Things Manufacturers Should Be Watching In 2017 In The Areas of Corporate Compliance / Litigation

As is our annual tradition, this is the first in a series of posts that provide industry and legal outlooks for manufacturers as we head into 2017.  I will start with corporate compliance and litigation.  Matt will follow with labor/employment.  And, Megan will conclude the series with Environmental Health & Safety (EH&S).

Here are issues I will be watching in 2017.

  • Will Conflict Minerals Compliance Become More Complicated? 

In 2017, we will be watching as the European Union continues down the path of adopting comprehensive conflict minerals regulations relating to the importing of certain materials.  The EU proposal is broader in geographic scope than the U.S. law, but applies to a narrower set of companies (mostly, importers).  In addition, we will see if Congress amends the U.S. law, which continues to be heavily scrutinized.

  • What will be the ultimate impact of the Volkswagen Scandal?

As 2016 ended, Volkswagen continued to reach agreement on billions of dollars of fines and continue to face widespread litigation.  This past week, there was word that one of the company’s in-house lawyers could be implicated in the criminal investigation.  What remains to be seen is whether the scandal is an isolated incident or a warning bell to manufacturers across the world.

  • Is IoT Here To Stay?

One of the hottest industry issues in 2016 was the IoT or the “Internet of Things.”  Led by General Electric, manufacturers continue to redefine themselves as technology companies.  In 2017, not only will I be watching how manufacturers use IoT to support finished products, but also whether cyber attacks will continue.

  • Will Business to Business Disputes Continue To Increase?

There continued to be a substantial uptick in disputes in 2016 with respect to commercial contracts in the supply chain.  While these disputes almost never end in litigation, manufacturers and     distributors (regardless of their leverage) are taking a hard look at their contract review protocols.  We are helping many manufacturers develop “playbooks” that help identify risk irrespective of the size of the contract.

The 2017 “Manufacturers’ Lawyer’s Shrug”

I am a really big fan of the NPR radio show, “Car Talk,” where two Boston auto mechanics took callers’ questions and tried to answer them.  Since the November 8 election, I have freely adapted one of their signature phrases – I call it the “Manufacturers’ Lawyers’ Shrug.”  Basically, when I attend any event and someone asks me what will happen with labor and employment policy in the next four years under the Trump Administration, I simply shrug my shoulders and mutter, “I have no idea!”

When asked, “what is the government planning to do with the multi-employer pension plans facing insolvency, some as early as February 2017?”  I shrug.

When it is said, “Do you think the NLRB will overturn the ‘Quickie Election Rule’?”  I shrug.

“How does the Amended White Collar Exception Rule look going forward?”  Another shrug.

During the campaign, neither candidate addressed these or numerous other policy issues.  The Trump Administration will hit the ground with a broad range of issues and can be expected to make some unpredictable choices.

For those looking to try to plan for 2017 and beyond, the U.S. Chamber of Commerce has published a comprehensive set of recommended policy changes.  Read the Report.  Among other things, the Chamber recommends:

  • Re-examination of the NLRB’s new (and more strict) joint employer test;
  • Repeal of the NLRB’s “Quickie Election Rule;”
  • Overturning of the “micro-bargaining units” approach of Specialty Healthcare;
  • Overturning of the line of NLRB cases banning the waiver of class actions in arbitration (the D. R. Horton Rule);
  • Overturning the NLRB’s decision making unlawful employer policies prohibiting the use of company email systems to for unauthorized purposes (the Purple Communications Rule);
  • Revision of the standards for deferring to arbitration decisions under the NLRB’s Collyer decision and its progeny;
  • Adoption of new rules mandating that unions return employee signed authorization cards on demand and honor employee “do not call” and “do not contact” instructions;
  • Rules banning unions from accessing private property without the property owners’ permission; and
  • Rules strengthening the principles of federal preemption of state labor laws in conflict with employer rights under the NLRA.

Even if only a few of these broad changes come to pass, 2017 promises to be another “Year of Change.”

EPA Identifies First Ten Chemical Substances For Evaluation Under New TSCA

Thank you to my colleague, Emilee Mooney Scott, for her contributions to this post. Emilee is an associate in our Environmental & Utilities Practice Group.

As we outlined earlier this year, the Toxic Substances Control Act (“TSCA”) was recently updated to provide EPA with much broader authority to regulate “existing” chemical substances (i.e., those that are already in use in commerce).

In general, EPA’s review of existing chemical substances under its new TSCA authority will follow these three steps:

  • Prioritization: screening process to identify chemical substances that may pose an unreasonable risk of injury to health or the environment and designate them as “high priority” for further study.
  • Risk Evaluation: evaluation of a high priority substance to evaluate whether it does in fact pose an unreasonable risk of injury to health or the environment.
  • Risk Management: for substances that do present an unreasonable risk of injury to health or the environment, EPA will develop a rule to mitigate such risk.

In the TSCA reform bill, EPA was also directed to identify the first ten substances for risk evaluation (skipping over the prioritization step) by December of this year. EPA released that list on November 29.  The first ten substances to be evaluated are:

  • 1,4-Dioxane (solvent, stabilizer)
  • 1-Bromopropane (solvent)
  • Asbestos (wide variety of uses, e.g. building materials)
  • Carbon Tetrachloride (precursor in refrigerant manufacturing, solvent)
  • Cyclic Aliphatic Bromide Cluster (flame retardant)
  • Methylene Chloride (solvent)
  • N-methylpyrrolidone or “NMP” (solvent)
  • Pigment Violet 29 (pigment)
  • Tetrachloroethylene, also known as perchloroethylene or “perc” (dry cleaning)
  • Trichloroethylene or “TCE” (solvent)

These substances were selected from EPA’s 2014 Update to the TSCA Work Plan for Chemical Assessments (“TSCA Work Plan”).  As EPA identifies further chemical substances for prioritization and risk evaluation, it must select at least half of them from the TSCA Work Plan.  By December of 2019, EPA must have at least 20 risk evaluations in progress at a time.

By June of 2017, EPA must publish the scope of the risk evaluations on each of the ten chemical substances above, which will trigger a public comment period allowing stakeholders to weigh in.  The risk evaluations must be completed within three years (i.e., by December 2019) and if EPA determines that any of the substances pose an unreasonable risk to human health or the environment, then EPA must issue a risk management rule within two years of the completion of the risk evaluation.  In short, while EPA has identified its first ten substances, the final rules resulting from this process are approximately five years away.

EPA Issuing Rules on TCE, NMP and methylene chloride

Separately, EPA had been using its pre-existing TSCA authority to evaluate risks posed by substances on the TSCA Work Plan.  EPA is expected to release proposed rules on NMP and methylene chloride in the coming weeks. The proposed rule on TCE was issued on December 7.  The proposed TCE rule would prohibit the manufacture, import, processing, and distribution in commerce of TCE for use in aerosol degreasing and for use in spot cleaning in dry cleaning facilities.

The fact that EPA has also identified TCE, NMP and methylene chloride for review under its new TSCA authority suggests that the new risk evaluations may address different use scenarios, and/or that EPA is providing itself some insurance in the face of a change in administrations.

So, what does this mean for you?  You may wish to take a look at your chemical use to see if you use any of the ten chemical substances listed above, or any other chemical substances listed in the TSCA Work Plan.  If you do use any TSCA Work Plan substances, watch for opportunities to provide comment as EPA develops the scope for its risk evaluation and any eventual risk management rule.  Alternately, remain alert to opportunities to transition away from at-risk substances on your own time, before new regulations force a transition.

OSHA Updates General Industry Personal Fall Protection and Walking-Working Surfaces Standards

Special thanks to my colleague, Diana Neeves, for her contributions to this post.  Diana is an attorney in our Environmental & Utilities Group.

At the end of last week, OSHA issued its long-awaited final rule on walking-working surfaces and personal fall protection systems for general industry.  The new rule is intended to update the standards to align with general industry practice, consensus standards, and, in many respects, standards for the construction industry.  It provides employers greater flexibility in fall protection by permitting selection from a variety of fall protection measures based on the circumstances.

Guardrails and toeboards are no longer the preferred fall protection measure when workers are working four feet or more above a lower level.  Instead, employers may choose from a variety of fall protection measures, depending upon the particular circumstances and activities, such as:

  • Guardrail system: a barrier, such as a railing, placed along the edge of a walking-working surface, intended to prevent workers from falling.
  • Safety net system: a netting system placed beneath the work area, intended to catch falling workers before they hit the ground or another lower level structure.
  • Personal fall arrest system: a combination of equipment used on one’s person to arrest or stop a fall, such as a body harness, anchorage, and connector. Body belts may not be used as part of a personal fall arrest system.
  • Positioning system: a supportive system of equipment used with a body belt or harness that allows one to work on an elevated vertical surface, such as a window, with both hands free.
  • Travel restraint system: a combination of equipment used on one’s person, intended to prevent a worker from going over an unprotected edge of a walking-working surface.
  • Ladder safety system: a system attached to a fixed ladder, intended to prevent workers from falling, typically comprised of a carrier, safety sleeve, lanyard, connectors, and body harness.

The final rule also consolidates and streamlines the standards for ladders into one section that addresses both general requirements for all ladders and type-specific ladders requirements. In addition, the use of Rope Descent Systems (RDS) is codified for the first time in the general industry.  The rule imposes a 300-foot height limit for the use of RDS and requires building owners to certify in writing that their RDS meets OSHA standards.

The final rule, which becomes effective on January 17, 2017, is expected to prevent 29 fatalities and 5,842 workplace injuries each year.

OSHA Issues Recommended Practices for Safety and Health Programs

 

Thank you to my colleague, Tavo True-Alcala, for his contributions to this post. Tavo is an analyst in our Environmental & Utilities Group.

In October, OSHA released its new Recommended Practices for Safety and Health Programs, which were issued to incorporate the experience and advances gained since the previous set of recommendations was released in 1989. Rather than being prescriptive, the recommendations provide guidance on key health and safety strategies that can be implemented in any workplace.

The recommended practices are focused on seven core areas and provide tools and resources to support implementation. The core areas and action items include the following:

  • Management Leadership. Owners, managers, and supervisors should make health and safety a core organizational value and to demonstrate this priority through action items like:
    • Communicating their commitment to health and safety programs;
    • Defining program goals;
    • Allocating resources; and
    • Expecting performance.
  • Worker Participation. Workers have the most to gain or lose from safety and health programs, and have the most knowledge of the potential hazards. For a program to be successful, workers should be:
    • Encouraged to participate in all aspects of the program;
    • Encouraged to report safety and health concerns; and
    • Provided access to safety and health information.
  • Hazard Identification and Assessment. All employers should proactively work to identify and assess all potential workplace hazards and prevent accidents by:
    • Collecting existing information about workplace hazards;
    • Inspecting the workplace for safety hazards;
    • Identifying health hazards;
    • Conducting incident investigations;
    • Identifying hazards from emergency and nonroutine situations; and
    • Characterizing identified hazards, developing control measures, and prioritizing hazards for control.
  • Hazard Prevention and Control. In order to minimize the risk presented by workplace hazards, employers should:
    • Identify control options;
    • Select appropriate controls;
    • Develop and update a hazard control plan;
    • Select controls for nonroutine operations and emergencies; and
    • Follow up to ensure selected controls are effective.
  • Education and Training. All employers should provide proper training to make sure that employees are aware of workplace hazards and can work productively and safely. A good health and safety program should:
    • Provide program awareness training;
    • Train employers, managers, and supervisors on their role in the program;
    • Train workers on their specific roles in the program; and
    • Train workers on hazard identification and controls.
  • Program Evaluation and Improvement. Once a program is established it is wise to:
    • Monitor performance and progress;
    • Verify that the program is implemented and operating; and
    • Correct any shortcomings and identify opportunities for improvement.
  • Communication and Coordination on Joint Employer/Multiemployer Worksites. Communication is increasingly important as more workplaces are shared by regular employees of a host company as well as workers employed by contractors or assigned by staffing agencies. In these situations all parties involved must work together to ensure worker safety, which can be accomplished by:
    • Establishing procedures to communicate safety and health policies and potential hazards before contractors or staffing agencies come on site,
    • Ensuring that contractors and staffing agency workers have a communications plan to provide information to the employer;
    • Including safety specifications in bid documents; and
    • Coordinating with contractors to ensure consistency in safety and health expectations.

OSHA provides a self-evaluation tool for employers to track the progress they make in implementing the recommended action items. OSHA encourages employers to follow these recommendations not only as a way to prevent workplace illnesses and injuries, but also because of the indirect benefits like improved products and service, better employee recruitment and retention, and better morale that such efforts can have in the workplace.

Election 2016:  WOW, Just WOW

I had a blog piece almost done.  It was going to give an overview of another NLRB case which threatened to overturn settled law and expand the rights of unions to organize.  I was going to use it as another “Year of Change” post.

Then the votes got counted.

Wow.

After eight years of ever more progressive employment regulations for manufacturers, we are faced with a new sea of uncertainty.

The Affordable Care Act, Dodd-Frank, the NLRB’s Expedited Election Rule, the DOL’s Revised Persuader Rule, the future of multi-employer pension funds and the DOL’s new overtime regulation (to name just a few):  All up for grabs.

To make matters more challenging, most manufacturers will have to make key compliance decisions within the next few weeks.  They do not have the luxury of waiting until the inauguration of President Trump on January 20.

Let’s just take one example.  As noted in previous posts, on December 1, the DOL’s new overtime regulation takes effect.  Under that new regulation, any employee who makes less than $47,476 must be paid at least minimum wage and time-and-a-half for overtime.  Many employers determined that for cost or other considerations it was easier to pay the increased salary than to convert the employee to an hourly wage rate.  These employers are likely preparing notices right now – today – to advise their employees of the change in pay.

What will the Trump Administration do to that new overtime regulation?  Will President Trump, who campaigned on a pledge to help the American worker, repeal a regulation which increases worker wages?  Will the regulation be altered to exempt non-profits or other industries suffering from economic stagnation?  If the regulation is amended, will those changes to retroactive to December 1 and will the outgoing DOL sit on the sidelines if manufacturers refuse to comply with the new regulation?  If the regulation is repealed or revised, will manufacturers roll back wage increases given to employees when it was in effect?

These are just some of the challenges facing manufacturers today  And today, like most other people in America, I simply do not have the answers.

Complying With Conflict Minerals Laws: Global Best Practices for Manufacturers and Distributors

Last month, I gave a presentation to manufacturers and distributors throughout the United States on Conflict Minerals Laws.   The program was sponsored by the United States Department of Commerce.  These laws attempt to curb the acquisition of certain minerals from a certain part of Africa that are believed to support regional conflicts.

Here are some the key points from my presentation:

  1. The Conflict Minerals laws and regulations are some of the most well known, but least understood laws/regulations that face manufacturers/distributors today.
  2. Although most publicly traded companies have elaborate compliance programs in place, privately held companies must also comply or face commercial pressure from their business partners and potentially sanctions from the U.S. Government. 
  3. There has been litigation that has resulted in a “trap for the unwary” (i.e., whether products need to be described as “conflict free”).  I can provide more details for those interested.
  4. The SEC expected that 6,000 companies would be impacted by the original law, but only 1,281 companies filed the “Form SD” in 2015.   The real question is whether the Government is going to do anything about that discrepancy.  Some companies are pressuring the Government to punish those that are not complying.
  5. For those doing business internationally, manufacturers/distributors need to stay apprised of efforts in the European Union to adopt a similar law (although there are some key differences) and potentially in Japan in the future.

If you would like more information about my presentation, please contact me at jwhite@rc.com.

EPA Turns Up the Heat on Refrigerant Regulation

Special thanks to my colleague, Brian C. Freeman, for this post. Brian is an attorney in our Environmental & Utilities group with a particular focus on air quality.

Refrigeration and cooling systems face expanded and tighter regulation under a final rule recently signed by EPA Administrator Gina McCarthy.  The rule revises and expands EPA’s regulations for “Ozone-Depleting Substances” (ODS), which erode the stratospheric ozone layer that protects the Earth from harmful ultraviolet radiation.

Most ODS are used as refrigerants in industrial process refrigeration (e.g., in chemical, electronics, and food manufacturing), commercial refrigeration (e.g., supermarkets, refrigerated storage, and transport), or comfort-cooling/air conditioning systems. Since the 1990s, the ODS regulations (40 CFR Part 82) have mandated various practices to minimize or prevent the release of refrigerants during operation, maintenance, and disposal of refrigerant-containing equipment, and to maximize refrigerant recapture and recycling. The regulations also require certification of technicians working with ODS systems, and subject to certain exemptions, restrict ODS sales to certified technicians.

But here’s the tricky part: not only does the recently revised rule expand and tighten these requirements for ODS, it also extends them to non-ODS refrigerants used as substitutes for ODS. This extension is based not on the protection of the ozone layer, but on preventing global warming caused by such substitutes. The extension primarily targets hydrofluorocarbons (HFCs), a family of non-ODS refrigerants that have been widely used to replace ODS but have since been found to have significant global warming potential.1

In addition to extending the ODS regulations to non-ODS refrigerants, the recent revisions also include the following:

  • Lowered thresholds for leak repair requirements: Under the existing regulations, the owner or operator of a refrigeration and air conditioning system that contains at least 50 pounds of refrigerant must repair and test the system or retire it when it is found to have leaked beyond certain annualized rates. Here are the existing and revised leak rates thresholds:
Type of equipment Under existing regulations Under revised regulations
Industrial process refrigeration 35% 30%
Commercial refrigeration 35% 20%
Comfort cooling 15% 10%
  • New requirements for leak inspections or automatic detection monitors: Cooling systems that have exceeded the leak rates specified above must now be inspected either quarterly (for industrial process refrigeration and commercial refrigeration systems with a full charge of at least 500 pounds) or annually (for such systems with a full charge of at least 50 pounds but less than 500 pounds, and for comfort cooling systems). These inspection requirements can be avoided by continuously monitoring the system with an automatic leak detector that is audited or calibrated annually.
  • Release reporting for elevated release levels: If a system with a full charge of at least 50 pounds of refrigerant has leaked 125% or more of the full charge in a calendar year, the owner or operator must submit a report to EPA. The report must describe efforts to identify the leaks and repair the equipment.
  • Recordkeeping for refrigerant recovery: Technicians must now keep a record of refrigerant recovered during disposal of refrigerant and cooling systems with a full charge of 5-50 pounds. (This closes a gap in the existing regulations, which had not required such recordkeeping for this size category.)
  • Updated and expanded certification requirements for refrigeration technicians.

The revisions also make extensive organizational and wording changes intended to improve readability.

The rule revisions have not yet been published in the Federal Register, but are scheduled to take effect January 1, 2017. Compliance deadlines for the various new requirements range from January 1, 2017 to January 1, 2019. In the meantime, court challenges to the rule – and particularly EPA’s authority for expanding the rule to non-ODS – seem likely.

Note: EPA will hold a webinar this Wednesday, Nov. 2, 2016, 2:00-3:00 p.m. EDT to brief regulated parties on the revised regulatory requirements and compliance dates. Advance registration is required.

The Future of Technology for Manufacturers

I had the pleasure of moderating a panel at the Connecticut Business & Industry Association (CBIA)’s Annual Manufacturing Summit.  The title of the Panel was “The Future of Manufacturing in Connecticut” and included three experienced manufacturing executives:  William Lee, President & CEO, The Lee Company; Severine Zygmont, President, Biomedical, Oxford Performance Materials, Inc.; and Pedro Soto, CFO, Space-Craft Manufacturing, Inc.

Here are some of the takeaways from the panel:

  1.  3-D Printing:  About two years ago, you could not read an industry article without hearing about 3-D printing.  While plenty of commentators said that it would revolutionize manufacturing, it was not clear when that revolution would arrive.  Two of the three panelists indicated that they use 3-D printing, including in production.  The one panelist that did not use 3-D printing said that he expects that his OEM customers in aerospace will likely be requiring such technology in the future.  Interestingly, one of the panelists mentioned that his company uses the technology as a “defensive mechanism.”
  2. Automation:  One of the big fears of automation is that less workers will be needed in a factory.  Not so, according to the panel.  One of the panelists indicated that his company has done the most hiring for the division that uses automation.  The other main theme was that automation should be used if it makes the process better and not necessarily faster.
  3. Tried-and-True:  I recently visited a manufacturing facility where the “newest” machinery was made in the 1960s.  All three panelists confirmed that a mix of new and old equipment remains necessary particularly if the company is serving the aftermarket.  Interestingly, all three executives confirmed though it often helps from a sales perspective for your customers to see some new equipment on the floor and also helps with employee retention.

General Counsel’s New Standard on Intermittent Strikes, Another Untenable Position for Manufacturers

On October 3, 2016, the National Labor Relations Board’s (Board) Office of the General Counsel (General Counsel) issued a memorandum seeking to broaden a union’s right to engage in intermittent strikes, which it defines as multiple short-term strikes—“a plan to strike, return to work and strike again.” The memorandum addresses the issue because unions have been turning to this tactic more frequently in recent years. By their nature, intermittent strikes can be especially burdensome on employers because of the frequent disruptions to their business operations.

Although the General Counsel notes that intermittent strikes can disrupt operations, it argues that they should not be deemed unlawful because they are particularly effective in achieving that goal. The General Counsel adds that the current standard for determining whether intermittent strikes are protected activity is unclear and that the standard unnecessarily deprives unions and employees of the right to strike. It contends, among other things, that the current standard unnecessarily prioritizes the impact on an employer’s operation over a union’s right to engage in intermittent strikes. The new standard would permit intermittent strikes so long as “(1) they involve a complete cessation of work, and are not so brief and frequent that they are tantamount to work slowdown; (2) they are not designed to impose permanent conditions of work, but rather are designed to exert economic pressure; and (3) the employer is made aware of the employees’ purposes in striking.” While the General Counsel posited that a ten-minute strike every thirty minutes would be unprotected, their example begs the question of whether strikes every other day would be protected.

In defense of its position, the General Counsel notes that employers are not helpless to combat intermittent strikes, but can turn to numerous strategies, including permanently replacing employees who go on strike. Although many problems exist with the proposed new standard, the General Counsel seems to have overlooked the Board’s May 2016 decision in American Baptist Homes of the West. In that case, the Board held that it is unlawful for an employer to permanently replace striking employees if the employer’s motive is “to avoid future strikes.” In this regard, the General Counsel’s suggestion that an employer can “cope” with intermittent strikes, which by definition include future strikes, by permanently replacing those employees appears either disingenuous or misguided. Rather than achieve clarity, the General Counsel’s proposed standard would create another layer of confusion as employers struggle to determine how to contend with intermittent strikes.

At this point, the Board has not acted on the General Counsel’s proposed standard, but the General Counsel is asking the Board’s regional directors to identify cases involving intermittent strikes and to apply this new standard when prosecuting those cases before administrative law judges and the Board. We will continue to follow this issue as it develops.

This post was authored by Natale V. Di Natale.

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