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A Briefing on Emerging Issues Impacting Transactional Practice

December 01, 2015 (16 min read)


THE U.S. DEPARTMENT OF ENERGY HAS UNVEILED A strategic plan laying out a path businesses, state and local governments, consumers, and other stakeholders can use to double U.S. energy productivity by 2030.

The strategies and actions identified in the report, Accelerate Energy Productivity 2030: A Strategic Roadmap for American Energy Innovation, Economic Growth, and Competitiveness, included:

  • States securing energy productivity through setting and updating vehicle and product codes and standards, and providing energy performance information to consumers;
  • Utilities and regulators designing rates and related policies that more effectively align energy efficiency with utility business models; and
  • Businesses reinvesting avoided energy costs.

“Cutting energy waste and doubling energy productivity will help American families save money on their energy bills, enable businesses to produce more while using less energy, and strengthen the U.S. clean energy economy,” Energy Secretary Ernest Moniz said in a statement. “This roadmap provides a path for families, businesses, and governments, among others, to follow. By taking steps to increase efficiency and cut waste, the U.S. will be more competitive globally and will see direct and long-lasting benefits for decades to come.”

The Roadmap focuses on scalable actions that, the Energy Department believes, have the potential to reduce energy consumption and support economic growth.

- Pratt’s Energy Law Report, Volume 15, Issue 10*


FEDERAL TRADE COMMISSION (FTC) Chairwoman Edith Ramirez issued a statement highlighting a ruling by the U.S. Court of Appeals for the Third Circuit that reaffirmed the FTC’s authority to hold companies accountable for failing to safeguard consumer data. “It is not only appropriate, but critical, that the FTC has the ability to take action on behalf of consumers when companies fail to take reasonable steps to secure sensitive consumer information,” Ramirez said.

On June 26, 2012, the FTC filed suit against Wyndham Worldwide Corporation and three of its subsidiaries for alleged data security failures. The FTC alleged that the failures led to fraudulent charges on consumers’ accounts, millions of dollars in fraud loss, and the export of hundreds of thousands of consumers’ payment card account information to an Internet domain address registered in Russia. The agency charged that the security practices were unfair and deceptive and violated the FTC Act.

- Pratt’s Bank Law & Regulatory Report, Volume 49, No. 9*


THE DEPARTMENT OF LABOR (DOL), through its Wage and Hour Division, issued an Administrator’s Interpretation (AI 2015-1) focusing on the always complex issue of independent contractor versus employee classification under the Fair Labor Standards Act (FLSA). It makes clear the DOL has little tolerance for the concept of independent contractors, stating unequivocally that most workers “are employees under the FLSA’s broad definitions.” Although an administrative interpretation does not have the same legal impact and effect as agency regulations, this AI will no doubt become the hot topic of FLSA process and litigation.

In recent years, the DOL has focused its efforts on investigating misclassification as a priority item. Addressing this point, Administrator Weil writes that misclassification can deprive individuals of “important workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers’ compensation[.]” “Misclassification also results in lower tax revenues for government and an uneven playing field for employers who properly classify their workers.”

The DOL, observing that the FLSA broadly defines “employ” as “to suffer or permit to work,” adopts the court-developed economic realities test as the standard for resolving the independent contractor/ employees status issue. The Administrative Interpretation provides guidance on each of the six factors in the economic realities test. Noting that economic dependence is the key, the test “focuses on whether the worker is economically dependent on the employer or in business for him or herself.” “A worker who is economically dependent on an employer is suffered or permitted to work by the employer. Thus, applying the economic realities test in view of the expansive definition of ‘employ’ under the Act, most workers are employees under the FLSA.” AI 2015-1 lists the six factors as follows:

  • Is the work an integral part of the employer’s business?
  • Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
  • How does the worker’s relative investment compare to the employer’s investment?
  • Does the work performed require special skill and initiative?
  • Is the relationship between the worker and the employer permanent or indefinite?
  • What is the nature and degree of the employer’s control?

AI 2015-1 emphasizes that all factors are to be considered and there is no one factor, including the control factor, that is determinative of whether a worker is an employee. These factors are not to be mechanically applied, “but with an understanding that the factors are indicators of the broader concept of economic dependence.”

While not a new concept in this area of law, AI 2015-1 reminds that a “label” given to a worker is not determinative. “Thus, an agreement between an employer and a worker designating or labeling the worker as an independent contractor is not indicative of the economic realities of the working relationship and is not relevant to the analysis of the worker’s status.”

AI 2015-1 should be a wake-up call to all businesses currently using workers classified as independent contractors. The time to consult labor counsel is now before one or more of those independent contractors contacts the DOL or plaintiff’s counsel. An ounce of prevention is worth a pound of cure.

- Bender’s Labor & Employment Bulletin, Volume 15, Issue No. 9*


A REQUEST TO EXPEDITE THE APPEAL of a ruling lifting the four-game suspension of Patriot’s Quarterback Tom Brady has been approved and the appeal could now be heard as early as February 2016, around the time of the next Super Bowl. In a case largely watched because of its implications for New England’s Super Bowl winning quarterback, a federal court overturned Brady’s four-game suspension by the National Football League (NFL) Commissioner. The court did not, however, make any findings about whether or not Brady committed any of the offenses that the Commissioner relied upon in upholding the suspension. Instead, the court focused on perceived procedural deficiencies, “including (A) inadequate notice to Brady of both his potential discipline (four-game suspension) and his alleged misconduct; (B) denial of the opportunity for Brady to examine one of two lead investigators, namely NFL Executive Vice President and General Counsel Jeff Pash; and (C) denial of equal access to investigative files, including witness interview notes.”

The court’s inquiry into those areas is somewhat surprising given the deference that courts are required to extend to arbitral awards and the fact that such issues would normally be for the arbitrator to decide. The court may have been influenced by the fact that the arbitrator in this instance was the chief executive officer of the NFL, the entity that conducted the investigation into Brady’s alleged infractions and decided that he was sufficiently culpable to justify a four-game suspension. Although courts generally are required to defer to the award of an arbitrator except in rare circumstances, partiality on the part of the arbitrator is one of those circumstances. The NFL Players Association, arguing on behalf of Brady, had asserted that the award could not stand because “Commissioner Goodell was ‘evidently partial[.]’” The court elected not to treat that issue in view of its decision to overturn the award on other grounds.

The NFL is appealing the decision in the U.S. Court of Appeals for the Second Circuit, and the issue of the Commissioner’s partiality almost certainly will again be raised before that court. Indeed, the case raises a number of issues with which the Second Circuit most likely will have to contend. One of those issues may be whether arbitration under Article 46 of the collective bargaining agreement between the NFL Players Association and the NFL is the type of arbitration contemplated by the body of law dealing with judicial review of arbitral awards. That body of law presumes that the arbitration is conducted before an impartial arbitrator and impartiality necessarily implies an arbiter unrelated to the parties. Does that body of law apply to an award rendered by the CEO of one of the parties? Does the answer to the previous question change where, as in this case, the other party expressly agrees that the CEO may serve in the role of arbiter? If the award rendered in this case is an arbitration award subject to the judicial deferral doctrine, did the district court err by reviewing the merits of the case? May the Second Circuit vacate the Commissioner’s award on other grounds (such as the partiality of the Commissioner)?

This matter may not be finally resolved until after the Levi’s Stadium clock has run on Super Bowl 50.

- Bender’s Labor & Employment Bulletin, Volume 15, Issue 10


DESPITE SEVERAL MULTI-BILLION- dollar settlements with banks for their misdeeds in the 2008 financial crisis, the Justice Department has taken a lot of heat for failing to prosecute corporate executives. A new internal DOJ memo—“Individual Accountability for Corporate Wrongdoing”— issued by Deputy Attorney General Sally Quillian Yates may shift more of that heat to financial executives.

“One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing,” Yates stressed in the memo. “Such accountability is important for several reasons: it deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public’s confidence in our justice system.”

“A Tall Order”

She noted that former Attorney General Eric Holder made clear that “as a matter of basic fairness, we cannot allow the flesh-and- blood people responsible for misconduct to walk away, while leaving only the company’s employees and shareholders to pay the price.”

The public expects and demands this individual accountability, Yates said. “Americans should never believe, even incorrectly, that one’s criminal activity will go unpunished simply because it was committed on behalf of a corporation.”

She acknowledged, however, that prosecutors face a number of challenges in pursuing financial fraud cases against individuals, especially high-level executives “who are often insulated from the day-to-day activity in which the misconduct occurs.”

“The Rules Have Changed”

That’s where the new DOJ memo comes into play. The memo takes six specific steps to hold individual corporate wrongdoers accountable. At the top of the list, Yates said, “effective immediately, we have revised our policy guidance to require that if a company wants any credit for cooperation, any credit at all, it must identify all individuals involved in the wrongdoing, regardless of their position, status or seniority in the company and provide all relevant facts about their misconduct. It’s all or nothing. No more picking and choosing what gets disclosed. No more partial credit for cooperation that doesn’t include information about individuals.”

Yates called the change a substantial shift from prior DOJ practice. “The rules have just changed,” she added. “Effective today, if a company wants any consideration for its cooperation, it must give up the individuals, no matter where they sit within the company. And we’re not going to let corporations plead ignorance.”

The memo describes five additional steps:

  • Both criminal and civil attorneys should focus on individual wrongdoing from the very beginning of any investigation of corporate misconduct.
  • Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.
  • Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.
  • Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized.
  • Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.

She acknowledged that the changes may present challenges. “Some corporations may decide, for example, that the benefits of consideration for cooperation with DOJ are not worth the costs of coughing up the high-level executives who perpetrated the misconduct. Less corporate cooperation could mean fewer settlements and potentially smaller overall recoveries by the government. In addition, individuals facing long prison terms or large civil penalties may be more inclined to roll the dice before a jury and consequently, we could see fewer guilty pleas.

“Only time will tell. But if that’s what happens, so be it. Our mission here is not to recover the largest amount of money from the greatest number of corporations; our job is to seek accountability from those who break our laws and victimize our citizens. It’s the only way to truly deter corporate wrongdoing.”

- Pratt’s Bank Law & Regulatory Report, Volume 49, No. 10*


PRESIDENT OBAMA SIGNED AN Executive Order requiring that federal contractors grant their employees up to seven paid sick leave days per year. Under the order, federal contracts will contain a clause requiring the contractors and their subcontractors to provide their employees with at least one hour of paid sick leave for every 30 hours worked. A contractor may, however, impose a 56-hour limit on the total number of paid hours that may be earned in a year.

Earned sick leave may be used for absences resulting from: (i) physical or mental illness, injury, or medical condition; (ii) obtaining diagnosis, care, or preventive care from a health care provider; or (iii) caring for a child, a parent, a spouse, or a domestic partner, who has any of such conditions or needs for diagnosis, care, or preventive care. The leave must also be available for absences due to the care of “any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship who has any of the conditions or needs for diagnosis, care, or preventive care described in ... (i) or (ii) ... or is otherwise in need of care[.]’’ Finally, in many circumstances involving domestic violence, sexual assault, or stalking, the leave may be used for absences needed to obtain additional counseling, to seek relocation, to seek assistance from a victim services organization, to take related legal action (including preparation for or participation in any related civil or criminal legal proceeding), or to assist an individual, whose close association with the employee is the equivalent of a family relationship, in engaging in any of these activities. Contractors may not retaliate against employees who use the leave.

Leave earned may be carried over from year to year and must be reinstated for separated employees who are rehired within 12 months after separation. Unused leave is not, however, a benefit for which an employee must be compensated upon termination. The leave must be available to employees who give notice at least 7 calendar days in advance where the need for the leave is foreseeable, and in other cases as soon as is practicable. The order specifies that an employer may require limited certification of the need for leave in excess of 3 days.

The Executive Order directs the Secretary of Labor to issue regulations implementing the order by September 30, 2016 and the order is effective for contracts issued or solicited after January 1, 2017.

A policy statement, which has been and will continue to be hotly contested, provides that: access to paid sick leave will improve the health and performance of employees of federal contractors and bring benefits packages at federal contractors in line with model employers, ensuring that they remain competitive employers in the search for dedicated and talented employees. These savings and quality improvements will lead to improved economy and efficiency in Government procurement.

The Executive Order does not analyze the additional cost to the taxpayer of providing the paid leave.

- Bender’s Labor & Employment Bulletin Volume 15, Issue 10*


U.S. ATTORNEY GENERAL LORETTA Lynch said she is “more determined than ever to vigorously enforce the Fair Housing Act with every tool at [her] disposal—including challenges based on unfair and unacceptable discriminatory effects, particularly now that the Supreme Court has vindicated the [Justice Department’s] position that the Fair Housing Act encompasses disparate impact claims.”

Lynch pointed out that the Justice Department is exploring new ways to conduct its fair housing mission “more efficiently, more effectively and in ways that account for contemporary housing trends.”

She also noted that in just the last three years, the Department of Justice’s (DOJ) Civil Rights Division has filed more than 100 lawsuits, including 69 pattern or practice lawsuits, to combat housing and lending discrimination.

“I am proud to say that, in the past few months alone, we have made unprecedented advances,” Lynch added. “We have drawn on new technology, cutting-edge research and evidence-based strategies to conduct testing electronically—thereby dramatically expanding the reach of the Fair Housing Testing Program at a fraction of the time and expense. And we are examining new fields and evolving industries that have not previously been subject to scrutiny to locate areas where discrimination is prevalent and to target the places where Americans are being systematically locked out, let down and left behind.”

Officials from DOJ, Housing and Urban Development (HUD), and the Consumer Financial Protection Bureau indicated that their agencies are all working on ongoing redlining investigations.

- Pratt’s Bank Law & Regulatory Report, Volume 49, No. 10*


A SHARPLY DIVIDED SECURITIES AND Exchange Commission adopted a final rule that requires a public company to disclose the ratio of the compensation of its chief executive officer (CEO) to the median compensation of its employees. The new rule, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, provides companies with flexibility in calculating this pay ratio, and helps inform shareholders when voting on “say on pay.”

“The Commission adopted a carefully calibrated pay ratio disclosure rule that carries out a statutory mandate,” said SEC Chair Mary Jo White. “The rule provides companies with substantial flexibility in determining the pay ratio, while remaining true to the statutory requirements.” The new rule will provide shareholders with information they can use to evaluate a CEO’s compensation, and will require disclosure of the pay ratio in registration statements, proxy and information statements, and annual reports that call for executive compensation disclosure.

To identify the median employee, the rule will allow companies to select a methodology based on their own facts and circumstances. A company can use its total employee population or a statistical sampling of that population and/or other reasonable methods. Companies can also apply a cost-of-living adjustment to the compensation measure used to identify the median employee. They also will be permitted to identify their median employee once every three years. Companies will be required to provide disclosure of their pay ratios for their first fiscal year beginning on or after January 1, 2017.

Commissioner Luis A. Aguilar said the Congressional mandate under Dodd-Frank section 953(b) “has proven to be one of the most controversial rules that the Commission has been required to undertake under the Dodd-Frank Act.” He noted that since Congress first required the Commission to promulgate this rule just over five years ago, the Commission has received over 287,000 comment letters, with over 1,500 individual letters and the rest form letters. “The diverse views expressed by these commenters reflect that Congress tasked the Commission with navigating a highly divisive subject—a boon or a bane, depending on one’s perspective,” Aguilar said.

- Pratt’s Bank Law & Regulatory Report, Volume 49, No. 9*

*Copyright © 2015. Matthew Bender & Company, Inc., a member of the LexisNexis Group. All rights reserved. Materials reproduced from Pratt’s Energy Law Report, Bender’s Labor & Employment Bulletin and Pratt’s Bank Law & Regulatory Report with permission of Matthew Bender & Company, Inc. No part of this document may be copied, photocopied, reproduced, translated or reduced to any electronic medium or machine readable form, in whole or in part, without prior written consent of Matthew Bender & Company, Inc.