Current Updates and Legal Developments Spring 2018

U.S. DEPARTMENT OF LABOR SETS NEW GUIDELINES FOR INTERN COMPENSATION

THE U.S. DEPARTMENT OF LABOR (DOL) HAS ADOPTED new guidelines for determining whether interns working at for-profit companies are entitled to compensation under the federal Fair Labor Standards Act (FLSA).

The DOL abandoned its six-part analysis for deciding if an intern meets the requirements for employee status under the FLSA in favor of a seven-factor test that has been adopted by four federal appeals courts, most recently by the U.S. Court of Appeals for the Ninth Circuit on December 19. See Benjamin v. B&H Educ., Inc., 877 F.3d 1139 (9th Cir. 2017).

In a statement, the DOL said that it “will conform to these appellate court rulings by using the same ‘primary beneficiary’ test that these courts use to determine whether interns are employees under the FLSA.” The Wage and Hour Division (WHD) of the DOL updated its fact sheet on the issue, “Internship Programs under the Fair Labor Standards Act,” to reflect the seven-part inquiry to be used going forward.

The WHD stated that under the new guidelines, the emphasis is on the “economic reality” of the relationship between the intern and employer, specifically the question of which party is the “primary beneficiary” of the relationship. The test is flexible, noted the WHD, and the determination of whether an intern is an employee “necessarily depends on the unique circumstances of the case.”

The seven factors are:

• The extent to which the intern and employer clearly understand that there is no expectation of compensation
• The extent to which the internship provides training similar to that provided in an educational environment
• The extent to which the internship is tied to the intern’s formal education program by coursework or academic credit
• The extent to which the internship accommodates the intern’s academic commitments
• The extent to which the internship is limited in duration to the period in which it provides the intern with beneficial learning
• The extent to which the intern’s work complements, rather than displaces, the work of paid employees
• The extent to which the intern and employer understand that the internship does not guarantee a paid job

The WHD said that in addition to aligning with case law, adoption of the new standards will “eliminate unnecessary confusion among the regulated community” and provide its investigators “with increased flexibility to holistically analyze internships on a case-by-case basis.”

- Lexis Practice Advisor Staff

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RESEARCH PATH: Labor & Employment > Employment Contracts > Employment Agreements > Articles

CALIFORNIA STATUTE LIMITS PRE-EMPLOYMENT CRIMINAL BACKGROUND INQUIRIES

WITH THE ENACTMENT OF THE FAIR CHANCE ACT (Assembly Bill No. 1008),1 California became the tenth state to prohibit both private and public employers from requiring an applicant to submit to a criminal background check before making a conditional offer of employment. The statute, also called the Ban-the-Box-Law, became effective on January 1.

Under the new provisions, covered employers—those with five or more employees—may not require an applicant “to include on any application for employment any question that seeks the disclosure of an applicant’s conviction history.” In addition, covered employers may not “inquire into or consider the conviction history of an applicant until that applicant has received a conditional offer.” Further, when conducting the background check, the employer may not “consider, distribute, or disseminate information about” arrests not followed by conviction, referral to or participation in a pre-trial or post-trial diversion program, or convictions that have been sealed, dismissed, or expunged.

The statute does not preclude an employer from conducting a criminal conviction background check. However, if an employer intends to reject an applicant on the basis of the applicant’s conviction history, the employer must make “an individualized assessment of whether the applicant’s conviction has a direct and adverse relationship with the specific duties of the job that justify denying the applicant the position.”

If an employer makes a preliminary decision to reject an applicant on the basis of the applicant’s conviction history, the employer must notify the applicant in writing and include notice of the conviction at issue, a copy of the conviction history report, and an explanation of the applicant’s right to respond to the notification. The applicant then has at least five business days to respond and five additional days after that to provide any information disputing the accuracy of the report.

Notice of a final rejection based on conviction history must also be provided to the applicant in writing, along with information on how to challenge the decision or to file a complaint with the California Department of Fair Employment and Housing.

Section 1 of the statute notes that “roughly seven million Californians, or nearly one in three adults, have an arrest or conviction record than can significantly undermine their efforts to obtain gainful employment.” Experts have found, the statute says, that “employment is essential to helping formerly incarcerated people support themselves and their families, that a job develops prosocial behavior, strengthens community ties, enhances selfesteem, and improves mental health, all of which reduce recidivism.”

- Lexis Practice Advisor Staff

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RESEARCH PATH: Labor & Employment > Screening and Hiring > Recruiting and Screening > Articles

FEDERAL RESERVE BOARD PROPOSES MEASURES TO INCREASE TRANSPARENCY OF STRESS TESTING

THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE System is seeking comment on several proposals that it says will “increase the transparency of its stress testing program while maintaining the Federal Reserve’s ability to test the resiliency of the nation’s largest and most complex banks.”

Among the proposals is the release of greater information about the models the Board uses in estimating hypothetical losses in its testing, particularly in its annual Comprehensive Capital Analysis and Review (CCAR). Under the proposal, the Board would publicly release for the first time a range of loss rates, estimated using the Board’s model, for loans held by CCAR firms; portfolios of hypothetical loans with loss rates estimated by the Board’s models; and more detailed descriptions of the Board’s models.

The Board is also seeking public comment on a proposed Stress Testing Policy Statement, which it described as an outline of “the key principles and policies governing the Board’s approach to the development, implementation, and validation of models used in the supervisory stress test.”

Finally, the Board is proposing amendments to its policy statement on the scenario design framework for stress testing. “The proposed amendments to the policy statement would clarify when the Board may adopt a change in the unemployment rate in the severely adverse scenario of less than 4 percentage points; institute a counter-cyclical guide for the change in the house price index in the severely adverse scenario; and provide notice that the Board plans to incorporate wholesale funding costs for banking organizations in the scenarios,” the Board said.

Public comments will be made available on the Board’s website at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.aspx.

- Lexis Practice Advisor Staff

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RESEARCH PATH: Finance > Financial Services Regulation > Financial Institution Activities > Articles

OVERALL RISKS TO FINANCIAL STABILITY REMAIN “MODERATE,” OFR SAYS

THE OFFICE OF FINANCIAL RESEARCH (OFR) SAYS THAT overall risks to financial stability are “moderate,” reflecting little change from last year.

The OFR, which was established in 2010 under the Dodd-Frank Act, issued its assessment in conjunction with the release of its 2017 Annual Report to Congress and its 2017 Financial Stability Report. The OFR is obligated to prepare and submit a report to Congress within 120 days of the end of each fiscal year. The Financial Stability Report serves as an adjunct to that report, providing more detailed analysis.

While concluding that the financial system is “far more resilient than it was when the financial crisis loomed a decade ago," the two reports highlight three key threats to financial stability:

• Vulnerabilities to cybersecurity incidents
• Obstacles to resolving failing systemically important financial institutions
• Structural changes in markets and industry

The three key threats were selected “based on their potential impact, probability of occurring, probability of happening soon, and the preparedness of industry and government to manage them,” the OFR said.

The reports also introduce two new risk-assessment tools developed by the OFR: the Financial Systems Vulnerabilities Monitor and the Financial Stress Index, both of which are available on the OFR website, https://www.financialresearch.gov/, as part of the OFR’s quantitative monitoring toolkit. “They signal where potential vulnerabilities might require further investigation,” the OFR said. “We conduct those investigations using a wider set of data, qualitative information, and expert analysis.”

- Lexis Practice Advisor Staff

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PTAB RULINGS ON TIMELINESS OF REVIEW PETITIONS ARE APPEALABLE, FEDERAL CIRCUIT RULES

RULINGS BY THE PATENT TRIAL AND APPEAL BOARD (PTAB) on the timeliness of petitions for inter partes review under the Leahy-Smith America Invents Act (AIA) are appealable, the U.S. Court of Appeals for the Federal Circuit has ruled.

In a 9-4 en banc decision, the Federal Circuit vacated a threejudge panel’s September 2016 ruling upholding a PTAB decision invalidating a patent held by Wi-Fi One, LLC in a challenge brought by Broadcom Corp. Wi-Fi One, LLC v. Broadcom Corp., 2018 U.S. App. LEXIS 387 (Fed. Cir. Jan. 8, 2018). The decision effectively overrules the Federal Circuit’s ruling in Achates Reference Publ. Inc. v. Apple Inc., Inc., which found that timeliness rulings under the AIA were not subject to appeal. 803 F.3d 652 (Fed. Cir. 2015).

The AIA, enacted in 2011, seeks to streamline patent infringement litigation by allowing a party sued for infringement to request a validity determination via inter partes review by the PTAB within a year after being served with the infringement complaint.

In 2010, Telefonaktiebolaget LM Ericsson (Ericsson) filed an infringement action against multiple defendants in the U.S. District Court for the Eastern District of Texas. A jury ruled for Ericsson and the Federal Circuit affirmed in part. Ericsson Inc. v. D-Link Sys., 773 F.3d 1201 (Fed. Cir. 2014). In 2013, Broadcom filed three separate petitions for inter partes review of the three Ericsson patents. During the pendency of the review, Ericsson transferred ownership of the patents to Wi-Fi, which argued that the petitions were time-barred because Broadcom was in privity with the defendants in the Texas action. The PTAB rejected Wi-Fi’s argument and found its patents invalid.

On appeal, a three-judge panel of the Federal Circuit affirmed on the basis of the Achates decision. Wi-Fi petitioned for en banc review. The petition was granted in January 2017.

Reversing the panel decision, the Federal Circuit cited “the strong presumption” in favor of appealability of agency actions. “To overcome this presumption, Congress must clearly and convincingly indicate its intent to prohibit judicial review,” the majority said. “We find no clear and convincing indication of such congressional intent.”

- Lexis Practice Advisor Attorney Team

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RESEARCH PATH: Intellectual Property & Technology > Patents > PTAB Proceedings > Articles

EEOC LAUNCHES ONLINE SERVICE PORTAL

FOLLOWING A SIX-MONTH EVALUATION PILOT PROGRAM— conducted in Charlotte, Chicago, New Orleans, Phoenix, and Seattle—that provided online access to the Equal Employment Opportunity Commission (EEOC) to individuals seeking preliminary information about employment discrimination, the EEOC implemented the EEOC Public Portal on a nationwide basis. The Public Portal, a high-tech platform, represents ‘‘a giant leap forward for the EEOC in providing online services,’’ according to EEOC Acting Chair Victoria A. Lipnic.

In fiscal 2017, the EEOC received nearly 700,000 preliminary inquiries in the form of telephone calls to its 800 number and visits to its regional offices. The Public Portal is intended to provide individuals with digital access to the information that would otherwise be acquired through those telephone calls and personal visits, making it easier for the inquiring public and vastly increasing agency efficiency by eliminating the need for staff to personally respond to that large number of inquiries.

Using the Public Portal, an individual will be able to submit online initial inquiries and requests for intake interviews with the EEOC, which are normally the preliminary steps for an individual seeking to file a charge of discrimination. An individual will be able to digitally sign and file a charge prepared by the EEOC but will not be permitted to file charges of discrimination online that have not been prepared by the EEOC. Nor will an individual be able to file complaints of discrimination against federal agencies. No reason for this exclusion was provided in the public announcement of the Public Portal’s launch.

After a charge is filed, the charging party will be able to use the Public Portal to provide and update contact information, agree to mediate the charge, upload documents to his or her charge file, receive documents and messages related to the charge from the agency, and check on the status of his or her charge.

- Bender’s Labor & Employment Bulletin, Volume 18, Issue 1

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