Updates and Legal Developments Summer 2019

Posted on 06-20-2019

 

 

SAN FRANCISCO ADOPTS ORDINANCE BANNING CITY’S USE OF FACIAL RECOGNITION TECHNOLOGY

SAN FRANCISCO HAS BECOME THE FIRST CITY IN THE United States to ban the use of facial recognition technology to identify individuals. As a result, city agencies, including the police department, will be prohibited from using the technology in the course of their governmental activities. The ordinance does not apply to individuals, businesses or federal agencies, such as those which operate the San Francisco Airport and the Port of San Francisco.

The ordinance was passed by the city’s Board of Supervisors by an 8-1 vote on May 14. A second reading of the ordinance was expected within a week and Mayor London Breed was expected to sign it into law. In general findings included in the text of the ordinance, the Board of Supervisors cited its concern with the impact of the technology on civil liberties.

“Whenever possible, decisions relating to surveillance technology should occur with strong consideration given to the impact such technologies may have on civil rights and civil liberties, including those rights guaranteed by the First, Fourth, and Fourteenth Amendments to the United States Constitution as well as Sections 1, 2, and 13 of Article I of the California Constitution,” the board said. Use of the technology has affected the privacy rights of the public at large, the board said, but “surveillance efforts have historically been used to intimidate and oppress certain communities and groups more than others, including those that are defined by a common race, ethnicity, religion, national origin, income level, sexual orientation, or political perspective. The propensity for facial recognition technology to endanger civil rights and civil liberties substantially outweighs its purported benefits, and the technology will exacerbate racial injustice and threaten our ability to live free of continuous government monitoring.”

In addition to banning use of facial recognition technology, the ordinance requires that city agencies disclose to the Board of Supervisors for approval any surveillance technology in use or expected to be in use in the future along with a proposed policy for use of the equipment.

The ordinance is not without its critics. In a statement, the grassroots group Stop Crime SF said, “Instead of an outright ban, we believe a moratorium would have been more appropriate. We agree there are problems with facial recognition ID technology, and it should not be used today. But the technology will improve, and it could be a useful tool for public safety when used responsibly and with greater accuracy. We should keep the door open for that possibility. Especially when facial recognition technology can help locate missing children, people with dementia and fight sex trafficking.”

Similarly, the Information Technology and Innovation Foundation, a D.C.-based non-profit think tank, said in a statement, “There are plenty of legitimate concerns about government surveillance, but the right approach is to implement safeguards on the use of technology rather than prohibitions. Good oversight and proper guidance can ensure that police and other government agencies use facial recognition appropriately.”

Counsel working in the data privacy practice area should be aware of developments in their state legislatures dealing with limitations on the gathering of personal information, including biometric information. The City of Oakland is currently considering an ordinance similar to that adopted by San Francisco and other cities are expected to follow suit.

To find this article in Lexis Practice Advisor, follow this research path:

RESEARCH PATH: Data Security > Industry Compliance > Public Sector > Articles

RIDE SHARE SERVICE DRIVERS ARE INDEPENDENT CONTRACTORS, NLRB RULES

 DRIVERS FOR THE RIDE-SHARING SERVICE UBER ARE independent contractors, not employees, for purposes of coverage under the National Labor Relations Act (NLRA), the National Labor Relations Board (NLRB) has decided. The NLRB’s memo serves as guidance for the various regional offices to apply in processing unionization bids and adjudicating unfair labor practice allegations.

The memorandum is the second in several weeks to find that so-called “gig workers” are not employees within the meaning of the NLRA and could signal a trend in how the NLRA is interpreted by the current members of the NLRB.

The memorandum was issued by Associate General Counsel Jayme L. Sophir in response to an inquiry by Jill Coffman, director of NLRB Region 20, located in San Francisco, seeking clarification following the filing of three charges in Regions 14, 13, and 29, raising the issue of Uber drivers’ employment status. Two of the cases involved termination of Uber’s relationships with drivers working in the UberX service category. The third alleged that Uber provided unlawful assistance to a labor organization representing Uber drivers in the UberX and UberBLACK service tiers.

Finding that the drivers are independent contractors, not employees, under the NLRA, Sophir applied the reasoning set forth in the NLRB’s Jan. 25 opinion in SuperShuttle DFW Inc. and Amalgamated Transit Union Local 1338, NLRB, 2019 NLRB LEXIS 15 (Jan. 25, 2019). In SuperShuttle, the Board found that franchisees who operated shared-ride vans for SuperShuttle Dallas-Fort Worth are independent contractors and therefore ineligible to organize with the Amalgamated Transit Union. In so ruling, the Board, in a 3-1 opinion, applied a 10-part test to determine the workers’ entrepreneurial opportunity or ability to impact their income.

Relying on the NLRB’s reasoning in SuperShuttle, Sophir found that the UberX drivers were independent contractors because they control their schedules, cars, work locations and have the ability to work for competitors, and that UberBLACK drivers control their economic opportunity in addition to being free to hire other drivers to work on their behalf, choosing to receive both UberX and UberBLACK assignments, and contracting with Uber as business entities, not individuals.

Several weeks before issuance of the Uber ruling, the Department of Labor’s Wage and Hour Division found that gig workers for an unnamed company were independent contractors. The DOL applied a six-factor test to the company’s business model in concluding that the workers were economically independent from the company. In so ruling, the DOL emphasized the status of the company as a virtual marketplace company and the ability of the workers to accept or reject assignments. U.S. Department of Labor, Wage and Hour Division, FLSA2019-6.

Initial Guidance

The decisions by the NLRB and the DOL provide important protection (and guidance) to employers hiring workers in a gig economy. Although the traditional multifactor tests used to determine whether a worker is an employee, or an independent contractor, were not designed to address such workers, certain aspects of those tests (as highlighted by the NLRB and DOL decisions) can provide employers guidance when deciding how to classify their workers. For example, the NLRB relied upon the fact that the workers could simultaneously work for other employers and had control over their schedules and opportunities. The DOL also relied upon the workers’ independence and ability to reject or accept assignments. That said, employers should continue to be cautious in their classification of workers as employees or contractors because the penalties for violating the NLRA can be significant and state agency and court decisions in this area are not uniform. In addition, companies should strongly consider including arbitration agreements with class and collective action waivers in their agreements with their gig economy workers. Although class and collective action waivers were frequently subject to legal challenge, in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), the U.S. Supreme Court upheld their enforceability and found that they do not violate the NLRA. By including an arbitration agreement and class and collective action waiver, a company facing a challenge to its classification of independent contractors can move to dismiss such claims and compel arbitration on an individual basis.

To find this article in Lexis Practice Advisor, follow this research path:

RESEARCH PATH: Labor & Employment > Wage and Hour > Independent Contractors > Articles

AMENDMENTS TO CALIFORNIA CONSUMER PRIVACY ACT MOVING THROUGH STATE LEGISLATURE

THE CALIFORNIA ASSEMBLY COMMITTEE WITH JURISDICTION over consumer protection legislation has voted out several bills that would amend the California Consumer Privacy Act (CCPA), the nation’s most wide-ranging state law of its kind.

Governor Edmund G. Brown Jr. signed the original bill on June 28, 2018. The law gives consumers greater control over how businesses use their personal information. Under the new law, which takes effect on January 1, 2020, consumers will have the right to request that businesses disclose how their personal information is used and to ask that personal information be deleted under some circumstances.

The law was fast-tracked by the legislature in return for a pledge by consumer advocates to abandon their campaign to place an initiative bearing the same name on the November 2018 ballot.

At the time of the bill’s signing, legislators conceded that amendments would be necessary to address concerns raised by consumer advocacy and business groups. In fact, Gov. Brown signed a so-called cleanup bill containing a number of minor amendments in September 2018.

The recently proposed amendments, voted out by the committee after an April 23 hearing, are more substantive in nature and largely address industry-backed concerns. The proposed amendments are:

2019 Cal. A.B. 25 would modify the statute’s definition of consumer to exclude job applicants whose personal information is used solely for the purposes of the job application.

2019 Cal. A.B. 846 would allow businesses to offer consumers different levels of service and charge varying prices based on financial incentives such as participation in loyalty or reward programs.

2019 Cal. A.B. 873 would revise the term deidentified to mean “information that does not reasonably identify or link, directly or indirectly, to a particular consumer, provided that the business makes no attempt to reidentify the information and takes reasonable technical and administrative measures designed to ensure that the data is deidentified, publicly commits to maintain and use the data in a deidentified form, and contractually prohibits recipients of the data from trying to reidentify it.”

2019 Cal. A.B. 874 would revise the definition of personal information to exclude deidentified or aggregate consumer information and define publicly available to mean “information that is lawfully made available from federal, state, or local records,” while deleting language stating that data is not publicly available if it is used for certain purposes.

2019 Cal. A.B. 981 would exempt from the CCPA insurance institutions, agents, and support organizations to which the Insurance Information and Privacy Protection Act applies.

2019 Cal. A.B. 1146 would exempt from the CCPA vehicle information shared between a new motor vehicle dealer and the vehicle’s manufacturer, if the information is shared pursuant to, or in anticipation of, a vehicle repair relating to warranty work or a recall.

2019 Cal. A.B. 1564 would change the requirement that businesses make available to consumers two or more designated methods for submitting requests for information, including a toll-free number and a web address, to provide a toll-free number or email address and to make available the URL for the company’s website, if any.

The bills must now be considered by the full Assembly and sent to the California Senate.

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ARBITRATION OF CLASS ACTION CLAIMS MUST BE EXPLICITLY STATED IN CONTRACT, SUPREME COURT RULES

EMPLOYEES CANNOT SEEK ARBITRATION OF EMPLOYMENT-related claims on a class-wide basis unless their arbitration agreement with their employer explicitly provides for such relief, the U.S. Supreme Court ruled on April 24 in Lamps Plus Inc. v. Varela, 203 L. Ed. 2d 636 (2019). The decision means employers can compel individual arbitration and avoid the risk of class arbitration—unless they specifically agree to it.

The Court reversed a ruling by the U.S. Court of Appeals for the Ninth Circuit, Varela v. Lamps Plus Inc., 701 Fed. Appx. 670 (9th Cir. 2017), compelling the employer to arbitrate class claims that the company did not adequately protect employees’ personal data.

Frank Varela filed suit in the U.S. District Court for the Central District of California on his own behalf and that of his co-workers, alleging that the employer released personal information in response to a phishing scam. The employer moved to compel arbitration of plaintiff’s individual claims under an arbitration agreement between the employer and its employees. The district court compelled arbitration of both the individual and class claims, finding that the arbitration agreement constituted a contract of adhesion and that the agreement was ambiguous as to class arbitration.

On appeal, the Ninth Circuit affirmed, finding that because the agreement was capable of two reasonable constructions, the lower court correctly found ambiguity and construed the agreement against the employer.

Reversing in a 5-4 ruling, the high court cited its own ruling in Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 559 U.S. 662 (2010), where it found that mutual agreement in the form of a contractual provision was required in order to compel class-wide arbitration of an antitrust claim.

Writing for the majority, Chief Justice John G. Roberts Jr. said, “Our reasoning in Stolt-Nielsen controls the question we face today. Like silence, ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to ‘sacrifice[] the principal advantage of arbitration.’”

In a clear victory for employers, the ruling extends the holding in Stolt-Nielsen—that silence on the issue in an arbitration agreement is insufficient to allow for class arbitration—to situations in which the arbitration agreement is ambiguous on the issue. The holding severely limits, if not removes, employees’ ability to seek redress of employment-based claims on anything but an individual basis.

The holding makes clear the need for employers to draft arbitration agreements carefully and for employees to be cognizant of the terms and their significance before signing arbitration agreements. Counsel for employers would be well served to review their clients’ arbitration agreements, many of which have not been updated for many years, and to provide periodic reviews as the law in this area is refined.

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RESEARCH PATH: Labor & Employment > Employment Contracts > Waivers and Releases > Articles

THE SAFE BANKING ACT TO INCREASE ACCESS TO BANKING FOR LEGAL MARIJUANA-RELATED BUSINESSES

ON JUNE 5, 2019, THE U.S. HOUSE FINANCIAL SERVICES Committee approved an updated version of the Secure and Fair Enforcement Banking Act of 2019, H.R. 1595, 116th Cong. (Mar. 7, 2019) (SAFE Banking Act). While passage in the U.S. Senate is unclear, the SAFE Banking Act is supported by numerous financial-services trade groups.

Banks, credit unions, and insurance companies have been reluctant to provide banking and financial services for cannabis-related businesses due to the significant regulatory and compliance costs under the federal Bank Secrecy Act of 1970 (BSA), 31 U.S.C. § 5311 et seq., and related anti-money laundering (AML) regulations. The SAFE Banking Act would prohibit federal financial regulatory agencies from undertaking federal actions against financial institutions, including adverse or corrective supervisory actions, in connection with providing services to a “cannabis-related legitimate business,” which is defined as a business handling cannabis products in compliance with applicable state laws and regulations. Specific protections under the SAFE Banking Act include:

  • A provision that prohibits penalizing a depository institution or a service provider for authorizing, processing, clearing, settling, billing, transferring, reconciling, or collecting payments for a cannabis-related legitimate business for payments made by any means, including a credit, debit, or other payment card, an account, check, or electronic funds transfer.
  • The development of specific Financial Crimes Enforcement Network (FinCEN) guidance related to suspicious activity reports (SARs) for cannabis-related legitimate businesses and service providers, consistent with the legislative intent of the SAFE Banking Act, which does not discourage institutions from providing financial services to such companies.
  • A provision requiring a government study regarding diversity in the cannabis market and a study of the effectiveness of SARs for cannabis-related businesses and service providers.
  • Provisions streamlining regulatory expectations, reporting, and examination guidance for institutions providing banking and financial services to cannabis-related businesses and service providers to ensure that all institutions could offer services subject to similar regulatory requirements.
  • A provision protecting depository institutions, service providers, and insurers, together with their officers, directors, and employees, from prosecution under federal law solely on the basis of providing such financial services to a cannabis-related business or further investing any income derived from such financial services.

The SAFE Banking Act does not preempt state laws. As a result, financial institutions and their service providers should confirm whether their customers are complying with applicable state laws and regulations related to cannabis.

The SAFE Banking Act would expand competition in the cannabis industry and enable financial services companies to treat legitimately formed and operated cannabis businesses as similarly situated, highrisk businesses entitled to protections from federal prosecution and BSA/AML compliance responsibilities. Cannabis-related businesses receiving banking services will undoubtedly be subject to enhanced due diligence standards, as well as regulatory reporting and examination guidance issued by FinCEN and the Federal Financial Institutions Examination Council.

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FEDERAL CIRCUIT HOLDS FIRM ON LACK OF DEFERENCE TO PTO ELIGIBILITY GUIDANCE

A RECENT U.S. COURT OF APPEALS FOR THE FEDERAL Circuit ruling reinforces the court’s long-held position that deference need not be given to patent examiner guidance issued by the U.S. Patent and Trademark Office (PTO).

The ruling in Cleveland Clinic Found. v. True Health Diagnostics, 2019 U.S. App. LEXIS 9451 (Fed. Cir. Apr. 1, 2019), cites a May 2016 guidance, but also calls into question the viability of recent guidances, including a January 2019 guidance for patent examiners to follow when considering applications that contain abstract ideas.

The court invalidated two patents related to diagnostic tests for cardiovascular disease, rejecting Cleveland Clinic’s argument that the May 2016 guidance on patent eligibility was entitled to deference. The lower court had found the patents invalid as directed to natural law and lacking inventive concept.

“While we greatly respect the PTO’s expertise on all matters relating to patentability, including patent eligibility, we are not bound by its guidance,” the circuit court said. “And, especially regarding the issue of patent eligibility and the efforts of the courts to determine the distinction between claims directed to natural laws and those directed to patent-eligible applications of those laws, we are mindful of the need for consistent application of our case law.”

The PTO has issued guidances for the application of the Alice/ Mayo test for eligibility under Section 101 of the Patent Act (35 U.S.C.S. §101). In Alice Corp. v. CLS Bank, 573 U.S. 208 (2014), the high court, citing its own decision in Mayo v. Prometheus, 566 U.S. 566 (2012), established a two-part test for determining patent eligibility: (1) whether the claims are directed to a patent-ineligible concept; and (2) whether the elements of the claim, both individually and in combination, transform the nature of the claims into a patent-eligible application.

The January 2019 guidance lists three categories of inventions deemed to constitute abstract ideas that, standing alone, are patent-ineligible: mathematical concepts, such as mathematical relationships, formulas, or equations and calculations; certain methods of organizing human activity, including economic principles or practices, commercial or legal interactions, and managing personal behavior or relationships; and mental processes or concepts performed in the human mind. All other inventions, with limited exception, do not fall within the definition of abstract ideas.

If an invention falls within one of the three categories, the examiner should determine if the idea is “integrated into a practical application.” If it is not, it is to be “directed to” the abstract idea under the guidance and not patent eligible.

Members of Congress, including Sens. Thom Tillis (R-N.C.) and Chris Coons (D-Del.), have addressed the uncertainty on the eligibility issue by releasing a memorandum that provides four guiding principles for reform of Section 101, including a statement that “diagnostic and life sciences should be eligible for patent protection per se, subject to meeting the other existing statutory requirements, and should not be considered a law of nature, natural phenomena, or otherwise patent ineligible subject matter.”

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RESEARCH PATH: Intellectual Property & Technology > Patents > Patent Litigation > Articles

SUPREME COURT TO HEAR TRIO OF CASES ON DISCRIMINATION AGAINST LGBT EMPLOYEES

THE U.S. SUPREME COURT WILL ADDRESS THE ISSUE OF discrimination against LGBT employees in the workplace in its next term after granting review in three cases—two brought by gay employees and the third by a transgender worker.

The three cases raise the issue of whether the anti-discrimination provisions of Title VII of the Civil Rights Act of 19641 extend to discrimination on the basis of sexual orientation and gender identity.

In Altitude Express Inc. v. Zarda (No. 17-1623, U.S. Sup.), the justices will review an en banc decision of the U.S. Court of Appeals for the Second Circuit holding that Title VII applies in the case of a skydiving company employee who alleged that he was fired because he was gay. The appeals court found that discrimination based on sexual orientation “is a subset of sex discrimination.”2

The arguments in the Zarda case will be consolidated with those for Bostock v. Clayton County, Ga. (No. 17-1618, U.S. Sup.), in which the U.S. Court of Appeals for the Eleventh Circuit affirmed a ruling by the U.S. District Court for the Northern District of Georgia dismissing a suit brought by a county employee who contended that his firing for financial mismanagement was a pretext for his termination after the county discovered that he was gay.3

The third case, R.G. & G.R. Harris Funeral Homes Inc. v. EEOC (No. 18-107, U.S. Sup.), was filed by Aimee Stephens, a transgender woman who presented as a male at the time of her hiring by a funeral home and was fired when she revealed six years later that she identified as a woman and wished to dress in women’s clothing. The Equal Employment Opportunity Commission (EEOC) filed a wrongful termination suit on Stephens’ behalf in the U.S. District Court for the Eastern District of Michigan, which entered summary judgment for the funeral home. On appeal, the U.S. Court of Appeals for the Sixth Circuit reversed and entered summary judgment for Stephens and the EEOC.4

The cases will be heard during the high court’s upcoming term, which begins on October 7.

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1. 42 U.S.C.S. § 2000e. 2. Zarda v. Altitude Express Inc., 883 F.3d 100 (2d Cir. 2018). 3. Bostock v. Clayton Cty. Bd. of Comm’rs, 723 Fed. Appx. 964 (11th Cir. 2018). 4. EEOC v. R.G., 884 F.3d 560 (6th Cir. 2018).