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.

Department of Justice Expands Guidance on Evaluating Corporate Compliance Programs

This week we are pleased to have a guest post from Edward Heath and Kevin Daly.  Attorneys Heath and Daly are members of Robinson+Cole’s Manufacturing Industry Team and regularly counsel clients on trade compliance, anti-corruption compliance, and other corporate compliance issues.

Earlier this year, the United States Department of Justice (DOJ) issued new guidance regarding how it evaluates corporate compliance programs in the context of civil and criminal enforcement matters. Rather than deviating from DOJ’s existing approach, the new guidance set forth the factors DOJ will use to assess the adequacy of corporate compliance programs in greater detail than in prior guidance. Accordingly, it provides important insight into what DOJ will likely prioritize when evaluating whether a company under investigation maintained effective compliance controls.

As a general matter, the “the adequacy and effectiveness” of a company’s compliance program is a factor in DOJ’s decision whether to pursue a criminal charge and, if so, in the subsequent assessment of the severity of the penalty sought. See DOJ’s Principles of Federal Prosecution of Business Organizations. Additionally, the U.S. Sentencing Guidelines provide that the presence of an effective compliance program at the time of the charged conduct is a factor in calculating an appropriate criminal fine.  DOJ’s recent guidance attempts to give more definition to what makes a compliance program effective or ineffective, setting forth three key questions to guide the inquiry.

The first question asks, “Is the corporation’s compliance program well-designed”.  Here, DOJ will consider whether the program is tailored to the risks the business is likely to face, whether employees receive training and communication regarding the program, whether the program provides a mechanism for employees to report compliance concerns, whether the program addresses risks posed by third-party relationships, and whether the company conducts compliance due diligence in the course of mergers and acquisitions.

The second question asks, “Is the program being applied earnestly and in good faith”.  To answer this question, DOJ will look at factors such as whether there is management commitment to the program, whether sufficient resources are devoted to the program, and whether the company provides incentives for compliance as well as disincentives for noncompliance.

Finally, the third question asks, “Does the corporation’s compliance program work”? Here, the DOJ analyzes whether the program is periodically reviewed and improved, and whether potential misconduct is investigated and then remediated when detected.

Importantly, although the guidance is organized into these three discrete questions, several key takeaways emerge from the guidance as a whole.

  • DOJ requires a compliance “program” to entail more than just a written policy. Companies are expected devote resources to the program on an ongoing basis, such as by training employees, reviewing the effectiveness of the programs, and updating and improving it as circumstances warrant.
  • Additionally, the guidance makes clear that DOJ does not view a compliance program as a cookie cutter endeavor;  a program should be tailored to the specific risks applicable to the company’s location, business model, and the sector in which it operates.

DOJ recognizes that that no compliance program can prevent all possible misconduct, and the new guidance explicitly acknowledges that a compliance plan will not be deemed ineffective simply because misconduct occurred. However, a program that fails to measure up to these expressed standards may fall short of its duty to protect the company against internal wrongdoing and then place the company in a tenuous position in the face of DOJ scrutiny.

Manufacturers Face New Discrimination Rules

Concluding their 2019 legislative sessions, New York and Connecticut adopted sweeping new discrimination and harassment requirements — mandating additional training, expanding available remedies and making it easier for victims to obtain judicial relief.

New York

In June, the New York General Assembly adopted several significant changes to New York State’s anti-discrimination statute (known as the Executive Law).  Governor Cuomo is expected to sign the legislation.  Among other changes, the amendments:

  • Eliminate the jurisdictional requirement that manufacturers must employ four or more employees to come under the law – now all manufacturers of any size are covered;
  • Eliminate the requirement that harassment must be “severe or pervasive” to be actionable – now any conduct which is more than “petty” or a “slight” annoyance will be actionable;
  • Make a manufacturer potentially liable for discriminatory acts directed at non-employees (such as vendors, interns, or other third-parties);
  • Allow a victim to prevail even when she or he cannot identify any individual treated more favorably under similar circumstances;
  • Allow a victim to recover punitive damages in court litigation;
  • Allow a victim to recover attorneys’ fees in most cases where liability has been found; and
  • Extends from one year to three years the time for claimants to bring discrimination claims to the state agency.

In addition, the legislator expanded the 2018 ban on the use of non-disclosure agreements.  Effective 60 days after adoption, manufacturers cannot require the non-disclosure of any discrimination or retaliation settlements unless the agreement is written in “plain English” and, if applicable, the primary language of the complainant, and the non-disclosure obligation is the preference of the complainant (as evidenced by a non-waivable 21 days to consider the non-disclosure obligation and 7 days to revoke acceptance of it).  Effective January 2020, any non-disclosure provisions must expressly exclude restrictions on speaking to law enforcement, the EEOC, the SDHR or an attorney hired by the employee.

The legislature also expanded the 2018 mandatory arbitration ban to apply to all claims of discrimination or retaliation, not just sexual harassment claims.


Next door, the Connecticut General Assembly amended its state discrimination law in several significant ways.  While current law required manufacturers to provide sexual harassment training for all supervisors within 6 months of their hiring or promotion to a supervisor position, the effective October 1, 2019, all manufacturers with more than 3 employees must provide sexual harassment training for all employees.  Current employees must be trained by October 1, 2020, while employees or supervisors hired after October 1, 2019 must be trained within 6 months of hiring (or placement in a supervisory position).   Training must be “updated” every 10 years.

In addition, effective October 1, 2019, manufacturers with more than 3 employees must prominently post a notice of its sexual harassment policy and provide a copy of the notice to all employees within 3 months of being hired.  The notice must be posted on the employer’s intranet site (if the employer maintains one) or, if sent by email, the email must state in the subject line:  “Sexual Harassment Policy.”

A new provision prohibits a manufacturer, when responding to an allegation of harassment, from changing the claimant’s “conditions of employment” without his or her written consent.

Finally, the legislature expanded the period for a claimant to file a charge of discrimination or retaliation with the state agency from 180 days to 300 days.

Manufacturers should consider updating their policies and training programs in advance of these laws’ effective dates.


Environmental Considerations in Corporate Transactions

My partner Bob Melvin and I recently gave a presentation on environmental, health, and safety considerations in mergers and acquisitions. While it would be impossible to cover our entire presentation in a blog post, I thought it would be good to highlight a few important environmental considerations in developing, negotiating, and finalizing corporate deals.

  • Consider the Scope of Due Diligence. When purchasing a business or division, consider not only properties that are currently owned and operated by that business, but historic properties as well. Phase I Environmental Site Assessments can help you learn about a property’s past and present, but, when conducted properly, they can also help you maintain legal defenses against future liability. It is important to consider the purpose for which you are conducting a Phase I, including preserving your ability to defend against liability, before you develop the scope of the assessment.
  • Liability Associated with the Structure of the Deal. Generally speaking, we think of stock deals as accomplishing a transfer of all assets and liabilities, while liability transfer in asset deals may be more carefully limited. However, legal theories of successor liability may serve to undo even the best laid plans for allocation of liability. You may want to consider the structure of the deal and how it could be interpreted under legal theories that could impose successor liability even in apparently structured asset transactions.
  • Evaluate Potential Risk Transfer Options. In cases where neither the buyer nor the seller is interested in assuming environmental obligations, risk transfer may be an option. An Environmental Risk Transfer (ERT) entity may be willing to purchase environmental liability, including environmental investigation and remediation obligations, as well as to provide an indemnity for environmental and remediation risk. The arrangement may or may not involve land transfer, but it typically involves the ERT entity entering into any required orders and securing all required permits. ERT entities back the indemnity with a number of financial tools, including insurance, fixed price contracts, escrow accounts, and using purchased assets as collateral.
  • Separately Consider Emerging Environmental Issues. Emerging environmental concerns—like PFAS—may need to be treated differently than well-worn environmental issues. Emerging contaminants may not yet be legally defined as hazardous, and discharges may not be a violation of environmental law, just because the statutory and regulatory amendment process takes time. It is important to separately consider emerging environmental concerns, how they play into the deal, and how to address them in the contract documents so that they are not inadvertently excluded.

Advice for Foreign Manufacturers Looking To Grow In The United States

Over the past few months I have had the pleasure to participate in several significant manufacturing events, including events at The White House, the Department of Commerce, and most recently, at the first International Space Trade Summit.  At these events, I had a chance to speak with manufacturers across the globe, including several companies that wanted to explore either launching (no pun intended!) or growing in the United States.

In my experience, entry into the U.S. by a foreign manufacturer is very doable despite what others might say.   I try to simplify entry into four key concepts or four “Yours.”

  1. Your Commitment:  It is important to be here.  Potential customers, suppliers, and employees all pay attention to whether the business executives from abroad spend time in the United States.
  2. Your Entry Point (“Buzz”):  In my experience, the companies that can create a buzz around their entry are more likely to succeed.  This is done by celebrating the opening of the factory (with key local officials), marking significant anniversaries, and interacting with government officials early in the process.
  3. Your People:  It is important to have “boots on the ground.”  A lot of companies will hire a U.S. based sales representative as a first step, but sometimes that is fraught with peril.  The manufacturers that I have seen succeed place an emphasis on getting their U.S. based employees to buy into their culture and integrate them as quickly as possible.  In addition, location in the U.S. is key – don’t try to cover too much, too early.
  4. Your Structure:  My discussion of corporate structure is intentionally last.  Most legal and tax advisors will start here.  They will talk about corporate structure and formation before anything else.  Yes, tax implications often drive a lot of decisions for a foreign company.  But, corporate structure considerations should not drive the overall business strategy.