Government Initiatives in Response to Wave of Harassment Allegations Challenge Manufacturers

Two recent developments, generated from the tidal forces of the #MeToo movement should get manufacturers’ attention.

On December 22, 2017, Congress adopted a comprehensive tax reform law.  Included in the statute is an amended Section 162(q).  That provision states that manufacturers may no longer deduct from federal income tax “(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement [“NDA”], or (2) attorney’s fees related to such a settlement or [p]ayment.”

Written broadly and without any significant legislative analysis, Section 162(q) arguably sweeps within its reach “plain vanilla” severance or separation agreements.  Typically, most severance agreements contain broad waivers and releases of claims, including gender-based discrimination claims, in exchange for payment of severance.  Such agreements typically include NDA provisions.  Because “sexual harassment” or “sexual abuse” are not separate statutory claims under most discrimination statutes, but simply labels for a more egregious form of gender-based discrimination, any waiver or release of a sexual discrimination claim which contains an NDA may be impacted by Section 162(q).  Further, Section 162(q) makes clear that attorneys’ fees payments “related to” such a settlement similarly may not be deducted.  This limitation may include payments to the manufacturer’s own legal counsel.

Before we could digest the full impact of this tax law change, on February 11, New York Attorney General Eric Schneiderman filed a 38-page, 143-count complaint against Harvey Weinstein, Robert Weinstein and their company, the Weinstein Company LLC.  The complaint alleges a pattern and history of sexual harassment and abuse by Harvey Weinstein, and a failure to act to prevent or remedy such conduct by the other defendants.  In his press release, Attorney General Schneiderman admits he filed the lawsuit to prevent a planned private sale of the Weinstein Company to other investors.  “Any sale of The Weinstein Company must ensure that victims will be compensated, employees will be protected going forward, and that neither perpetrators nor enablers will be unjustly enriched.”

These two developments potentially signal a new front in efforts to combat workplace harassment in this #MeToo era.  While most of the national media has focused on the impact of #MeToo in the entertainment and technology sectors, manufacturers have not been immune.  See “How Tough Is It to Change a Culture of Harassment? Ask Women at Ford,”  New York Times (December 17, 2017) available at https://www.nytimes.com/interactive/2017/12/19/us/ford-chicago-sexual-harassment.html (last accessed February 14, 2018).

Rather than find themselves on the receiving end of unwanted publicity, litigation or tax challenges, manufacturers may wish to proactively examine their policies, practices, reporting procedures and safeguards to ensure their workplaces are ready for the next chapter.

EPA to Defer to States on Enforcement

In our 2018 outlook, we told you about the trend towards cooperative federalism—EPA’s plan to “rebalance the power between Washington and the states to create tangible environmental results for the American people.” Early in 2018, EPA has already taken steps towards putting cooperative federalism into practice.

At the end of January, EPA Assistant Administrator for the Office of Enforcement and Compliance Assurance (OECA) issued Interim OECA Guidance on Enhancing Regional-State Planning and Communication on Compliance Assurance Work in Authorized States. The interim guidance focuses on a number of topics to increase collaboration between EPA and States authorize to implement federal environmental programs.

The interim guidance makes it clear that EPA will generally defer to States to implement delegated federal programs, except in specific situations. Examples of these specific situations include:

  • Emergency situations, or situations where there is a significant risk to public health and the environment;
  • Significant noncompliance that has not been addressed by the State;
  • Actions to address widespread noncompliance in a sector or program, such as EPA’s National Enforcement Initiatives;
  • Responses to State requests for assistance; and
  • Serious violations that need to be investigated by EPA’s criminal enforcement program.

According to the interim guidance, when EPA identifies violations at a facility, but the State wants to take the lead on enforcement, EPA should defer to the state unless its involvement is specifically warranted.

The interim guidance also encourages periodic meetings between EPA and States to share information regarding compliance and enforcement priorities and how to share resources efficiently. For example, the guidance suggests that EPA and States could share lists of facilities planned to be inspected over a particular time frame and discuss whether those inspections would be conducted by EPA or the State. With regard to specific enforcement matters, EPA and the States should communicate to ensure that the State has a clear understanding of what EPA considers to be a timely and appropriate response. If senior leadership at EPA and the State disagree on how a matter should be handled, it should be elevated to the OECA Assistant Administrator for a decision.

EPA plans to update the interim guidance as necessary in 2019, based on recommendations of a work group aimed at improving state and federal collaboration in compliance assurance.

2018 Employment Law Predictions for Manufacturers

As has been our tradition, January is the time to predict the big developments in the coming year that will impact manufacturers.  In January 2017, notwithstanding my “Lawyer’s Shrug,” I predicted Congress was unlikely to raise the minimum wage, but states and cities would attempt to do so; the National Labor Relations Board would turn back to Republican control and begin the roll-back of Obama-era advances; more multi-employer pension plans would become insolvent and put pressure on the Administration; and Congress would not give guidance on immigration reform, but the Administration would launch some high-profile workplace raids to pressure employers not to hire undocumented workers. In my opinion, three out of four is not bad.  (No sign of pressure on the multi-employer pension front.)  Manufacturing Law Predictions for 2017:  Labor and Employment

Here is my take on 2018.

States and cities will continue to fill the void where Congress fails to act, leading to even more challenges for manufacturers with multi-state and multi-city operations.

The #MeToo movement will put increasing pressure on manufacturers to enact robust harassment prevention and investigation protocols.  Anyone waiting for that pendulum to swing back may be in for a long wait.

The Trump Administration will rush forward with more Obama-era repeal efforts as quickly as possible, as Republicans in Congress face some pretty challenging public opinion numbers in anticipation of the November 2018 Congressional elections.

The National Labor Relations Board will seek to repeal the Quickie Election Rule and may implement additional procedural changes to the block the reimplementation of that Rule by Congressional action in future years.

Like all things, however, I am sure 2018 will give manufacturers some unexpected surprises.  Keep your friends close and the employment lawyers closer!

2018 Corporation Compliance & Litigation Outlook for Manufacturers

As we mark the Manufacturing Law Blog’s 5th anniversary, I am also pleased to announce the launch of our new manufacturing law website.  To access it, please click here.

Last week, Megan provided our thoughts and predictions for environmental, health & safety.  This week, I am providing our outlook for corporate compliance and litigation.

GDPR (General Data Protection Regulation):  Most domestic manufacturers have at least passing familiarity with data breaches, data privacy and/or cybersecurity issues that arise in the United States.  Over the last year, there has been a lot of attention paid to the “GDPR,” which is an effort by the European Union to harmonize data privacy laws across Europe.  There have been scores of articles advising companies how to prepare for May 2018 – when the GDPR will be enforced for the first time.  The GDPR portal contains a lot of important information for manufacturers.  While most large publicly traded manufacturers have been preparing for months, even smaller manufacturers should note that the GDPR applies to companies that operate outside of Europe.  As noted in the GDPR portal:

The GDPR not only applies to organisations located within the EU but it will also apply to organisations located outside of the EU if they offer goods or services to, or monitor the behaviour of, EU data subjects. It applies to all companies processing and holding the personal data of data subjects residing in the European Union, regardless of the company’s location.

For that reason, we will be working with our clients to ensure compliance and be watching what occurs after May 2018 as the penalties for violations are extremely high.

Joint Ventures:  While the large mergers tend to get all of the attention, more and more manufacturers are entering into joint ventures with other manufacturers, including their competitors.  Typically, at the outset of a “JV,” the parties agree to work together to develop a new product, technology, process, etc.  Getting into a JV is often much easier than exiting from one.  The intellectual property issues are legion particularly if the data is intermingled (as it often is).  For that reason, we are working with our clients from the outset to spot any potential litigation risks and unfortunately, helping clients get out of deals short of litigation.

Contract Management:  Over the past few years, many of our large and small manufacturing clients have shifted to a contract management process whereby contracts are reviewed for risk not solely based upon the value of the contract itself.  As many people know, a $15,000 contract can be more problematic than a $1 million contract.  We, as a law firm, have updated our practices as well to reflect the changes in the manufacturing industry.  Gone are the days where our manufacturing lawyers red-line a contract for hours and try to remove provisions that can never be negotiated out.  We also help clients develop contract review templates that can aid our clients in evaluating legal and business risks.  We expect this trend to continue in 2018.

California Proposition 65:  If you sell products in California, this section applies to you.  Significant changes to California Prop 65 are scheduled to take effect on August 30, 2018.  These changes alter the “safe harbor” rules for providing Prop 65 warnings.  For more information, please visit the government website.  Some of the significant changes are that companies now need to identify at least one chemical that prompted the warning and that a triangular warning symbol now needs to be included.  Over the years, many manufacturers decided to place the warning on their product regardless of whether they were required to or not under the law.  It will be interesting to see if those decisions are changed in light of the fact that such warnings may hinder sales.

Executive Risk:  I am sure Matt will address this in his labor/employment post, but many of our manufacturing clients are inquiring about whether sexual harassment claims will rise in light of the Weinstein scandal among other events.   We will be monitoring this closely particularly to see if more manufacturers retain counsel to conduct internal investigations when allegations are made.

2018 Environmental, Health, and Safety Outlook for Manufacturers

I want to begin by celebrating the fifth anniversary of our Manufacturing Law Blog. We are passionate about providing you with legal updates that are relevant to your manufacturing business and are honored that you are here. With over 20,000 visits over the course of our blog’s relatively short life, we are proud of the audience we have gained. Thank you for following us; we hope to continue to produce content that keeps you coming back.

As always, we are starting the year with our thoughts and predictions on what is in store for manufacturers in 2018. First up—environmental, health, and safety.

Reduced Regulation

We all know that one of President Trump’s goals is to streamline and minimize regulations. Among other things, Executive Order 13771 indicated that, for every regulation to be passed, two had to be identified for repeal. There are and will continue to be a number of examples of how the goal of reduced burden on the regulated community is playing out. But a recent action by the Occupational Safety and Health Administration (OSHA) is particularly important to manufacturers.

As we have previously reported, in 2016 OSHA enacted a regulation requiring that most employers submit injury and illness data to OSHA on an annual basis. OSHA’s intent was to compile this data and post it on its website in an effort to provide greater visibility and encourage better safety practices. Recently, however, OSHA indicated that it was considering revising or repealing this new rule, instead only requiring employers to submit a summary of work-related injuries and illnesses (OSHA form 300A). According to OSHA, because it cannot guarantee that personally identifiable information will not be made public if injury and illness data is posted on its website, it does not see value in collecting the data. However, instead of still requiring employers to submit this information, and just eliminating the website posting, OSHA appears to be eliminating the submission requirement altogether (except for the summary form 300A).

With this data, OSHA would have had a more complete picture of a company’s compliance status nationwide. We may have seen increased and enhanced enforcement with potentially higher penalties because of this transparency. Without it, OSHA enforcement is likely to continue to operate as it always has, with minimal visibility into company-wide compliance trends. While we are awaiting a formal proposed rule on this issue, this is an example of how President Trump’s policies may lessen the regulatory burden on manufacturers.

Focus on Superfund

In 2017, EPA Administrator Pruitt put the wheels in motion for Superfund reform. He convened a task force that came up with 42 recommendations for restructuring and streamlining the Superfund process. As 2018 unfolds, we can expect to see EPA carry out some specific measures to implement these recommendations.

Making good on one of the task force recommendations, at the end of 2017 EPA announced its list of priority sites—those that are overdue for cleanup and are targeted for “immediate, intense action.” This week, EPA designated four new Superfund sites and proposed 10 more. EPA noted that some of these sites involve manufacturing sources, and a number of them were also in operation within the last 15 years.

EPA’s actions to expand and speed up Superfund remediation will likely continue into 2018. In addition to increased attention on specific sites, we can also expect to see EPA push for cleanup solutions that foster site reuse and expedite cleanup. We can also expect EPA to provide flexibility and benefits to parties achieving those goals.

Cooperative Federalism

The term “cooperative federalism” is not new, but it is gaining traction under the current administration. As EPA strives to cut regulations, head count, and costs, it is taking a harder look at expanding the role that states can play in protecting the environment. EPA’s Strategic Plan for 2018-2022 lists cooperative federalism as a goal, specifically to “rebalance the power between Washington and the states to create tangible environmental results for the American people.”

Cooperative federalism may unfold in a number of ways, but one of EPA’s stated goals is to eliminate unnecessary or duplicative reporting burdens on the regulated community. Cooperative federalism may also result in increased information sharing and transparency between agencies and other stakeholders. EPA will look to expand its compliance assistance programs to support, but not supplant, state control. This initiative could lead to increased state scrutiny on the regulated community, as well as more varied state-by-state approaches to similar issues.

Rise of Toxic Tort Litigation  

Finally, where regulation and enforcement may be lacking, parties who feel they need to right a wrong may turn more and more to the courts for a solution. As we have previously reported, several west coast municipalities currently are using toxic tort lawsuits to try to hold Monsanto liable for PCB contamination in several waterbodies not because of the company’s disposal of the chemical, but because of its manufacture. Just this week, New York City filed a lawsuit against a number of global oil companies, seeking to recover damages for the City’s efforts to protect itself and its residents against the impacts of climate change. New York City’s claims are based on nuisance and trespass theories of liability, alleging that these companies “produced, marketed, and sold massive quantities of fossil fuels . . . despite knowing that the combustion and use of fossil fuels email greenhouse gases . . ., primarily carbon dioxide . . . .”

In this litigation, the City seeks to shift the costs of protecting the City from climate change impacts back onto the companies that have done nearly all they could to create this existential threat.

As we continue to see rollback of regulations, and potentially enforcement, at the federal level, we can expect more parties to seek other means of redress. Regardless of whether all of these claims are ultimately successful, they are creating a trend that, at the very least, could result in increased litigation costs.

We will continue to monitor these and many other developments throughout 2018. Please subscribe or check back often for updates.

The Trump N.L.R.B. Gift Giving Season

Acting just days before the term of Chairman Phillip Miscimarra ended on December 16, the National Labor Relations Board issued four decisions overturning landmark cases that expanded employee and labor union protections.  In a single week, the NLRB returns to pre-Obama-Board standards and upends the apple cart.  Each case was decided on a strict, party-line 3-2 vote.  Copies of the decisions can be found here.

In The Boeing Company,  the Board reversed a line of cases holding that a facially neutral work rule would be found to violate the National Labor Relations Act (“Act”) if employees could “reasonably construe” the rule as prohibiting protected conduct even if never applied to such conduct.  Using this so-called “reasonably construe” standard, the Board invalided countless work rules and policies without any showing that the rule was applied in an unlawful manner and without regard to the employer’s need for such a rule.  In The Boeing Company , the Board adopted a new standard and announced that going forward it will review facially-neutral workplace policies both in light of the impact such policies have on protected rights and in light of the employer’s justifications for the challenged policy.

In Hy-Brand Industrial Contractors Ltd., along the same 3-2 party-line vote, the Board reversed the Obama-Board’s test for determining when two related-companies would be found to be a single “joint employer.”  Rejecting the Obama-Board’s “indirect control” standard, the Board held that two companies would be considered separate unless one company exhibited “direct and immediate control” over the employees of the related-company.

In Dupont, the Board reversed a rule requiring employers to bargain with a labor organization prior to making any change in a mandatory subject of bargaining even if the change being made was consistent with longstanding past practice.

Finally, in PCC Structures Inc., the Board reversed its “micro-unit” standard, returning to case authority holding that the target of a union’s organizing efforts may seek to contest a union’s attempt to carve out a smaller group of employees for organizing when that group shares a community of interest with a larger group.

Since the election of President Trump in November 2016, manufacturers have anticipated these and many more changes.  See Manufacturing Law Predictions for 2017:  Labor and Employment and The 2017 Manufacturers’ Lawyer’s Shrug.  Nevertheless, the speed by which the Board acted to implement these changes was unexpected.  Future blog posts will explore the impact of these changes and what they mean for manufacturers.

In the meantime, Happy Holidays!

 

OSHA: Disclosure of Workplace Injuries and Illnesses Due Next Week

Thank you to my colleague, Diana Neeves, for this post.  Diana is an associate in our Environmental & Utilities Practice Group.

As we outlined last year, OSHA recently revised its recording and reporting regulation to require certain employers to submit injury and illness data to OSHA on an annual basis for posting on OSHA’s website.  The deadline for the submission of 2016 data, which was originally scheduled for July 1, 2017 and later extended to December 15, 2017, is fast approaching.

OSHA regulations have long required establishments covered under 29 C.F.R. Part 1904 to keep a “Log of Workplace-Related Injuries and Illnesses” (Form 300), an “Injury and Illness Incident Report” (Form 301), and an annual “Summary of Work-Related Injuries and Illnesses (Form 300A).  Under the new reporting requirements, covered establishments with more than 250 employees must submit the three forms (300, 301, and 300A) to OSHA’s electronic database, the Injury Tracking Application (ITA).  Additionally, covered establishments in certain industries with 20-249 employees are required to submit Form 300A to the ITA.

As stated above, the deadline for submission of 2016 data is next week – December 15, 2017.  Next year, the covered establishments will be required to submit their 2017 data by July 1, 2018.  Starting in 2019, the deadline for submission of a previous year’s data will be March 2 of the following calendar year.

Note that not all State Plans have been updated to reflect these new reporting requirements.  Therefore, electronic disclosure is not yet required for establishments in California, Maryland, Minnesota, South Carolina, Utah, Washington, and West Virginia.  Likewise, electronic disclosure is not required for state and local government establishments in Illinois, Maine, New Jersey, and New York.  More information on individual State Plans is available here.

New York Paid Family Leave Obligations for Manufacturers

Effective January 1, 2018, employees of manufacturers working in New York State may be eligible for paid family leave.  The NY Paid Family Leave Law (“PFLL”) is both broader than and more narrow than the federal Family and Medical Leave Act.  The PFLL applies to all employees employed by private manufacturers and working in New York State, even if the manufacturer is located outside the State of New York or the employee is working from home (for example, sales employees).

Employees working in New York State become eligible for Paid Family Leave (“PFL”) on January 1, 2018 or after the employee (a) works for 26 consecutive weeks (if the employee is regularly scheduled to work 20 hours or more per week) or (b) after 175 days of employment (if the employee is regularly scheduled to work fewer than 20 hours per week).

PFL benefits are intended to be funded through employee payroll contributions and employees receive benefits through New York’s disability benefits law.  (Manufacturers must offer an optional waiver for employees who do not qualify for PFLL based on the number of hours worked.  If an employee fails to waive benefits, the manufacturer must treat the employee as if she or he were eligible.)

The benefits available under the PFLL phase in over four years.  For 2018, once an employee becomes eligible, she or he is entitled for up to 8 weeks of PFL.  For 2018, employees shall be entitled to receive 50% of the employee’s average weekly wage or $652.96, which is less.

Eligible employees may take leave (a) for the birth of a child; (b) for the adoption of a child by or foster care placement of a child with the employee; (c) to care for a family member with a serious health condition; or (d) to assist with family obligations when a family-member is called into active military service.  The PFLL defines “family member” as child, parent (including parent-in-law, step-parent, legal guardian, or any other person acting or who acted in loco parentis when the employee was a child), grandparent, grandchild, spouse or domestic partner.

With respect to the birth of a child, PFL may only be taken after the child is born and within the first 12 months following birth.  With respect to the adoption or foster placement of a child, leave may be taken prior to the adoption or foster placement if an absence from work is required for the adoption or foster placement to proceed, including travel to a foreign country.  For 2018, employees are eligible for leave if the birth, adoption or foster placement occurred in 2017.

Significantly, unlike FMLA leave, PFL is not available for the employee’s own serious health condition or an employee’s own qualifying military event.

In anticipation of the January 1 effective date, manufacturers with employees working in New York State should take the following steps:

  1. Confirm that the manufacturer’s disability policy provides coverage for PFL (or the manufacturer made a timely self-insurance election);
  2. Post Notices to employees and applicants;
  3. Update employee handbooks or otherwise provide written guidance, including a description of employee rights and obligations, including information on how to file a claim for paid leave;
  4. Provide employees who will not qualify for Paid Family Leave with the Optional Waiver; and
  5. Train HR staff on compliance with the PFLL.

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.

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