Protecting a Manufacturer’s Competitive Advantage: Recent Developments in Post-Employment Restrictions

I have posted a few times here about using post-employment restrictions to preserve a manufacturer’s competitive advantage.  See  “Non-Compete Cautionary Tale” (Nov, 2, 2018); “I’m New – And It’s No [Trade] Secret” (Oct. 27, 2014) and “Even More Reason for Manufacturers to Update Their Employment Agreements” (June 15, 2015).  Many of my clients use these tools (and others) to protect that “secret sauce” that gives them a market advantage.

And so, I watch with more than a little interest as state legislatures move to adopt new restrictions on these tools.  California long held the title for the most restrictive of states, with its statutory prohibition on virtually all post-employment restrictions.  Maine, New Hampshire, Maryland and Rhode Island have each joined that club by enacting laws prohibiting non-competes for low wage workers (although each defines “low wage” differently).  Massachusetts’ adopted a law banning non-competes for non-exempt employees, limits them to one-year, and imposes a “garden leave” requirement.  Oregon now requires notice of the non-compete within 30 days of the employee’s termination, while proposed legislation in New Jersey imposes a 30-day pre-hire notice.  Washington State recently adopted a comprehensive scheme banning non-competes for employees earning less than $100,000 per year (contractors earning less than $250,000 per year).  And, to add a bit of intrigue, the Washington law will not take effect until January 2020, but will apply retroactively.

This changing landscape requires manufacturers and others to think creatively about their employment and other agreements to enhance protections.  Many such agreements have sought to “contract around” state law by using different so-called “forum selection” and/or “choice of law” provisions, with mixed success.  See generally Brown & Brown, Inc. v. Johnson and Lawley Benefits Group, LLC, 25 N.Y.3d 364 (2015)(rejecting Florida “choice of law” provision); NuVasive, Inc. v. Patrick Miles, 2019 WL 4010814 (Del. Ch. Aug. 26, 2019)(rejecting Delaware choice of law); Gen. Electric Co. v. Uptake Technologies, Inc., 2019 WL 2601351 (N.D. Ill. June 25, 2019) (applying New York law).  Others have sought to circumvent state restrictions by tying the restriction to a number of federal laws which pre-empt contrary state laws under the Supremacy Clause to the United States Constitution.  See e.g. Latif v. Morgan Stanley & Co., 2019 WL 2610985 (SDNY June 26, 2019)(Federal Arbitration Act); Abdullayeva v. Attending Home Care Services, LLC, 18-651 (2d Cir. 2019)(National Labor Relations Act); Clark v. Lauren Young Tire Center Profit Sharing Trust, 816 F.2d 480, 481 (9th Cir. 1987)(ERISA).

Given this evolving landscape, manufacturers seeking to maintain their advantage should periodically review and update agreements and policies.

Common Mistakes That Lead To Big Customer Disputes

By nature, lawyers tend to be reactive and we are trained to respond to crisis and/or problems.  So, it takes a lot of work to develop proactive skills so that we can help our clients avoid problems such as large customer disputes or worse (the dreaded class action).

Over time, we have noticed common themes that are precursors to these kinds of disputes.  We have been sharing them with clients as we train sales staff globally.

Here are some of the themes that can cause enhanced risk and/or liability for a manufacturer:

  • Ignoring communications from outside parties
  • Responding slowly to internal tasks and questions
  • Sending unnecessary, inaccurate or unprofessional internal emails
  • Conducting your own independent analysis/investigation
  • Poor record-keeping (not preserving records)
  • Without specific authorization from management –
    • Commenting on legal/contract issues
    • Revealing internal operations or product details
    • Sharing internal communications
    • Admitting fault or mistake
    • Making a settlement offer
    • Agreeing on a settlement/resolution
    • Signing documents related to a claim/dispute

OSHA Approves New Respiratory Fit Testing Protocols

Thank you to my colleague, Jonathan Schaefer, for this post. Jon focuses his practice on environmental compliance counseling, occupational health and safety, permitting, site remediation, and litigation related to federal and state regulatory programs.

Today OSHA issued a final rule approving two additional quantitative fit testing protocols for inclusion in appendix A of the Respiratory Protection Standard. These protocols are:

  1. The modified ambient aerosol condensation nuclei counter (CNC) quantitative fit testing protocol for full-facepiece and half-mask elastomeric respirators; and
  2. The modified ambient aerosol CNC quantitative fit testing protocol for filtering facepiece respirators.

Both protocols are variations of the original OSHA-approved ambient aerosol CNC protocol, but have fewer test exercises, shorter exercise duration, and a more streamlined sampling sequence. The new rule becomes effective September 26, 2019. Continue Reading

For Manufacturers, “It’s Déjà Vu All Over Again!”

[With apologies to the great Yogi Berra!]

Over the last three years, I have spent a good bit of space on this blog keeping manufacturers informed of the Department of Labor’s efforts to raise the wages of lower and middle level managerial employees and supervisors by raising the “salary threshold”.  See Blog posts of March 14, 2019, November 5, 2017, August 31, 2017, September 19, 2016, and May 31, 2016.  By raising the salary threshold, manufacturers must either pay employees time-and-a-half for overtime or raise the wages of those workers to meet the minimum salary (assuming those workers also perform the required duties).

This week, the media widely reported that the White House’s Office of Management and Budget approved the DOL’s proposal to raise the salary threshold from $23,660.00 annually ($455.00 per week) to $35,308.00 annually ($679.00 per week), a 49.2% wage increase.  That rule change is expected to take effect in January 2020.  The proposed rule also raises the so-called “highly compensated employee” threshold from $100,000.00 per year to $147,414.00 per year.

If this headline sounds familiar, we have been here before.  In 2016, the DOL issued a rule to raise the salary threshold to $47,676.00.  Manufacturers and other employers raced to implement changes to their pay and overtime plans to take this significant increase into account.  Professionals representing manufacturers had our hands-full helping to design wage plans balancing competing demands.  Some manufacturers increased the annual salaries of employees on the margins.  Some reclassified workers as non-exempt, began requiring them to “clock-in and -out,” and otherwise took steps to comply with the new law.

In the Summer of 2016, however, a federal judge in Texas granted an injunction preventing the implementation of the rule, and the election of President Trump in November 2016 halted efforts to enforce the new standard.  (In 2017, the same Texas federal judge issued a permanent injunction preventing implementation of the rule.  The DOL appealed that decision to the Court of Appeals, which then stayed the processing of the case in light of the DOL’s statement that it would revisit the rule.)

The sudden “on-again, off-again” wage increase caused a great deal of confusion for manufacturers.  Having already announced changes to their wage plans, some had no choice but to implement them.  Some manufacturers revoked their plans – resulting in some negative HR fallout.  Some states rushed in to raise the minimum wage and minimum salary standards under state law to compensate after the brakes were put on the federal standard.

With respect to the new rule, all I can caution is that we have seen this movie already.  Manufacturers should be prepared to implement the new rule should it go into effect in January.  (My bet is that this administration will work hard to implement the rule before the 2020 election.)  But at the same time, one federal judge already enjoined the enforcement of the prior rule.  It remains to be seen whether that injunction remains in effect or whether the new rule will overcome the legal challenges which were successful in 2017.

Stay tuned!

Is the USMCA (Replacement for NAFTA) Going to be Ratified?

Last night, I had the chance to attend an interesting panel discussion featuring Richard Steffens (Acting Deputy Assistant Secretary for Western Hemisphere, U.S. Department of Commerce) and Jacobeth Hernandez (Consul for Economic Affairs at the Consulate General of Mexico in New York).  The topic was the USMCA, which is the United States-Mexico-Canada Agreement that is designed to replace NAFTA.  Ok, enough with the acronyms.

If you are wondering where things stand with the USMCA and ratification, you can read about it here.  In short, in the United States, Congress is attempting to reach a deal particularly on the provisions that have to do with labor and the environment.  There are some helpful “fact sheets” available on the website of the United States Office of the Trade Representative for how the USMCA will impact manufacturers.

Based on last night’s panel discussion, here are my takeaways from the current draft of the USMCA:

  • One of the main issues that Mr. Steffens discussed is “fixing the borders” for trade.  This has nothing to do with immigration.  Rather, it has to do with simplifying the paperwork that needs be completed in order to export to Canada and Mexico given the various regulatory differences.  All the countries appear to be committed to trying to take on this very real, albeit practical, issue.
  • The USMCA includes several provisions that are intended to protect intellectual property.  Mr. Steffens noted that this was a central issue for small and medium sized businesses.
  • As noted above, labor and environmental compliance issues remain paramount in the USMCA.  With that said, Mr. Steffens noted that the three countries agreed on a significant number of items in the agreement.

We will continue to follow the progress of the USMCA.

EPA Formalizes Policy to Partner with States on Environmental Compliance and Enforcement

Over the summer, EPA published a policy document to enhance cooperation between it and the many state agencies that enforce federal environmental programs. The document formalizes a long-standing priority of this administration to, as we previously reported, “rebalance the power between Washington and the states to create tangible environmental results for the American people.”

The policy outlines procedures for effective communication and planning, as well as details regarding the balance of power between EPA and the state agencies. EPA and state agencies will work together to develop inspection and enforcement priorities. Generally speaking, EPA will defer to states to implement inspections and enforcement for authorized programs, but EPA may get involved in certain situations, such as:

  • Violations that are part of the National Compliance Initiatives, specific program priorities established by EPA, to ensure nationwide consistency in the response,
  • Situations involving multi-state or multi-jurisdictional interests or interstate impacts,
  • Emergency situations where there is substantial risk to human health or the environment,
  • Situations where the state may lack the equipment, resources, or expertise to deal with the issue, and
  • Serious situations that may warrant criminal enforcement.

EPA also established procedures for elevating issues when there is disagreement between EPA and the states. In the event of a disagreement, an issue should be elevated to senior management on both sides within 30 days. If, after elevation, there remains a dispute, the matter should be elevated within 60 days to EPA Assistant Administrator for the Office of Enforcement and Compliance Assurance for a final decision.

The policy encourages information sharing between the agencies. However, it specifically notes that EPA may be precluded from sharing certain information to preserve confidentiality. For example, EPA may be required to withhold details of a planned enforcement action from a state if the state has not executed a confidentiality agreement or the state’s freedom of information laws provide for more disclosure.

The policy is one more step towards EPA’s goal of empowering states and enhancing cooperation with regard to federal environmental programs.

Manufacturing a Summer (Employment) Potpourri

This blog post is dedicated to those of you who took a heathy summer break and want to catch up on the summer’s major developments.  Let the speed reading begin!

As predicted here, the Trump Administration launched a series of not-so-surprising raids to arrest undocumented workers.  As of this writing, there has not been a noticeable increase in the prosecution of employers who employ undocumented workers.  We can expect more ICE raids in the future.

The National Labor Relations Board issued the first three (of what some anticipate will be many) proposed rules to role back the Obama-era agenda.  The first proposal would abolish the process by which a union could block a decertification petition from moving forward simply by filing a charge of discrimination, no matter the merits of the charge.  In its place, the Board would adopt a so-called “vote and impound” procedure, under which employees would be allowed to vote but their ballots would not be counted until the charge was ultimately decided.  The second change would require employers which voluntarily recognize a labor union to give written notice to employees and permit them 45 days to challenge that recognition.  Finally, for employers in the construction industry, the proposed rule would require a union to show that recognition of the union was based on true majority support in order to prevent a construction employer from withdrawing recognition after the labor contract expires.

In New York, Governor Cuomo signed comprehensive legislation expanding New York’s already robust anti-discrimination law.  Among other things, these changes include:

Effective immediately:  Prevailing plaintiffs “shall” be awarded attorneys’ fees (prevailing defendants are eligible only if the claim was found to be “frivolous”), and employers must provide notice of their sexual harassment policy and annual training program, both the time of hire and annually thereafter.  (Notice must be in English and the language identified as each employee’s primary language.)

Effective October 11, 2019:  Employees claiming sexual harassment must only establish that the harassment was more than “petty or slight” to establish a cause of action.  Similarly, the affirmative defense established by the United States Supreme Court in the Farragher and Ellerth decisions will not be available in New York State sexual harassment cases.  Similarly, employees claiming discrimination will no longer be required to show that they were treated less favorably that a similarly situated comparator.  The Human Rights Law also is amended to apply to contractors to protect them against all forms of discrimination or harassment.  And all victims of discrimination will be able to win punitive damages in court litigation.

Also effective October 11, 2019, settlement agreements or other contract provisions requiring the arbitration of any discrimination or retaliation claim will be banned.  On the same date, the complex ban on non-disclosure provisions in agreements resolving sexual harassment claims (giving the settling individual a non-waivable 21-days to consider the provision and 7-days to revoke acceptance) will apply to all settlements of discrimination, harassment and retaliation claims.

Effective November 10, 2019, the New York Human Rights Law will apply to all employers in New York State, regardless of size.

Effective January 1, 2020, any non-disclosure agreement must include carve-outs permitting individuals to communicate with law enforcement, state and federal anti-discrimination agencies or a private attorney hired by the employee.

Effective August 12, 2020, an alleged victim of discrimination will have three (3) years to file an agency charge claiming discrimination.

These are just some of the major things which happened while you were at the beach.  Suffice it to say, before charging ahead considering these developments, manufacturers should confer with qualified employment counsel.

The Increasing Strategic Importance of Design Patents

Manufacturers generally understand the importance of utility patents and branding in protecting their creations from unfair competition and confusion of their customers. But the power of the design patent sometimes goes overlooked. While the United States Patent Office has issued over ten million numbered utility patents, it has not yet reached the one-million-mark on design patents. My suggestion to manufactures: consider both for any new product because recent federal decisions may make it very worth your while. Continue Reading

Business Email Compromises Bilking U.S. Companies Out of $301M Per Month

The United States Treasury Department came out with a report last week that concludes that business email compromises (BEC) are costing U.S. companies more than $301 million per month. The report confirms that the two industries hit the hardest by these scams are manufacturing and construction.

The report, issued by the Treasury Department’s Financial Crimes Enforcement Network, reports that 1,100 BEC scams occurred each month against U.S. companies in 2018, which is an increase from 500 per month in 2016. The BECs cost U.S. companies $301 million per month, which is an increase from $110 million per month in 2016.

The scams outlined in the report are the same ones that we see every day. They start with phishing schemes to an executive in the company, then the intruder either impersonates the executive to request other members of the company to send information or money, or they follow the executive’s email, forward it to a Gmail account without the knowledge of the executive, and start to follow the email trails to determine who the executive and business are doing business with, who the vendors and third parties are, and to whom the company owes money. They are patient, and at just the right time, the intruder copies the signature line of the executive, and requests that Accounts Payable wire a known vendor tens or hundreds of thousands of dollars to a bank account that the fraudster drains after the money is wired.

According to the report, the manufacturing and construction industries are getting hit the hardest, and the losses in those two industries account for 25 percent of the total amount lost. Commercial services have been hit hard and have seen increases in BEC.

There are several steps businesses can take to combat BECs. These include: frequent employee education sessions on phishing, malware and ransomware, implementing security tools to block suspicious emails from breaking through the perimeter, having employees on high alert for phishing scams and providing resources on common scams so they can identify them, encouraging employees to report phishing emails, having processes in place to authenticate all requests for transfer of money, encourage the use of the telephone and avoid reliance on email communication, having processes in place regarding large transfers of funds, and having appropriate insurance to cover any losses.

BEC continues to be a huge problem for U.S. businesses, as outlined by the Treasury Department, and the schemes are getting trickier. Staying vigilant and understanding the risk, including your employees in the solutions, and prioritizing measures to respond to the risk are key to managing the risk.


This post was authored by Linn Foster Freedman and is also being shared on our Data Privacy + Cybersecurity Insider blog. If you’re interested in getting updates on developments affecting data privacy and security, we invite you to subscribe to the blog.

Manufacturers Revisit Mandatory Arbitration Agreements

I have just returned from my summer sojourn in the wilds of New England catching up on rest, relaxation and reported court decisions. (Yes, I embrace my inner nerd!) Two recent court decisions dealing with mandatory arbitration agreements caught my eye and highlight why some manufacturers may gain by requiring pre-dispute employment arbitration agreements.

In 2018-19, the United States Supreme Court made clear federal law broadly favored agreements to submit disputes to private arbitration (as opposed to bringing such claims in state or federal court).  In Epic Systems Corp. v. Lewis (May 21, 2018), the Court ruled the Federal Arbitration Act required enforcement of individual agreements to arbitrate statutory claims (wage claims under Federal law and discrimination claims under state and Federal laws). Last April, in Lamps Plus, Inc. v. Varela (April 24, 2019), the Court held that a party could not be compelled to arbitrate claims on a class-wide basis absent that party’s express consent.

This summer, two more federal courts issued decisions favoring individual arbitration over litigation.

In Abdullayeva v. Attending Home Care (July 2, 2019), the Second Circuit Court of Appeals reversed a lower court and found that a union labor contract which contained a clause requiring the arbitration of all disputes between the union represented employees and the employer prevented an employee from bringing an individual claim in federal court. Perhaps significantly, under the labor agreement, an individual employee could advance his or her claims to at least mediation even if his or her union did not support the claim.

Earlier, a different federal court sitting in Manhattan ruled that the Federal Arbitration Act required the arbitration of an individual’s sexual harassment claim even though a state statute banned the arbitration of sexual harassment claims.  See Latif v. Morgan Stanley & Co. LLC (June 26, 2019).

These decisions make clear that by requiring arbitration as the preferred dispute resolution method, manufacturers may be able to avoid time-consuming, expensive and disruptive court litigation. Arbitration, however, is not a “one-size fits all.” Arbitration agreements should be carefully drafted to permit an aggrieved employee a real opportunity to have his or her “day in court.” Manufacturers may wish to confer with competent legal counsel to review the advantages and disadvantages of arbitration and to craft an appropriate agreement.