2019 Corporate Compliance & Litigation Outlook for Manufacturers

As we embark on the sixth year of the Manufacturing Law Blog, we continue our annual tradition of making predictions.  Last week, Matt provided his thoughts and predictions in the labor/employment arena.  This week, I am providing our outlook for corporate compliance and litigation.

Contract Management

As we have documented in the Blog for the last several years, there has been a shift in the manufacturing community about how to handle contract management.  There was a time when manufacturers in the supply chain would sign contracts and accept whatever was placed in front of them in order to make the sale.  Over the past 2-3 years, manufacturers of all sizes have realized that implementing a contract management system or “playbook” is a sound approach.

This is not the traditional law firm solution, which includes redlining contracts and making suggestions that have no chance of being accepted.  Many of our clients do not have any leverage so we need to identify potential risks and/or suggest creative language to attempt to mitigate the risk as much as possible.  In other words, I expect that manufacturers will continue to implement internal systems to better assess the risks they are taking particularly if we are faced with an economic downturn.

Supply Chain Compliance

Another area that many manufacturers dealt with in 2018 is the increased pressure being placed on the supply chain to comply with a host of regulatory regimes.  Everyone generally has heard of the alphabet soup of compliance such as GDPR, REACH, FCPA, Prop 65, Conflict Minerals, ITAR, EAR, etc.  These compliance obligations have always been passed down the supply chain.  The difference that we saw in 2018 is that OEMs and other larger customers are enforcing these compliance obligations in a more robust fashion using electronic programs, checklists and other means to ensure that their suppliers are actually complying.  It is not enough to just affirm in a contract that you will comply.  So, the question is – how does a privately held manufacturer comply without breaking the budget?  Again, like with contract management, there are ways to comply with these regulations and satisfy your obligations without breaking the bank.  I expect more manufacturers to dust off compliance plans and develop training programs with the help of a manufacturing law firm.


2018 was the year of the “tariff” for manufacturers.  You could not read a manufacturing news story without mention of it.  There is a lot of hype around tariffs and other trade regulations.  Some companies have been able to absorb the costs by passing it on to their customers and others have not.  In 2019, I expect that these discussions will continue.  One area that I expect to see renewed focus on in 2019 is the impact that these policies will have on foreign direct investment (FDI).  Some of our non-U.S. based clients/contacts have pulled back their investments in the U.S. while others have pushed ahead based upon the belief that companies need to be based in the U.S. to adequately address these economic policies.

Time for 2019 Manufacturing Law Predictions: Drum Roll Please!

When it comes to 2019 employment and labor developments for manufacturers, I predict ….

much more of the same.

The election of President Trump and a Republican controlled House and Senate in November 2016 brought a roll-back back from the aggressive enforcement policies of the Obama administration.  Simply speaking, the Federal Government has limited or overruled regulations impacting the relationship between manufacturers and their employees.  In response to this trend, some states and local municipalities (cities and countries) pushed back, for example, enacting regulations and ordinances raising the minimum wage, prohibiting salary history or criminal conviction inquiries, mandating greater benefits for parents, imposing training requirements to combat workplace harassment, and more.

Likely we will see this trend continue in 2019.  The “Blue Wave” which put the U.S. House in the hands of Democrats for the first time in eight years also impacted state legislatures and governorships.  While the Federal Government remains deeply divided, Democrats won control of all branches of government in seven states on election night.  Thirteen states are now exclusively controlled by Democratic Governors and Legislatures, including California, New York and Connecticut – states that traditionally have been pace-setters when it comes to expanding employment protections for employees.

Not to be outdone, local governments are also aggressively working to expand the scope of employee protections.  In some cases the race for legislating can seem like a competition between state and local actors over which can adopt the most “progressive” employment protections possible.

While debates about the “proper” role of government in the relationship between manufacturers and employees are beyond this blog, the fact that state and local governments are working to adopt local employment regulations creates significant issues for manufacturers.  First, understanding the complexities of local legislation takes time and some localities are better than others at spreading the word about new requirements.  Second, especially when it comes to local municipality ordinances, regulations can be adopted and implemented even before many manufacturers know the issue is being discussed, meaning that those local governments may not have the best information to make an informed decision.  Finally, manufacturers with operations in multiple locations have to harmonize conflicting requirements, resulting in employee confusion and consuming the resources of experience HR professionals.

Fortunately or unfortunately, I predict this “local” trend will continue.  The best advice for manufacturers to address these developments is to maintain constant vigilance as to proposed changes in state and local law.

January 1, 2019 Deadline for Manufacturers Bidding on New York State Contracts

Before ringing in the New Year, manufacturers bidding on competitive New York State contracts should keep in mind that after January 1, 2019, entities submitting bids must certify that they have adopted a sexual harassment policy that meets New York State’s mandated minimum standards, and provide annual training for all employees, including those working outside the State of New York.  Adopted by the New York State General Assembly in April 2018, these new requirements become effective on January 1.  Manufacturers can review the New York State minimum standards and obtain copies of the model Sexual Harassment Training Program here.

OSHA’s Use of Drones During Workplace Inspections

These days, it is not uncommon to see drones flying overhead. But employers beware…you might see one during your next workplace inspection. Earlier this year, OSHA issued a memo formalizing its use of drones for inspection activities, and, according to a recent report by Bloomberg Law, it used drones for 9 inspections this year.

The memo indicates that OSHA can use drones for a number of purposes, including inspection of inaccessible or unsafe areas, for technical assistance in emergencies, and during compliance assistance activities. The memo sets forth the parameters OSHA must follow when using drones, but it also indicates that OSHA is exploring the option of obtaining a Blanket Public Certificate of Waiver or Authorization (COA) from the FAA to operate drones nationwide.

The memo states that OSHA must obtain express consent from an employer prior to using a drone on any inspection. In addition, on-site personnel must be notified of the inspection to ensure cooperation and safety. The flight report and any data collected by the drone becomes a part of the inspection case file.

OSHA’s use of drones has the potential to expand its violation-finding capabilities during any inspection. Drones allow OSHA a bird’s-eye view of a facility, expanding the areas that can be easily viewed by an inspector. While most inspections can and should be limited in scope, OSHA can cite employers for violations that are in plain sight. Employers must consent to the drone use, but the question remains as to how the scope of an investigation might change if an employer refuses. In addition, it is unclear if that policy will change if OSHA is granted a Blanket Public COA from the FAA to use drones nationwide for inspection purposes.

Employers should be aware of this policy and the fact that drones may be a requested part of their next OSHA inspection. Employers may want to give some thought to their facilities and whether drones can be safely flown without causing damage to equipment or processes. If employers allow OSHA to use drones during an inspection, the employer may wish to be involved in the development of the flight plan and attempt to get copies of any collected data. And remember, your express consent is required.

Doing Business in China: Risks for Manufacturers

One of the blogs that we really enjoy is the China Law Blog, which is written primarily by Dan Harris of Harris Bricken.  Dan recently wrote a post about the pitfalls of relying on a representation by a non-Chinese company that they own a manufacturing facility in China.

As Dan states directly:

Here’s the deal. No American or European or Australian company (or any other non-Chinese company) can own a Chinese factory directly. It is possible the American or European or Australian company that claims to own a Chinese factory owns a Chinese company (a WFOE maybe or a China Joint Venture) that in turns owns a Chinese factory, but the odds of this being the case are really slim.

Dan goes on identify the risks of relying on a representation that a Chinese manufacturer is owned by a non-Chinese company.  All of these points are valid.

Here is one more to consider.  A lot of manufacturers run into problems when they are dealing with a Chinese company and they do not think about whether it is government owned or not.  Such information is critical when assessing compliance risks, including most notably, potential violations of the Foreign Corrupt Practices Act (FCPA).  For that reason, it is imperative for manufacturers to have a direct line of sight into their business relationships in China regardless of what their customer/supplier tells them at the outset.




Is Your Manufacturer Handicap Accessible? 

Before answering that question, manufacturers should ask whether the they host a website where individuals can access information about products and services, view demonstrations, submit requests for price quotes or apply for a job.  If so, then the website may not be handicap accessible.

Title III of Americans with Disabilities Act (“ADA”) requires goods, services, privileges or activities provided by places of public accommodation be equally accessible to people with disabilities.  Title I of ADA prohibits discrimination against persons with disabilities with respect to hiring decisions.  For over 20 years, the United States Department of Justice (“DOJ”) has taken position that company websites must be accessible to persons with disabilities.

While these ADA mandates have been on the books for many years, there remains no single Federal standard for determining whether a website is sufficiently accessible.  The World Wide Web Consortium has promulgated voluntary guidelines (web content accessibility guidelines or “WCAG” for short), which have evolved over time.  In 2018, the current standard (WCAG 2.1) was published.  These voluntary guidelines have not be universally adopted.

Planned regulations by the Obama Administration were withdrawn by DOJ following President Trump’s executive order seeking to reduce federal regulations.  But the absence of a federal standard may do more harm than good.  In the first six months of 2018, one author counted over 1,000 lawsuits challenging the accessibility of business websites (over 600 of these lawsuits were filed in New York alone).

In September 2018, in response to congressional inquiries, the DOJ published a letter regarding website accessibility.   In the DOJ’s response, the DOJ asserted that:

  • DOJ has long held websites must be accessible to persons with disabilities.
  • Places of public accommodation have flexibility as to how to comply with ADA’s requirements for nondiscrimination and effective communication.
  • Failure to comply with a specific voluntary technical standard for website accessibility does not necessarily indicated non-compliance with ADA.
  • Congress has the ability to provide greater clarity through legislative process.

As several cases work their way through appellate review, the absence of any clear standard likely means manufacturers will face the risk of legal challenge based on inaccessible websites.  The Manufacturing Law Blog will continue to watch and report on these developments.

Non-Compete Cautionary Tale

A recent court decision underscores the need for manufacturers to exercise caution when seeking to impose Post-Employment Restrictions on key employees.

Manufacturers often seek to bind employees to Post-Employment Restrictions (non-compete, non-solicitation and confidentiality obligations) in order to protect customer lists, pricing information and other confidential or “inside” information which gives them a competitive advantage in the market-place.  While never a ‘first line” of defense, they serve an important role in protecting manufacturers from unfair competition.  But, as we have cautioned repeatedly (see e.g. 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)), these agreements must be carefully drafted to be effective when needed.

The decision in Oxford Global Resources, LLC v. Hernandez (September 2018) offers one example why.

In this case, the Massachusetts-based Oxford Health entered into an employment agreement with Hernandez to work in California.  The employment agreement contained traditional post-employment restrictions preventing post-employment competition, solicitation and use of confidential information for a period of time.  The agreement expressly provided that Massachusetts law would govern and that any litigation would have to be filed in Massachusetts.  When Hernandez quit to work for a competitor, Oxford Health sued in Massachusetts state court.

Ultimately, the court dismissed the lawsuit and the Massachusetts Supreme Court affirmed.  In essence, the Court reasoned that even though Massachusetts had an interest in enforcing contracts made under state law, California had a greater interest since the employee lived and worked in California and California public policy overwhelmingly disfavors post-employment restrictions.  Thus, Hernandez was free to work for a competitor even though his employment agreement expressly prohibited him from doing so.

The Oxford Health case is merely one recent example of the growing hostility to the use of Post-Employment Restrictions.  Manufacturers seeking to protect their business secrets and good will should periodically review their approach to doing so under applicable state law.

A special thanks to the good folks at Ogletree Deakins for bringing this decision to our attention.

OSHA Launches New Inspection Targeting Program

Thank you to Jonathan Schaefer for this post. Jon is an attorney in our Environmental, Energy & Telecommunications Practice Group and his practice focuses on environmental compliance counseling, occupational health and safety, permitting, site remediation, and litigation related to federal and state regulatory programs.

On October 17, 2018, the Occupational Health & Safety Administration (OSHA) announced the creation of the Site-Specific Targeting 2016 (SST-16) Program.  The SST-16 Program will, in part, use employer submitted injury and illness information electronically for calendar year (CY) 2016 to target high injury rate establishments in both the manufacturing and non-manufacturing sectors for inspection.  This 2016 data was received in connection with the Injury and Illness Recordkeeping and Reporting Requirement (IIRR Requirement) that went into effect at the end of 2017.

The SST Program is OSHA’s main site-specific programmed inspection initiative for non-construction workplaces that have 20 or more employees.  The SST-16 Program, unlike past SST programs, will use IIRR Requirement data to achieve the goal of ensuring that employers provide safe and healthful workplaces by directing enforcement resources to the workplaces with the highest rate of injuries and illnesses.  Individual establishments will be selected for inspection based on their required submission of CY 2016 Form 300A data under the IIRR Requirement or lack of such submission.  The SST-16 Program’s inspection targeting list will be created using three categories of establishments.

High-Rate Establishments

A portion of the inspection targeting list will consist of High-Rate Establishments, which will be selected from those establishments with an elevated Days Away, Restricted or Transferred (DART) rate.

Low-Rate Establishments

OSHA will also generate a random sample of establishments with low DART rates.  The establishments will be inspected in order to verify the reliability of the CY 2016 Form 300A data reported to OSHA.


The last portion of the inspection targeting list will consist of a random sample of establishments that failed to provide the required CY 2016 Form 300A data to OSHA.  These non-responding employers are being included to discourage employers from not reporting injury and illness information in order to avoid inspection.

Scope of Inspections

The SST-16 Program inspections will be comprehensive in scope. OSHA will review the establishment’s OSHA 300 Logs for CY 2016, 2017, and 2018 to date.  If the establishment has been inspected previously, OSHA may expand the inspection to cover both health and safety hazards based on that prior inspection history. OSHA is required to fully explain and document the rationale for an expanded inspection.

As a reminder, currently most employers with more than 20 employees are required to electronically submit OSHA Form 300A data to OSHA each year by March 2.  The deadline for CY 2017 Form 300A data was July 1, 2018; however, OSHA has indicated that employers that missed this deadline may still submit this data.

Continual evaluation of operations may be appropriate to determine if your establishment is required to electronically submit Form 300A data and ensure your establishment is complying with other applicable recordkeeping requirements.  Also, the SST-16 Program inspection targeting list will not be made public.  Therefore, being prepared for an unannounced OSHA inspection is as important as ever for non-construction establishments with more than 20 employees.

The End of Conflict Minerals?

We have been talking about conflict minerals for years.  And, so have our manufacturing clients.  As covered previously in this blog, the conflict minerals laws and regulations are some of the most well known, but least understood laws/regulations that face manufacturers/distributors today.

The stated purpose of conflict mineral laws and regulations were laudable, namely, to prevent companies from engaging in trade that support regional conflicts in the Congo.  As many manufacturers will tell you, whether that stated purpose is achievable is questionable at best.

Year after year, manufacturers struggle to get their suppliers to answer questions about the source of the “conflict minerals” (including gold).  Although the SEC requires that publicly traded companies document their compliance, the burden of compliance often rests on the smaller privately held manufacturers that are in the supply chain.

In 2017, President Trump suggested that he might suspend the regulations, but no executive order was signed.  In late September, an interesting analysis was published by the Washington Post.  The analysis not only suggests that the conflict minerals law has not curbed violence in the Congo, but that the violence has increased.  We will all be watching the administration over the next few years to see if we have seen the end of the conflict minerals law as we know it.

OSHA Clarifies Position On Anti-Retaliation Rule

Thank you to Jonathan Schaefer for this post. Jon is an attorney in our Environmental, Energy & Telecommunications Practice Group and his practice focuses on environmental compliance counseling, occupational health and safety, permitting, site remediation, and litigation related to federal and state regulatory programs.

On October 11, 2018, the Occupational Health and Safety Administration (OSHA) issued a memorandum to clarify its position regarding whether drug testing policies and safety incentive programs would be considered violations of OSHA’s regulations. Employers may recall that, in May 2016, OSHA published a final rule that, among other requirements, prohibited employers from retaliating against employees for reporting work-related injuries or illnesses. That portion of the final rule became known as the Anti-Retaliation Rule. Almost immediately, there was confusion over which workplace safety incentive programs and post-incident drug testing policies, if any, were permissible under the final rule. OSHA originally took the position that certain programs and policies could deter employees form reporting work-related injuries and illnesses, thus violating the Anti-Retaliation Rule. OSHA has now clarified that the Anti-Retaliation Rule does not prohibit workplace safety incentive programs and post-incident drug testing.

OSHA’s memo is the clearest guidance regarding its position on safety incentive and drug testing policies. It makes clear that, as a general rule, such policies are not a violation of OSHA requirements. The memo also states that it supersedes any other OSHA guidance previously issued which may have interpreted the Anti-Retaliation Rule to the contrary.  Finally, the memo instructs OSHA officials to consult with OSHA’s Directorate of Enforcement Programs before issuing citations under the Anti-Retaliation Rule relating to safety incentive or drug testing policies.

Safety Incentive Programs

OSHA acknowledged that some safety incentive programs promote workplace health and safety.  Therefore, programs that encourage employees to report near-misses or perceived hazards or encourage employee involvement in the health and safety program are permissible.  OSHA further clarified that rate-based incentive programs are permissible as long as they are not implemented in manner that discourages reporting.

An employer’s statement that employees are encouraged to report and will not face retaliation for reporting may not, by itself, cause employees to actually feel free to report.  However, an employer may avoid inadvertent deterrent effects of a rate-based incentive program by taking positive steps to create a workplace culture that emphasizes safety, not just rates. In fact, OSHA provided examples of precautions employers could take to avoid unintentional deterrent effects of a rate-based safety incentive program or policy.  The OSHA memo says that “any inadvertent deterrent effect of a rate-based incentive program on employee reporting would likely be counterbalanced if the employer also implements elements such as:

  • an incentive program that rewards employees for identifying unsafe conditions in the workplace;
  • a training program for all employees to reinforce reporting rights and responsibilities and emphasizes the employer’s non-retaliation policy;
  • a mechanism for accurately evaluating employees’ willingness to report injuries and illnesses.”

Drug Testing Policies

OSHA’s memo also clarified that many drug testing policies are permitted under the Anti-Retaliation Rule.  Specifically, the memo noted that the following types of drug testing policies were not in violation of OSHA’s requirements:

  • Random drug testing;
  • Drug testing unrelated to the reporting of a work-related injury or illness;
  • Drug testing under a state workers’ compensation law;
  • Drug testing under other federal law, such as a U.S. Department of Transportation rule; and
  • Drug testing to evaluate the root cause of a workplace incident that harmed or could have harmed employees. If the employer chooses to use drug testing to investigate the incident, the employer should test all employees whose conduct could have contributed to the incident, not just employees who reported injuries.

Employers are encouraged to regularly evaluate any work place safety incentive programs or drug testing policies to ensure continued compliance and consistency with business objectives.