Category Archives: New Mexico

September 20, 2016

Overtime Rule Lawsuit Seeks To Stop December 1st Changes

Twenty-one states have sued the federal Department of Labor (DOL) seeking to prevent the new overtime exemption salary boost from going into effect on December 1, 2016. In a lawsuit filed in the Eastern District of Texas, the states argue that the DOL exceeded its authority when it issued its final rule increasing the salary level for exempt employees to $47,476 per year, with automatic updates to the salary threshold every three years.

Legal Challenge To The Overtime Rule

In the states’ complaint against the DOL, the states argue that the new rule is unlawful. One of their primary arguments is that enforcing the Fair Labor Standards Act (FLSA) and the new overtime rule against the states infringes upon state sovereignty in violation of the Tenth Amendment. The complaint cites the increased payroll costs to the states that would result from having to comply with the new exempt salary levels.

The states argue numerous other reasons why the new overtime rule should be stopped, including that the DOL exceeded the authority granted to it by Congress when it focused on the salary level as the litmus test for exempt status rather than on the duties of white collar workers. The states argue that exempt status should apply to any “bona fide executive, administrative, or professional” employee, even if their salary falls below the new threshold.

The states also take issue with the automatic increases in the new rule through which the DOL will index the salary thresholds every three years. The states assert that the DOL should have to go through the normal notice and comment period in order to make future changes to the salary levels. Read more >>

July 13, 2016

EEOC Revises Its Proposal To Collect Pay Data Through EEO-1 Report

By Cecilia Romero

6a013486823d73970c01b8d204e441970c-320wi On July 13, 2016, the U.S. Equal Employment Opportunity Commission (EEOC) announced that it has revised its proposal to collect pay data from employers through the Employer Information Report (EEO-1). In response to over 300 comments received during an initial public comment period earlier this year, the EEOC is now proposing to push back the due date for the first EEO-1 report with pay data from September 30, 2017 to March 31, 2018. That new deadline would allow employers to use existing W-2 pay information calculated for the previous calendar year. The public now has a new 30-day comment period in which to submit comments on the revised proposal.

Purpose of EEOC’s Pay Data Rule

The EEOC’s proposed rule would require larger employers to report the number of employees by race, gender, and ethnicity that are paid within each of 12 designated pay bands. This is the latest in numerous attempts by the EEOC and the Office of Federal Contract Compliance Programs (OFCCP) to collect pay information to identify pay disparities across industries and occupational categories. These federal agencies plan to use the pay data “to assess complaints of discrimination, focus agency investigations, and identify existing pay disparities that may warrant further examination.”

Employers Covered By The Proposed Pay Data Rule

The reporting of pay data on the revised EEO-1 would apply to employers with 100 or more employees, including federal contractors. Federal contractors with 50-99 employees would still be required to file an EEO-1 report providing employee sex, race, and ethnicity by job category, as is currently required, but would not be required to report pay data. Employers not meeting either of those thresholds would not be covered by the new pay data rule.

Pay Bands For Proposed EEO-1 Reporting

Under the EEOC’s pay data proposal, employers would collect W-2 income and hours-worked data within twelve distinct pay bands for each job category. Under its revised proposed rule, employers then would report the number of employees whose W-2 earnings for the prior twelve-month period fell within each pay band.

The proposed pay bands are based on those used by the Bureau of Labor Statistics in the Occupation Employment Statistics survey:

(1) $19,239 and under;

(2) $19,240 – $24,439;

(3) $24,440 – $30,679;

(4) $30,680 – $38,999;

(5) $39,000 – $49,919;

(6) $49,920 – $62,919;

(7) $62,920 – $80,079;

(8) $80,080 – $101,919;

(9) $101,920 – $128,959;

(10) $128,960 – $163,799;

(11) $163,800 – $207,999; and

(12) $208,000 and over.

June 21, 2016

Supreme Court Avoids Deciding Whether Car Dealership Service Advisors Are Exempt From Overtime Pay

By Brian Mumaugh

The U.S. Supreme Court rejected the Department of Labor’s (DOL’s) 2011 rule that stated that “service advisors” at car dealerships are not exempt under the Fair Labor Standards Act (FLSA), but declined to take the final step by declaring them exempt under the FLSA. Instead, the Court sent the case back to the Ninth Circuit Court of Appeals to analyze whether service advisors are exempt under the applicable FLSA provision without regard to the DOL’s 2011 regulation. Encino Motorcars, LLC v. Navarro, 579 U.S. ___ (2016).

Duties of Service Advisors

At issue are the “service advisors” in a car dealership’s service department. These advisors typically greet the car owners who enter the service area, evaluate the service and repair needs of the vehicle owner, recommend services and repairs that should be done on the vehicle, and write up estimates for the cost of repairs and services before the vehicle is taken to the mechanics for service.

While service advisors do not sell cars, and they do not repair or service cars, they are essential in the sale of services to be performed on cars in the Service Department. Consequently, the issue is whether they fall within the FLSA exemption for salesmen, partsmen, or mechanics. The case before the Court involved numerous service advisors who sued their employer alleging, among other things, that the dealership failed to pay them overtime wages.

DOL Had Flip-Flopped On Exempt Status

In 1970, the DOL took the view that service advisors did not fall within the salesman/mechanic exemption and should receive overtime pay. Numerous courts deciding cases challenging the DOL’s earlier interpretation, however, rejected the DOL’s view and found service advisors exempt. After the contradictory rulings, the DOL changed its position, acquiescing to the view that service advisors were exempt from overtime pay. In a 1978 opinion letter, as confirmed in a 1987 amendment to its Field Operations Handbook, the DOL clarified that service advisors should be treated as exempt.

After more than 30 years operating under that interpretation, the DOL flip-flopped again in 2011. After going through a notice-and-comment period, the DOL adopted a final rule that reverted to its original position that service advisors were not exempt and were entitled to overtime. It stated that it interpreted the statutory term “salesman” to mean only an employee who sells automobiles, trucks, or farm implements, not one who sells services for automobiles and trucks, as service advisors do.

Dealerships were understandably unhappy with the final rule and continued to challenge the DOL’s position in court. As cases went up on appeal, the Fourth and Fifth Circuit Courts of Appeals ruled that the DOL’s interpretation was incorrect. The Ninth Circuit disagreed, ruling instead to uphold the agency’s interpretation. Those contradictory decisions led the Supreme Court to take on the issue in the Encino Motorcars case. Read more >>

June 15, 2016

OFCCP’s New Sex Discrimination Rule Expands Employee Protections Based on Pregnancy, Caregiver Status, and Gender Identity

By Jude Biggs

This week, the OFCCP updated its sex discrimination guidelines on topics such as accommodations for pregnant workers, gender identity bias, pay discrimination, and family caregiving discrimination. Intended to align the OFCCP’s regulations with the current interpretation of Title VII’s prohibitions against sex discrimination, the new rule will require federal contractors to examine their employment practices, even those that are facially neutral, to make sure that they do not negatively affect their employees. The new rule takes effect on August 15, 2016.

Overview of New Sex Discrimination Rule

The existing OFCCP sex discrimination guidelines date back to the 1970s. The new rule is designed to meet the realities of today’s workplaces and workforces. Today, many more women work outside the home, and many have the financial responsibility for themselves and their families. Many women have children while employed and plan to continue work after giving birth to their children. Women sometimes are also the chief caregivers in their families. The updated regulations are meant to offer women and men fair access to jobs and fair treatment while employed.

The new rule defines sex discrimination to include discrimination on the basis of sex, pregnancy (which includes childbirth or related medical conditions), gender identity, transgender status and sex stereotyping. The rule specifies that contractors must provide accommodations for pregnancy and related conditions on the same terms as are provided to other employees who are similarly able or unable to perform their job duties. For example, contractors must provide extra bathroom breaks and light-duty assignments to an employee who needs such an accommodation due to pregnancy where the contractor provides similar accommodations to other workers with disabilities or occupational injuries.

The new rule also incorporates President Obama’s July 2014 Executive Order that prohibits federal contractors from discriminating on the basis of sexual orientation and gender identity. In addition, contractors that provide health care benefits must make that coverage available for transition-related services and must not otherwise discriminate in health benefits on the basis of gender identity or transgender status.

The rule prohibits pay discrimination based on sex. It recognizes the determination of “similarly situated” employees is case-specific and depends on a number of factors, such as tasks performed, skills, effort, levels of responsibility, working conditions, job difficulty, minimum qualifications, and other objective factors. Notably, the OFCCP rule says that employees can be “similarly situated” where they are comparable on some of the factors, but not all of them.

Unlawful compensation discrimination can result not only from unequal pay for equal work, but also from other employer decisions. Contractors may not grant or deny opportunities for overtime work, training, apprenticeships, better pay, or higher-paying positions or opportunities that may lead to higher-paying positions because of a worker’s sex. Employees may recover lost wages for discriminatory pay any time a contractor pays compensation that violates the rule, even if the decision to discriminate was made long before that payment. Read more >>

May 23, 2016

Limitations Period For Constructive-Discharge Claim Starts When Employee Gives Notice of Resignation

The Supreme Court made clear today that the filing period for a constructive-discharge claim begins to run when the employee gives notice of his or her resignation. In a 7-to-1 decision, the Court favored the five-circuit majority who recognized such timeline and rejected the Tenth Circuit’s reasoning that the clock begins to run on the date of the “last discriminatory act.” Green v. Brennan, 578 U.S. ___, (2016). Although the case involved a federal employee, the Court noted that the Equal Employment Opportunity Commission (EEOC) treats federal and private sector employee limitations periods the same so this ruling should affect constructive-discharge claims against private employers as well.

Discriminatory Act That Triggers Limitations Clock

In the case before the Court, Marvin Green, a postmaster in Colorado, claimed he was denied a promotion because of his race. A year after that matter was settled, Green filed an informal EEO charge with the Postal Service alleging that he was subjected to retaliation for his prior EEO activity due to his supervisor threatening, demeaning, and harassing him. After the Postal Service’s EEO Office completed its investigation of his allegations, he was informed he could file a formal charge, but he failed to do to.

A few months later, Green was investigated for multiple infractions, including improper handling of employee grievances, delaying the mail, and sexual harassment of a female employee. Green was placed on unpaid leave during the investigation. Federal agents quickly concluded that Green had not intentionally delayed mail, but neither Green nor his union representative was told. Instead, the Postal Service began negotiating with Green’s union representative to settle all the issues against Green, resulting in Green signing a settlement agreement in December 2009 that included giving up his postmaster position. On February 9, 2010, Green submitted his resignation which was to be effective March 31.

During that time, Green filed multiple charges with the Postal Service’s EEO Office. By regulation, federal employees must contact an equal employment opportunity officer in their agency within 45 days of “the date of the matter alleged to be discriminatory” before bringing suit under Title VII. Green’s allegations included that he had been constructively discharged by being forced to retire.

Green eventually sued the Postal Service in federal court in Denver. The district court dismissed Green’s constructive discharge claim, ruling that he had not contacted an EEO counselor about his constructive-discharge claim within 45 days of the date he signed the settlement agreement in December. On appeal to the Tenth Circuit Court of Appeals, Green argued that the 45-day limitations period did not begin to run until he announced his resignation, even though that was months after the last alleged discriminatory act against him. The Tenth Circuit disagreed with Green, ruling that the clock began to run on the date of the “last discriminatory act” giving rise to the constructive discharge, as two other circuits have held.

Limitations Period Begins When Employee Gives Notice of Resignation

On appeal to the Supreme Court, Green asserted that the statute of limitations began when he actually resigned due to constructive discharge, the act that gave rise to his cause of action, which was consistent with the rulings of numerous other Courts of Appeals. Interestingly, the Court agreed with the position taken by the Postal Service, which was different from the Tenth Circuit’s decision, ruling that the limitations period for a constructive-discharge claim begins to run when the employee gives notice of his resignation.

In an opinion written by Justice Sotomayor, the Court explained that “the ‘matter alleged to be discriminatory’ in a constructive-discharge claim necessarily includes the employee’s resignation.” The Court noted that to the “standard rule” governing statutes of limitations, the “limitations period commences when the plaintiff has a complete and present cause of action.” It means that period begins when the plaintiff “can file suit and obtain relief.” In effect, a constructive-discharge claim is like a wrongful-discharge claim which accrues only after the employee is fired. With nothing in Title VII or its regulations to the contrary, the Court therefore found that the limitations period should not begin to run until after the discharge itself.

So precisely when does an employee resign for purposes of triggering the limitations period for a constructive-discharge claim? The Court ruled that the limitations period begins on the day the employee tells his employer of his resignation, not the employee’s actual last day of work.

The Court did not decide the factual question of when Green actually gave notice of his resignation to the Postal Service, sending the matter back to the Tenth Circuit to determine that fact.

Significance of Decision for Employers

The practical effect of the Court’s ruling is to extend the period in which an employee may allege a constructive discharge beyond the limitations period for the underlying discriminatory acts that gave rise to the resignation. Hypothetically, employees who resign may be able to bootstrap any alleged discriminatory act during the course of their employment to their decision to abandon employment. In his dissent, Justice Thomas further opined that a discrimination victim may extend the limitations period indefinitely simply by waiting to resign. Yet the Court believed such concerns to be overblown, doubting that a victim of employment discrimination would continue to work under intolerable conditions only to extend the limitations period for a constructive-discharge claim. Nonetheless, even if the applicable Title VII limitation period (typically 180 or 300 days for private employers) for the underlying discrimination has passed, an employee may still have a timely claim for constructive discharge under the Court’s rule.

Time will tell if Justice Thomas’s concerns were more realistic that his colleagues believed.

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May 20, 2016

Employers Who Prevail In A Title VII Case May Seek Attorneys’ Fees Even Without A Ruling On The Merits

By Dora Lane

In a unanimous decision, the U.S. Supreme Court ruled that a Title VII defendant is not required to obtain a favorable judgment on the merits of the underlying discrimination case to be eligible to recover its attorneys’ fees. The decision means that employers who are able to dispose of Title VII claims for non-merits reasons, such as a dismissal on statute-of-limitations grounds, lack of subject matter jurisdiction, failure of the EEOC to conciliate, or something similar, may ask a court to award the attorneys’ fees incurred in contesting the claims (assuming, of course, it satisfies the remaining requirements for an attorneys’ fees award). Refusing to decide whether the EEOC must pay the $4 million attorney fee award at issue, the Court sent the case back to the Eighth Circuit Court of Appeals to consider an alternative theory proposed by the EEOC. CRST Van Expedited, Inc. v. EEOC, 578 U.S. ___ (2016).

Trucking Company Gets Sexual Harassment Claims Dismissed

In the case before the Court, a new female driver at a large trucking company, CRST Van Expedited, Inc., filed a discrimination charge with the EEOC alleging that she was sexually harassed by two male trainers during her 28-day over-the-road training trip. After a lengthy investigation and unsuccessful conciliation, the EEOC filed suit alleging sexual harassment on behalf of the driver and other allegedly similarly situated female employees. During discovery, the EEOC identified over 250 other women who had supposedly been harassed.

Years of legal battles ensued, during which the district court ultimately dismissed all of the EEOC’s claims for various reasons, including expiration of the statute of limitations, lack of severity or pervasiveness of the alleged harassment, employees’ failure to complain timely, CRST’s prompt and effective response to harassment complaints, and discovery sanctions for the EEOC refusing to produce certain women for depositions. Upon dismissing the lawsuit, the court ruled that CRST was a prevailing party and invited them to apply for attorneys’ fees. CRST did, and the court awarded CRST over $4 million in fees.

The EEOC appealed (twice) and the Eighth Circuit Court of Appeals, among other things, reversed the award of attorneys’ fees. Bound by previous decisions in its circuit, the Court of Appeals held that before a defendant could be deemed to have prevailed for purposes of recovering attorneys’ fees, the defendant had to obtain a favorable judicial determination on the merits of the case. The Eighth Circuit then determined that CRST had not prevailed on the claims brought on behalf of 67 women because their claims were dismissed due to the EEOC’s failure to investigate and conciliate, which was not a ruling on the merits. As a result, the Eighth Circuit ruled that CRST was not entitled to an award of attorneys’ fees on those claims. CRST appealed to the Unites States Supreme Court.

Defendant As “Prevailing Party”

Title VII provides that a court, in its discretion, may award reasonable attorneys’ fees to the prevailing party. Accordingly, before deciding whether to award attorneys’ fees in any given case, a court must determine whether the party seeking fees has, in fact, prevailed. That determination is relatively clear when a plaintiff proves his or her discrimination case and a favorable judgment or court order is entered in the plaintiff’s favor. But there has been no clear definition on how courts should determine whether a defendant has prevailed, especially when the complaint is dismissed for procedural deficiencies or on jurisdictional grounds.

In rejecting the Eighth Circuit’s requirement that “prevailing party” status depends on a ruling on the merits, the Court stated that “[c]ommon sense undermines the notion that a defendant cannot ‘prevail’ unless the relevant disposition is on the merits.” Instead, the Court held that a defendant fulfills its primary objective whenever it can rebuff the plaintiff’s case, irrespective of the precise reason for the court’s decision. Looking to the congressional intent for Title VII’s fee-shifting provision, the Court ruled that a defendant may “prevail” even when the court’s final judgment in not on the merits.

Fees Expended in Frivolous, Unreasonable, or Groundless Litigation

The Court noted that under Title VII’s fee-shifting provision, prevailing defendants may seek attorneys’ fees whenever the plaintiff’s claim was frivolous, unreasonable, or groundless. The Court recognized that defendants spend significant attorney time and expenses contesting frivolous and unreasonable claims that result in their favor, whether on the merits or not, and that a request for an award of fees in such cases is appropriate.

Good News For Employers

The Court’s decision is good news for employers defending Title VII claims because it makes clear that a defendant may ask for attorneys’ fees when it gets a favorable judicial result for reasons not on the merits, where the defendant can show that the plaintiff’s claim was frivolous, unreasonable, or groundless. That clarification may help deter the EEOC and individual plaintiffs from filing or continuing to litigate groundless claims.

That said, we may not have seen the final word on application of the Title VII fee-shifting provision as the Court sent the CRST case back to the Eighth Circuit to consider a new argument put forth by the EEOC, namely that a defendant must obtain a preclusive judgment in order to be the “prevailing party.” We’ll keep tabs on this case and let you know of any further developments.

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May 18, 2016

New Overtime Rule: $47,476 Annual Salary Required For White Collar Exemptions

By Jude Biggs

Exempt white collar workers must be paid an annual salary of at least $47,476 under the Department of Labor’s (DOL’s) just-released final overtime rule. That salary threshold is more than twice the current salary requirement for the white collar exemptions under the Fair Labor Standards Act (FLSA). Highly compensated employees must be paid at least $134,004 per year (increased from $100,000) to meet that exemption. The new rule is effective December 1, 2016, so employers have about six months to decide what to do with current exempt white collar workers who do not meet the new thresholds.

Salary Level Will Automatically Adjust Every Three Years

In a change from its proposed rule, the DOL will now automatically update the salary levels once every three years. Originally proposed as an annual update, the final rule will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowest-wage Census region. The first adjustment will be posted August 1, 2019, 150 days in advance of its effective date on January 1, 2020.

Duties Tests Are Unchanged

Since 2004, the duties tests for the white collar exemptions have not included a limit on the amount of time that an employee can spend on nonexempt duties before the exemption is lost. Believing that a rise in the salary level will provide an initial bright-line test for the exemptions, the DOL refrained from changing the duties tests.

Nondiscretionary Bonuses, Incentive Payments, and Commissions

In the past, the DOL has not included nondiscretionary bonuses, incentive pay, or commissions when determining whether an employee’s salary meets the white collar exemption threshold; it looked only at actual salary or fee payments made to employees. In its final rule, the DOL will allow up to 10 percent of the salary threshold for non-highly compensated employees to be met by non-discretionary bonuses, incentive pay, or commissions. Note that these types of payments must be made on at least a quarterly basis to be included as “salary.” The DOL stated that this new policy was included in response to “robust comments” received from the business community which use these forms of pay as part of overall compensation packages for managerial and other exempt employees.

Next Steps

Over the next six months, you need to decide how to address previously exempt employees who no longer meet the salary thresholds. In order to meet the December 1 effective date, use the following checklist of steps to keep your pay practices compliant.

Examine your payroll records to determine which employees are potentially affected by the changes in the white collar exemptions.
Review the tasks performed by each white collar exempt employee to determine whether each meets the duties test under an applicable exemption.
If an employee does not meet the duties tests, you must treat them as non-exempt, regardless of salary.
Review if you are paying exempt employees on a salary basis, meaning they get paid their salary without reduction due to variations in the quantity or quality of work.
If an employee otherwise meets an exemption but is not currently paid at or above the new salary levels, decide whether to raise their salary to meet the new threshold or convert them to non-exempt and pay them time and one-half for all hours worked over 40 per week.
For any employees no longer treated as exempt, inform and train the employee, supervisors, and payroll administrators on proper timekeeping and overtime obligations. If appropriate, make sure such employees work as little overtime as possible, to hold down costs.
Consider whether the base rate of pay for such employees can be adjusted, so that with overtime pay, the employees earn about the same as before.
For employees who meet the exemption, implement procedures to update salary levels every three years to keep up with the DOL’s automatic adjustments.

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May 16, 2016

FCRA Lawsuit Sent Back To Ninth Circuit For Further Analysis on Standing to Sue

By Dora Lane

A bare procedural violation of the Fair Credit Reporting Act (FCRA) is not sufficient to permit an individual to sue for a willful FCRA violation, ruled the U.S. Supreme Court today. But, if the alleged procedural violation entails a risk of real harm, the plaintiff may have a concrete injury sufficient to have standing to sue. In a 6-to-2 decision, the Court sent the case back to the Ninth Circuit for further analysis of the injury-in-fact requirement of Article III standing. Spokeo, Inc. v. Robins, 578 U.S. ___ (2016).

People Search Engine Allegedly Produced False Information

Spokeo, Inc. operates a website that provides users with information about other people, including contact data, marital status, age, occupation, economic health, hobbies, shopping habits, musical preferences, and wealth level. It collects that information from various sources including phone books, real estate listings, and social networks.

According to Thomas Robins' allegations, he found that Spokeo’s website published false information about him. It stated that he was married, in his fifties, had children, held a job, was relatively affluent, and had a graduate degree – none of which was accurate. Robins sought to file a class action against Spokeo, asking to recover the $1,000 in damages allowed by the FCRA for each willful violation of the statute. The potential class could include millions of people.

Ninth Circuit Reversed on Whether Actual Harm Needed for Willful FCRA Violations

The trial court focused on Robins’ allegations of harm, which were “that he has been unsuccessful in seeking employment, and that he is concerned that the inaccuracies in his report will affect his ability to obtain credit, employment, insurance, and the like.” It dismissed his complaint without prejudice, ruling he lacked standing to sue Spokeo because he had not alleged “any actual or imminent harm.” Despite filing an amended complaint in which he more fully described the inaccuracies in the information on Spokeo’s website, the district court ruled that Robins had failed to plead an injury-in-fact and that any injuries pled were not traceable to Spokeo’s alleged violations.

The Ninth Circuit Court of Appeals reversed. Spokeo had argued that Robins could not sue under the FCRA without showing actual harm, but the Ninth Circuit found that the FCRA does not require a showing of actual harm when a plaintiff sues for willful violations. Therefore, the Ninth Circuit held that a plaintiff can suffer a violation of the statutory right without suffering actual damages.

Injury-In-Fact Requires Concrete and Particularized Harm

The Supreme Court vacated the Ninth Circuit’s decision, stating that the appellate court had failed to consider both aspects of the injury-in-fact requirement for standing to sue, namely that the plaintiff suffered an invasion of a legally protected interest that is both concrete and particularized, rather than hypothetical. Justice Alito, writing for the majority, stated that the Ninth Circuit focused on the “particularized” aspect of Robins’ injury – in other words, that he had been affected in a personal and individual way – but failed to consider whether his injury was “concrete.” The Court emphasized that Article III standing requires a concrete injury, even in the context of a statutory violation.

The Court pointed out, however, that a concrete injury does not have to be tangible. An intangible harm may constitute an injury-in-fact and Congress can identify and elevate intangible harms to give rise to a case or controversy sufficient for standing to sue. A risk of real harm may satisfy the concreteness requirement.

As it relates to Robins’ allegations of Spokeo’s willful FCRA violations, the Court wrote that although Congress clearly sought to prevent the dissemination of false information by adopting the safeguards in the FCRA, Robins could not satisfy the injury-in-fact requirement for standing simply by alleging a bare procedural violation of the FCRA. The Court noted that a violation of one of the FCRA’s procedural requirements, such as providing an incorrect zip code, may not result in harm. The Court, without taking a position on whether the Ninth Circuit’s ultimate conclusion was correct, sent the case back to the Ninth Circuit to further analyze whether Robins’ particular procedural violations, as alleged, involve a degree of risk sufficient to meet the concreteness requirement.

Effect of Ruling

By remanding this case back to the appellate court, the Supreme Court may have muddied the waters for defendants who face a statutory violation of the FCRA (or other federal statutes). Although it is good news that a bare statutory violation without concrete harm will not be sufficient to confer standing to sue, the analysis of the injury-in-fact requirement will likely mean that most cases will not be dismissed early in the proceeding, say on a motion to dismiss. That will raise the cost of defending such cases. Today’s opinion also leaves the door open for Robins’ class action case to proceed, should the Ninth Circuit find that the plaintiffs’ face the risk of real harm from false information in Spokeo’s people search database. We will continue to follow the case as the liability for statutory violations of the FCRA in a class action is huge.

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May 4, 2016

New Federal Trade Secret Act: What Employers Need to Know

By Mark Wiletsky

In a rare bipartisan effort, Congress passed the Defend Trade Secrets Act (DTSA) that will allow an owner of a trade secret to bring a misappropriation action in federal court. For the first time, companies seeking to protect their trade secrets will be able to file civil lawsuits for misappropriation under the federal Economic Espionage Act. The new law will apply to trade secrets related to a product or service used in, or intended for use in, interstate or foreign commerce. President Obama is expected to sign the bill into law very soon.

Protection of Trade Secrets

Many companies rely on a secret formula, process, or technique for their success. Consider, where would Coca-Cola or Kentucky Fried Chicken be without their secret recipes? Under current law, companies seeking to sue for misappropriation of a trade secret must rely on each state’s trade secret law and pursue their lawsuits in state court. Prosecutors may file criminal actions under the federal Economic Espionage Act for theft of trade secrets, but that statute did not provide a mechanism for filing a private federal civil suit – until now.

The DTSA amends the Economic Espionage Act to permit private parties to bring a civil lawsuit in federal court alleging trade secret misappropriation. It provides certain remedies, including injunctions, damages, and an unusual provision allowing for the civil seizure of property in extraordinary circumstances. Although the DTSA does not replace state trade secret laws, it offers an additional enforcement venue for the protection of trade secrets.

DTSA Provides Access To Federal Courts, Injunctions, Damages, and Seizure of Property

Employers need to understand the primary components of the DTSA in order to take advantage of this new avenue to protect valuable proprietary information. First, the DTSA opens the doors of federal courthouses to those alleging an actual or threatened trade secret misappropriation. As with other areas of employment law where there is an overlap of state and federal law, plaintiffs may choose whether to bring a misappropriation claim in state or federal court, depending on which law offers the most protection, more favorable discovery and motion practice, and greater damages. Federal protection for trade secrets should lead to a more consistent approach on what is protected as a “trade secret,” what constitutes a misappropriation, and what remedies are available. More predictable discovery and motion practice under federal court rules should help streamline costs while offering more uniformity in litigation across jurisdictions.

Second, the DTSA tries to balance the need to bolster protection of valuable trade secrets against the right of employee mobility by allowing for injunctions, but only in limited circumstances. Employers can seek an injunction to prevent actual or threatened misappropriation of a trade secret by an employee on terms that the court deems reasonable, as long as it does not prevent a person from entering into an employment relationship or circumvent state laws regarding restraints on employment, such as state non-compete laws. An injunction will not be granted based “merely on the information the person knows” but instead, must be based on evidence of threatened misappropriation.

Third, federal courts may award damages caused by the misappropriation of a trade secret, to include damages for actual loss, for any unjust enrichment not addressed in the damages for actual loss, or the imposition of a reasonable royalty for the misappropriator’s unauthorized disclosure or use of the trade secret. For a willful and malicious misappropriation, federal courts may award double damages and reasonable attorney’s fees. Courts also may award reasonable attorney’s fees to the prevailing party if a claim of misappropriation is made in bad faith, or a motion to terminate an injunction is made or opposed in bad faith.

In a unique provision, the DTSA allows the right to seek a civil seizure of property, but only in extraordinary circumstances. In such cases, a court may order the seizure of property when necessary to prevent the use or dissemination of the trade secret. If, however, the seizure is wrongful or excessive, the DTSA allows the individual whose property has been seized to sue for damages suffered as a result of the unlawful seizure. My colleague, Teague Donahey, provided an excellent summary of the DTSA and its seizure provisions in a recent article.

Safe Harbor For Whistleblower Disclosure of Trade Secrets

The DTSA offers safe harbor to individuals who disclose trade secrets to the government to investigate potentially illegal activity. Whistleblowers are granted civil and criminal immunity if they disclose a trade secret in confidence to a federal, state, or local government official, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or as part of a lawsuit or other proceeding when the disclosure is made under seal.

The new law also protects limited disclosure of trade secrets when an employee files a retaliation claim based on reporting a suspected violation of law against an employer. The employee must make such disclosures under seal and must not disclose the trade secret except pursuant to court order. Note that an “employee” is defined under the whistleblower immunity provision to include “any individual performing work as a contractor or consultant for an employer,” a broader definition than most other employment laws.

This immunity for use of trade secret information in an anti-retaliation lawsuit must be included in any contract or agreement that governs the use of trade secrets and other confidential information. Alternatively, employers may provide a cross-reference to a policy document that is provided to the employee that specifies the employer’s reporting policy for a suspected violation of law. Failure to comply with the notice requirement will result in the employer losing the ability to recover double damages and attorneys’ fees against the employee that might otherwise be available.

What You Should Do Now

If you use confidentiality or non-disclosure agreements that are designed to protect company trade secrets, review and revise future agreements to incorporate the DTSA’s whistleblower immunity notice. You’ll also want to consider expanding the venue language in your agreements to be sure you don’t exclude pursuing enforcement of the agreement in federal court.

If faced with a potential misappropriation of trade secrets, discuss with your legal counsel whether your state’s trade secret law or the new federal law (assuming it is signed into law) would provide the best enforcement mechanism. The DTSA provides an important avenue for increased protection of trade secrets but in some circumstances, state court may remain your best option.

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April 11, 2016

New Fiduciary Rule Applies Stricter Standard to Most Retirement Account Advisers

By Rebecca Hudson, Bret Busacker, and Molly Hobbs

In its long-awaited final fiduciary rule, the Department of Labor (DOL) establishes stricter fiduciary standards for investment advisers and consultants providing services to ERISA plans and IRAs. Intended to offer additional protection to ERISA plan participants and IRA owners, the final rule issued on April 7th broadens the application of the ERISA fiduciary standard to many investment professionals, consultants, and advisers who previously had no obligation to adhere to ERISA’s fiduciary standards or to the related prohibited transaction rules.

Final Fiduciary Rule Replaces Five-Part Test

Since 1975, ERISA and its implementing regulations have defined “fiduciary” and “investment advice” narrowly. Under ERISA Section 3(21)(A), a “fiduciary” is someone who has the authority and/or responsibility to provide investment advice under a retirement savings plan and is compensated for doing so. Investment advisers and consultants who are a fiduciary with respect to an ERISA plan or IRA engage in a prohibited transaction if they receive “conflicted compensation” (e.g., commissions, trailing commissions, sales loads, 12b-1 fees, and revenue-sharing payments) from third parties with respect to the investments they recommend to these ERISA plans and IRAs.

In 1975, the DOL created a five-part test to identify an ERISA fiduciary. An adviser or consultant who does not acknowledge his or her fiduciary status with respect to a plan will nonetheless be a fiduciary with respect to the plan if the adviser enters into an agreement to regularly provide individualized investment advice that will serve as the primary basis upon which the advice recipient will make investment decisions (the “five-part test”).

Believing that the retirement landscape has changed significantly since 1975, including the prevalence of participant-directed 401(k) plans and the extensive use of individual retirement accounts (IRAs), in 2010, the DOL proposed to broaden the definition of investment advice. The DOL subsequently withdrew the 2010 proposed rule in response to significant push back from various stakeholders. In 2015, a new proposed rule was published that eliminated the five-part test and extended fiduciary status to those advisers who provide advice that is individualized or specifically directed to the advice recipient. In response to the wide range of comments it received on the 2015 proposed rule, the DOL made significant changes to the final fiduciary rule, but kept much of the expansive nature of the 2015 proposed rule.

General Structure of the Final Fiduciary Rule

In today’s marketplace, many investment professionals, consultants and advisers have no obligation to adhere to ERISA’s higher fiduciary standards or to the prohibited transaction rules because they do not satisfy each prong of the five-part test. The DOL expects that broader application of the fiduciary standard under the final fiduciary rule will more closely align the advisers’ interests with those of their customers, while reducing conflicts of interest, disloyalty, and imprudence.

Under the final rule, an investment adviser or consultant that makes a “recommendation” to a plan or IRA for a fee or other compensation that is customized for or specifically directed at the plan or IRA may be a fiduciary. For purposes of the final fiduciary rule, a “recommendation” includes providing advice with respect to:

buying, holding, selling, exchanging, or rolling over securities or other investment property, or

management of securities or other investment property, investment policies or strategies, portfolio composition, selection of other persons to provide investment advice or services, selection of investment account arrangements, and recommendations with respect to rollovers, distributions, or transfers from a plan or IRA.

Accordingly, an investment adviser or consultant who makes an investment recommendation (as defined above) and receives conflicted compensation in connection with the advice provided to the plan or IRA will engage in a prohibited transaction unless one of the enumerated carve-outs from the rule applies or the adviser/consultant complies with the “Best Interest Contract Exemption” requirement.

What You Need to Know

Plans, their affected financial advisers, and other service providers have until April 10, 2017 to prepare for any change from non-fiduciary to fiduciary status. Notably, there are also two exceptions to the effective date, which will provide more time for certain service providers to adapt to the new standards. In particular, the Best Interest Contract Exemption and rules regulating advice with respect to the advisers proprietary funds will have a transition period during which fewer conditions apply, from April 2017 to January 1, 2018, at which time the rule will be fully implemented.

ERISA plans should begin now to review their relationship with their current investment adviser/consultant. Some things plans should consider include:

Determine if an adviser or consultant is currently a fiduciary under the new fiduciary rule.
Determine if one of the rule carve-outs applies to the services provided by adviser or consultant.
Discuss the Best Interest Contract Exemption with any adviser that is a fiduciary and determine the best way to document and comply with that exemption.

In conducting this review, plans should interpret the general fiduciary rule broadly and interpret any of the enumerated carve-outs narrowly. Fiduciaries should expect that advisers will provide written documentation of their role and their satisfaction of any carve-out. Plans should require advisers to indemnify the plan from any prohibited transaction that arises as a result of its failure to comply with any carve-out or exemption.

For more information about this rule, its carve-outs and the Best Interest Contract Exemption, please read our full summary.