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.

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.