourth- largest country, and expansion in the retail, health, education, telecom and financial services sector have boomed in the last few years. The Indonesian consumer is ranked as one of the most confident in the world, and 50% of Indonesia’s 255 million citizens are under the age of 30.
  • Indonesia’s aviation market is growing at 20% per year and favors U.S. products. Aircraft replacement parts and services are a valuable and significant market. There is also demand for air traffic control and airport logistics services and ground support equipment.
  • Indonesia’s under-developed public infrastructure remains a major national challenge and could present significant opportunities in aviation, rail, ports and land transport, as well as in municipal infrastructure projects such as water supply and wastewater systems.
  • As the Indonesian military expands its budget, there are opportunities for U.S. defense manufacturers to sell a range of military aircraft, vehicles, communications systems, spare parts, and maintenance services. Monitoring and protection of sea-borne traffic for both national security and fisheries enforcement presents new opportunities.
  • Important opportunities outside of Jakarta remain in energy and electricity transmission services. The Government of Indonesia has announced its intention to increase electricity generation by 35,000 MW by 2019. It is not going to meet that goal, but growth in power generation projects, conventional and renewable, and including Independent Power Producers, is expected to continue for the next decade.

Hurricanes Force Manufacturers to Consider Impact on Employees

Hurricanes Harvey and Irma caused widespread property damage and flooding, and some manufacturers may not be able to reopen their businesses for several months. To assist followers of this blog, I have set out below a few of questions which manufacturers have asked in the last few weeks. I have also set out links to the United States Department of Labor’s FACT SHEETS, which are an excellent source of information. Keep in mind that state laws may require a different answer than those below, which are based on federal law. Before taking action, manufacturers should have a quick conversation with the lawyer of their choice. Continue Reading

Supply Chain Problems After The Hurricanes: What Manufacturers Should Be Aware Of

As the recovery effort continues after Hurricane Harvey and Hurricane Irma, some manufacturers are starting to deal with supply chain slowdowns or shortages.  The most widely reported issue that impacts both manufacturers and consumers is the shortage of fuel.  However, these natural disasters have also impacted suppliers that operate in these areas.

For those manufacturers impacted by these shortages or slowdowns, here are some things to pay attention to going forward:

  1. Nearly all commercial contracts have a “force majeure” clause, which is typically what a supplier will cite if they cannot deliver product on time.  These clauses often refer to natural disasters, acts of God, and other events that excuse non-performance for a period of time.
  2. Under most state law, the triggering event must have been beyond the party’s control and not due to any fault or negligence by the non-performing party.
  3. If a supplier claims “force majeure,” it typically has the burden of not only establishing that a “force majeure” event took place, but whether it did anything to mitigate the impact of the shortage.  So, if one of your suppliers has sent you a letter stating as much, you should ask for evidence on these points.
  4. Typically, if a force majeure event occurs, a supplier cannot favor one customer over another.  Instead, the supplier must allocate production and deliveries among its customers.  Although I am sure many in the manufacturing world would say this is unrealistic to expect, a well-documented response (sometimes by legal counsel) can aid in these efforts.
  5. Finally, one common issue that manufacturers often consider is whether they can “set-off” (i.e., refuse to pay outstanding invoices while the force majeure event is in effect).  State law on the right to setoff can be all over the map so we typically urge our clients to do an analysis before engaging in any self-help.

Superfund Reform May Be a Slow Go

As we previously reported, the current administration set out to make Superfund reform a priority. Shortly after taking over as EPA Administrator, Scott Pruitt convened a task force to provide recommendations for restructuring and streamlining the Superfund cleanup process. Over the summer, Administrator Pruitt endorsed 42 recommendations from the task force. The recommendations included, among others:

  • Developing a target list of sites on the National Priorities List (NPL) that are moving too slowly towards completion, including a Top 10 Administrator’s Emphasis List for sites that need “immediate and intense action.”
  • Encouraging the use of early or interim removal and remedial actions at complex sites.
  • Providing reduced oversight incentives, such as reduced oversight costs, to cooperative, high-performing potentially responsible parties (PRPs).
  • Discouraging PRPs from delaying the process through negotiation by actively using unilateral administrative orders.
  • Reducing financial assurance requirements for cooperating PRPs.
  • Identifying opportunities for third party oversight of PRP-led cleanups.
  • Encouraging integration of reuse outcomes into remedial planning.
  • Exploring liability transfer and risk management approaches at PRP-led cleanups.

Recently, however, EPA officials acknowledged that there are a number of hurdles to implementing the recommendations. Budget cuts and declining EPA staff could impact both EPA’s ability to swiftly take steps necessary to carry out the recommendations, as well as to conduct the necessary follow-up to ensure effective implementation. EPA officials have also acknowledged that some of the recommendations, such as third party oversight of cleanups, are subject to further review and refinement.

Despite these challenges, Superfund remains a priority at EPA, and it is getting more attention than it has in years past. EPA is already looking at ways to expedite cleanups and minimize protracted negotiations at PRP-led sites. In addition, because a number of the recommendations provide some level of flexibility, we might begin seeing PRPs attempting to use the recommendations to negotiate for novel or flexible approaches at individual sites, even in advance of sweeping implementation by EPA.

Breaking News: Manufacturers Breathe Relief as Court Strikes Down DOL Overtime Rule

 The United States District Court for the District of Texas issued a broad decision today invalidating the U.S. Department of Labor’s attempt to amend the so-called “White Collar” Exemption by doubling the minimum salary paid to such individuals.  Read the decision here.

I have previously posted about the DOL Overtime Rule.  See “Time Running Out for Compliance with New DOL Overtime Regulation” (September 19, 2016) and “New Wage and Hour Requirements for Certain Employees of Manufacturers” (May 31, 2016).  While the Trump Administration had announced that it would not implement the Obama-era regulation (which doubled the minimum salary to be paid employees to qualify as being exempt from minimum wage and overtime requirements), the DOL continued to argue that it had the statutory right to do so.

In its holding today, the Court rejected that assertion.  In a carefully worded decision which potentially opens the door to a broad reconsideration of the “White Collar exemption,” the Court held that the DOL’s decision to double the salary threshold to be considered exempt was contrary to Congressional intent.  The Court reasoned that in adopting the Fair Labor Standards Act, Congress clearly indicated that employees who performed executive, administrative and professional activities on behalf of management were not eligible for minimum wage or overtime.  While Congress broadly defined these categories, it left to the task to the DOL to more clearly define them.  Yet, by doubling the salary threshold, the DOL essentially abdicated its role to define the limits of what Congress intended.

The Court wrote, “[t]his significant increase would essentially make an employer’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level.  As a result, entire categories of previously exempt employees who perform ‘bona fide executive, administrative, or professional capacity’ duties would now qualify for [minimum wage and overtime][ based on salary alone.  * * * * This is not what Congress intended . . . .”

 The Court’s decision likely will not be the final word on the matter.  Yet, by again focusing on the intent of Congress in adopting the FLSA, the Court seems to be signaling a desire to limit “lawmaking by regulation.”

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