Author: National Law Forum

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Is The End Of FINRA Drawing Nigh?

The Financial Industry Regulatory Authority, aka FINRA, is a non-profit Delaware corporation. It was formed in 2007 by the combination of the National Association of Securities Dealers, Inc. and the regulatory arm of the New York Stock Exchange, Inc. FINRA is a self-regulatory organization that primarily regulates securities broker-dealers.

Professor Benjamin P. Edwards recently reported that a complaint has been filed in Florida challenging the constitutionality of FINRA. The lawsuit filed by two broker-dealers alleges:

However, FINRA’s current structure and operations, particularly in light of the transformation of the organization over the course of the last two decades, contravene the separation of powers, violate the Appointments Clause of the United States Constitution (the “Constitution”) and constitute an impermissible delegation of powers. Because it purports to be a private entity, FINRA is unaccountable to the President of the United States (the “President,” or “POTUS”), lacks transparency, and operates in contravention of the authority under which it was formed. It utilizes its own in-house tribunals in a manner contrary to Article III and the Seventh Amendment of the Constitution and deprives entities and individuals of property
without due process of law.

The plaintiffs are seeking, among other things, declaratory and injunctive relief.

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Chamber of Commerce Challenges CFPB Anti-Bias Focus Concerning AI

The end of last month the U.S. Chamber of Commerce, the American Bankers Association and other industry groups (collectively, “Plaintiffs”) filed suit in Texas federal court challenging the Consumer Financial Protection Bureau’s (“CFPB”) update this year to the Unfair, Deceptive, or Abusive Acts or Practices section of its examination manual to include discrimination. Chamber of Commerce of the United States of America, et al v. Consumer Financial Protection Bureau, et al., Case No. 6:22-cv-00381 (E.D. Tex.)

By way of background, the Consumer Financial Protection Act, which is Title X of the 2010 Dodd-Frank Act (the “Act”), prohibits providers of consumer financial products or services or a service provider from engaging in any unfair, deceptive or abusive act or practice (“UDAAP”). The Act also provides the CFPB with rulemaking and enforcement authority to “prevent unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.” See, e.g., https://files.consumerfinance.gov/f/documents/cfpb_unfair-deceptive-abusive-acts-practices-udaaps_procedures.pdf. In general, the Act provides that an act or practice is unfair when it causes or is likely to cause substantial injury to consumers, which is not reasonably avoidable by consumers, and the injury is not outweighed by countervailing benefits to consumers or to competition.

The CFPB earlier this spring published revised examination guidelines on unfair, deceptive, or abusive acts and practices, or UDAAPs. Importantly, this set forth a new position from the CFPB, that discrimination in the provision of consumer financial products and services can itself be a UDAAP. This was a development that was surprising to many providers of financial products and services. The CFPB also released an updated exam manual that outlined its position regarding how discriminatory conduct may qualify as a UDAAP in consumer finance. Additionally, the CFPB in May 2022 additionally published a Consumer Financial Protection Circular to remind the public of creditors’ adverse action notice requirements under the Equal Credit Opportunity Act (“ECOA”). In the view of the CFPB, creditors cannot use technologies (include algorithmic decision making) if it means they are unable to provide required explanations under the ECOA.

In July 2022, the Chamber and others called on the CFPB to rescind the update to the manual. This included, among other arguments raised in a white paper supporting their position, that in conflating the concepts of “unfairness” and “discrimination,” the CFPB ignores the Act’s text, structure, and legislative history which discusses “unfairness” and “discrimination” as two separate concepts and defines “unfairness” without mentioning discrimination

The Complaint filed this fall raises three claims under the Administrative Procedure Act (“APA”) in relation to the updated manual as well as others. The Complaint contends that ultimately it is consumers that will suffer as a result of the CFPB’s new position, as “[t]hese amendments to the manual harm Plaintiffs’ members by imposing heavy compliance costs that are ultimately passed down to consumers in the form of higher prices and reduced access to products.”

The litigation process started by Plaintiffs in this case will be time consuming (a response to the Complaint is not expected from Defendants until December). In the meantime, entities in the financial sector should be cognizant of the CFPB’s new approach and ensure that their compliance practices appropriately mitigate risk, including in relation to algorithmic decision making and AI. As always, we will keep you up to date with the latest news on this litigation.

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EPA Launches Their New Office: What Does the Office of Environmental Justice and External Civil Rights Mean for Companies and ESG in the United States?

On September 24, 2022, the Environmental Protection Agency (EPA) announced the creation of a new national office dedicated to advancing environmental justice (EJ) and civil rights. Known as the Office of Environmental Justice and External Civil Rights, the creation of the new office delivers on a noteworthy campaign promise of President Joe Biden, who committed to elevating these issues during his presidency and ensuring justice and equality for overburdened, underserved communities.

“From day one, President Biden and EPA have been committed to delivering progress on environmental justice and civil rights and ensuring that underserved and overburdened communities are at the forefront of our work,” said EPA Administrator Michael S. Regan. “With the launch of a new national program office, we are embedding environmental justice and civil rights into the DNA of EPA and ensuring that people who’ve struggled to have their concerns addressed see action to solve the problems they’ve been facing for generations.”

“Since the beginning of the Biden Administration, its appointees have consistently stressed the idea of environmental justice,” said Jacob Hupart, Member at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. “Specifically, in this context, the invocation of environmental justice has focused on the principle that addressing the various environmental issues confronting society—including the challenge of climate change—must also take into consideration that underserved communities frequently are disproportionately impacted by environmental issues, and so these communities should receive particular attention. That the Biden Administration is establishing an EPA office dedicated specifically to this issue is congruent with their prior rhetoric and action (such as the appointment of Michael Regan as the EPA Administrator), and emphasizes this aspect of their environmental program.

What is the Intent and Significance of the EPA’s New Office?

With more than 200 EPA staff members across ten regions dedicated to the project, the office will put substantial resources into environmental justice efforts across the United States. This includes, but is not limited to, working with state, local, and Tribal partners to understand their EJ needs, disbursing grants and technical assistance, cooperating with other EPA offices to incorporate EJ initiatives in all areas, and ensuring funding recipients are complying with relevant civil rights laws.

This new focus by the EPA is extremely meaningful not only for environmental justice in the US, but for the direction of major regulatory and administrative bodies. “The EPA and the White House have enunciated policy, established guidance, and issued Executive Orders, but these tools do not have enforceable legal requirements,” explained Richard Glaze, environmental litigator and Partner at Barnes & Thornburg LLP. “Combining the existing Office of Environmental Justice with the External Civil Rights Compliance Office to form the Office of Environmental Justice and Civil Rights sends a signal that the EPA is willing to use enforcement tools with teeth to advance the administration’s Environmental Justice goals.”

Stacey Halliday, environmental lawyer and Principal at Beveridge & Diamond PC, noted how this is a substantial shift from the status quo. “In the past two years, we’ve seen momentum in fits and spurts from a variety of executive branch agencies following the January 27 issuance of EO 14008– including notable action from CEQ, DOE, DOJ, DOT and EPA,” she says. “However, this most recent action by EPA is only likely to accelerate this momentum and have impacts that will extend beyond the Biden Administration. We can expect to see more alignment between EPA program offices […] and a ‘from-the-top’ imperative to incorporate EJ in overall agency decision-making. This is a big change from past practice when EJ and civil rights enforcement were separately housed within other program offices and lacked this level of authority and agency-wide reach.”

“The Department of Justice is fully on board with the EPA in this effort,” added Mr. Glaze. “It recognizes that “Environmental justice and Title VI are both rooted in the same basic principle that no person should bear an unfair share of harm on account of their race, color or national origin” and warns that Title VI of the Civil Rights Act is a powerful for the coordination of Title VI and Environmental Justice.”

What Does the New EPA Office Mean for Companies?

The EPA’s new office comes at a time when companies are turning their focus to the upcoming recession, reminding them that climate and social justice must remain a top priority even as companies prepare for economic instability. This should send a message to corporations who have already been facing mounting pressure to incorporate climate justice considerations into their missions and operations. By creating a political culture of increased environmental and social scrutiny, the Biden administration is slowly changing “ESG” from a greenwashing buzzword to a corporate obligation.

“Companies seeking to gain the benefit of competitive federal funding,” said Ms. Halliday, “especially following the flush of resources coming from the IIJA and IRA – are more frequently asked to provide a detailed accounting of how they will assess and address EJ impacts, as well as how projects may contribute to the Justice 40 Initiative (directing 40% of benefits from federal climate investments to disadvantaged communities).”

“Although the ultimate impact of this new office is uncertain, as the actual initiatives and enforcement actions brought will have to be assessed and evaluated, at minimum, the creation of this office indicates that policy and enforcement actions centered around environmental justice are more likely to appear over the coming months and years,” added Mr. Hupart. “It should also be noted, however, that other environmental actions undertaken by the Biden Administration—such as the mandatory climate disclosures proposed by the SEC, which would be applicable to all public companies—are more likely to be an immediate focus for corporate America rather than potential EPA enforcement actions focused on specific instances implicating environmental justice concerns.”

What Does the New EPA Office Mean for ESG Considerations?

The environmental, social, and governance movement (ESG) has been undeniably energized by the EPA’s new office, particularly at a time when ESG movements are under scrutiny. If Biden’s plan to make environmental justice a more common business priority succeeds, centering sustainability issues will no longer be enough for firms to differentiate themselves to investors. Corporations targeting ethically-minded shareholders will need to develop more detailed, creative ESG approaches.

“Environmental justice combines elements of the “E” and the “S” of ESG and companies that have embraced ESG are well-advised to consider whether their operations implicate environmental justice and, if they do, give these issues the attention they deserve,” said Mr. Glaze. “Combined with the recent SEC climate disclosure rule, these ESG issues that companies have considered ‘optional’ will now have more force behind them [and companies] can no longer ignore them.”

“Even before the creation of this office, the renewed federal and state prioritization of EJ has had an impact on corporate behavior – driven broadly by federal guidance and tools, new state permitting requirements, targeted environmental enforcement, and investor demand,” said Ms. Halliday. “In the last year or so, we have seen an increase in shareholder proposals related to climate disclosures, racial equity audits and environmental justice audits, with investors seeking to understand how company activities impact disadvantaged communities and implications for long-term value for the company.”

Article By Chandler Ford, Crissonna Tennison, Shelby Garrett, and Casey Karthaus of The National Law Review / The National Law Forum LLC

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Love and Basketball … and Romantic Workplace Relationships? Key Takeaways for Employers from the Boston Celtics’ Recent Suspension of its Head Coach

The Boston Celtics recently suspended its head coach Ime Udoka for the entire 2022-2023 season and although the team did not disclose whether the suspension will be paid or unpaid, it noted that he will be subject to a “significant financial penalty” as a result of multiple unspecified violations of the organization’s policies stemming from Udoka’s conduct towards a female member of the organization.

Originally believed to have been a consensual relationship, it was subsequently reported that the female staff member accused Udoka of making unwanted advances, including inappropriate comments towards the staff member. In response, the Celtics organization acted quickly and launched an internal investigation, which found “a volume of violations” of various policies. Please note, it is unknown as to whether the Celtics had a consensual relationship policy in place for employees.

The Celtics scandal comes at a time when workplace harassment claims (as reported by the EEOC) are on the rise, yet consensual office romantic relationships remain fairly common. While most employees do not want their employers placing limits on whom they may seek as a romantic partner, from an employer’s viewpoint, the risks of such romances are clear, as they can easily cause real issues in the workplace: interoffice gossip, lack of productivity, reduced moral, allegations of favoritism, or worse, claims of sexual harassment.

Fortunately, employers have several options available to minimize risk. Employers can rely on various types of anti-fraternization policies (also known as workplace romance or consensual relationship policies) and/or love contracts. Separate, but related, employers should also implement robust anti-harassment policies and training for all employees (including management).

Relationship Policies

Some employers choose to implement a policy banning all romantic relationships between employees regardless of position or authority. These policies discourage personal and romantic workplace relationships and threaten discipline against employees who violate the policy. Other employers opt for a more flexible policy, which only prohibits romantic relationships where one individual has the ability to affect the terms and conditions of the other’s employment, including but not limited to, compensation, assignments, and promotions. This latter policy is more common as it is often less intrusive and aimed at preventing favoritism or claims of sexual harassment or retaliation.

Regardless of the policy used, most employers also include a disclosure requirement, which then allows the employer to determine the best course of action forward (e.g. eliminating the reporting relationship)..

Further still, some employers, in addition to their relationship policy, have used “love contracts” that couples sign to confirm their consensual relationship status, affirm their awareness of the company’s sexual-harassment and workplace conduct policies and other expectations related to conducting themselves in the workplace, indicate that they understand the consequences if they fall short of the company’s expectations.

Employer Actions After A Relationship Disclosure

Such policies and related documents allow employees to come forward as early as possible so employers can proactively address a situation. For example, it allows employers to remove any supervisory oversight or doubt that such a relationship is consensual, while also setting expectations with both employees about their conduct in the workplace during the relationship, and if and after the relationship ends. As part of this expectation setting discussion, even in the absence of a reporting relationship, employers should make sure to provide a copy of its anti-harassment policy to the dating employees and have them reaffirm they will comply with its terms and conditions. Employers should also confirm with each employee that they will immediately disclose when the relationship ends or is otherwise no longer consensual.

Anti-Harassment Policies & Training

Ultimately, and regardless of what policy an employer adopts, all employers should have a clear anti-harassment policy that, among other things, defines and clearly prohibits sexual harassment and requires all employees to report sexual harassment, including any unwanted advances or comments.

Such policies should include a complaint procedure that is readily accessible to employees and provides multiple avenues for raising complaints. It should confirm that the company will promptly and thoroughly investigate all complaints and will not retaliate against any individual who reports or participates in an investigation of harassment (including sexual harassment).

It is crucial that employers think about responding in a fashion similar to the Celtics’ in promptly investigating and addressing alleged misconduct. For example, the Celtics quickly engaged independent outside counsel to conduct a thorough investigation, which positioned the Celtics well to determine its appropriate next steps. Critically, the Celtics did not appear to allow the employee’s status within the organization to interfere or impact its decision to enforce its policies and impose serious penalties. By following the Celtics’ lead, employers can, among other things, create an environment where employees feel safe to complain and further eliminate the possibility of misconduct in the workplace, while also enhancing any legal defense in the event a lawsuit follows.

Having written policies is key, but it is equally important that employees, particularly supervisors or managers, are thoroughly trained on how to recognize potentially problematic situations, including when employees are dating, and how to respond to and further report potential policy violations. Some jurisdictions even make training a statutory requirement.

Key Takeaways for Employers

The reality is that romantic relationships in the workplace occur and those employers that are proactive in anticipating such relationships and responding to them when they occur will be best positioned to limit potential liability. Employers should consider taking the following actions:

Adopting a consensual relationship policy that is best suited for the company;
Ensure the use of a robust anti-harassment policy;
Periodically conduct anti-harassment training; and
Be prepared to monitor and respond upon learning of a relationship between your employees.

Article By Delaney M. Busch of Mintz

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Ankura Cyber Threat Intelligence Bulletin: August – September 2022

Over the past sixty days, Ankura’s Cyber Threat Investigations & Expert Services (CTIX) Team of analysts has compiled key learnings about the latest global threats and current cyber trends into an in-depth report: The Cyber Threat Intelligence Bulletin. This report provides high-level executives, technical analysts, and everyday readers with the latest intel and insights from our expert analysts.

Download the report for an in-depth look at the key cyber trends to watch and help safeguard your organization from constantly evolving cyber threats with the latest cyber intelligence, ransomware, and threat insights.

Our latest report explains the following observations in detail:

Law Enforcement Works with Threat Intelligence to Prosecute Human Traffickers

In the age of high-speed internet and social media, criminals have evolved to use information technology to bolster their criminal enterprises and human traffickers are no different. Whether it be through the clearnet or dark web, human traffickers have leveraged the internet to scale their operations, forcing law enforcement to reevaluate how to best combat this problem. In response to the changes in trafficker tactics, techniques, and procedures (TTPs), governments across the world have responded with legislation and policies in an attempt to better thwart the efforts of these criminals. Researchers from Recorded Future’s Insikt Group have published compelling reports as a proof-of-concept (PoC) for a methodology on how law enforcement agencies and investigators can utilize real-time threat intelligence to leverage sources of data in order to aid in tracking, mitigating, and potentially prosecuting human sex traffickers. Download the full report for additional details on law enforcement efforts to prosecute human traffickers and more on the Insikt Group’s findings.

Emerging Threat Organization “MONTI”: Sister Organization or Imposter Threat Group?

Over the past several weeks a new, potentially imposter, threat organization has mimicked the tactics, techniques, procedures (TTPs), and infrastructure of the Conti Ransomware Group. Tracked as MONTI, this doppelganger organization emerged in the threat landscape in July 2022 after compromising a company and encrypting approximately twenty (20) hosting devices and a multi-host VMWare ESXi instance tied to over twenty (20) additional servers. While the July attack pushed the group into the limelight, analysts believe that attacks from the doppelganger organization go back even further into the early summer of 2022. Similarities discovered between Conti Ransomware and the alleged spinoff Monti Ransomware include attack TTPs alongside the reuse of Conti-attributed malicious payloads, deployed tools, and ransom notes. Additionally, the encrypted files exfiltrated by Monti contain nearly identical encryption, which could indicate code re-usage. Read the full report to find out what CTIX analysts expect to see from this group in the future.

Figure 1: Conti Ransom Note

Figure 2: Monti Ransom Note

Iranian State-Sponsored Threat Organization’s Attack Timeline Targeting the Albanian Government

In July 2022, nation-state Iranian threat actors, identified by the FBI as “Homeland Justice”, launched a “destructive cyber-attack” against the Government of NATO-member Albania in which the group acquired initial access to the victim network approximately fourteen (14) months before (May of 2021). During this period, the threat actors continuously accessed and exfiltrated email content. The peak activity was observed between May and June of 2022, where actors conducted lateral movements, network reconnaissance, and credential harvesting.

This attack and eventual data dumps were targeted against the Albania-based Iranian dissident group Mujahideen E-Khalq (MEK), otherwise known as the People’s Mojahedin Organization of Iran. MEK is a “controversial Iranian resistance group” that was exiled to Albania and once listed by the United States as a Foreign Terrorist Organization for activity in the 1970s but was later removed in late 2012. Albania eventually severed diplomatic ties with Iran on September 7, 2022, and is suspected to be the first country to ever have done so due to cyber-related attacks. For a more detailed analysis of this attack and its ramifications, download our full report.

Figure: Homeland Justice Ransom Note Image

Banning Ransomware Payments Becomes Hot-Button Issue in State Legislature

There is a debate occurring in courtrooms across the United States regarding the ethics and impacts of allowing businesses to make ransomware payments. North Carolina and Florida have broken new ground earlier this year passing laws that prohibit state agencies from paying cyber extortion ransom demands. While these two (2) states have been leading the way in ransomware laws, at least twelve (12) other states have addressed ransomware in some way, adding criminal penalties for those involved and requiring public entities to report ransomware incidents. Download the full report to discover what experts think of government ransomware payment bans and the potential effects they could have on ransomware incidents.

Threat Actor of the Month: Worok

ESET researchers discovered a new cluster of the long-active TA428 identified as “Worok.” TA428 is a Chinese advanced persistence threat (APT) group first identified by Proofpoint researchers in July 2019 during “Operation LagTime IT”, a malicious attack campaign targeted against government IT agencies in East Asia. Download the full report for an in-depth look at Worok’s tactics and objectives, and insights from our analysts about the anticipated future impact of this group.

New List of Trending Indicators of Compromise (IOCs)

IOCs can be utilized by organizations to detect security incidents more quickly as indicators may not have otherwise been flagged as suspicious or malicious. Explore our latest list of technical indicators of compromise within the past sixty (60) days that are associated with monitored threat groups and/or campaigns of interest.

Article By Ted Theisen and Jason Hale of Ankura

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Fair Market Value Defensibility Analysis: Why is It Different from a Fair Market Value Opinion?

Fair market value is a pinnacle issue for compliance under the Stark Law and Anti-Kickback Statute. Compensation arrangements that are required to be representative of fair market value under Stark/AKS include employment, independent contractor, medical directorships, exclusive service arrangements, call coverage, quality reviews, medical staff officer stipends, etc.

Many consulting firms provide fair market value opinions relying extensively on the application of benchmark data. Based upon CMS’s statements in the Stark Law Final Rules, although application of benchmark data is a resource that can be utilized, fair market value can and should include the application of market/service area issues (i.e., deficiency of specialty) or physician-specific issues (i.e., expertise, productivity).

Commercial reasonableness is a separate concept from fair market value under Stark/AKS. Commercial reasonableness also entails whether the application of benchmark/market factors are defensible.

When analyzing the defensibility of compensation arrangements, it is important to view fair market value and commercial reasonableness as if advocating the facts and circumstances of the proposed compensation arrangement before a governmental entity (i.e., CMS, OIG, DOJ). When an attorney is rendering a fair market value defensibility analysis, not only will the analysis be protected under the attorney-client privilege, but the analysis will also include references and attachments to all of the applicable documentation and relevant information in case the compensation arrangement is ever required to be defended.

Article By Bob Wade of Nelson Mullins

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FRB and FDIC Issue Joint ANPR on Possible Resolution Requirements for Large Banking Organizations While FRB and OCC Approve U.S. Bank MUFG Union Bank Merger

The Federal Reserve Board (“FRB”) and Federal Deposit Insurance Corporation (“FDIC”) Board issued an Advanced Notice of Proposed Rulemaking (“ANPR”) titled “Resolution-Related Resource Requirements for Large Banking Organizations.” Separately, but relatedly (if for no other reason than the FRB put it in the same press release as the ANPR), the Office of the Comptroller of the Currency (“OCC”) and the FRB approved their respective applications for the merger of MUFG Union Bank into U.S. Bank.

The ANPR is seeking comment on possible changes to the resolution-related standards applicable to large banking organizations (“LBOs”) that are not global systemically important banks (“GSIBs”). Those possible changes that the FRB and FDIC are contemplating would bring some of what is required for GSIB resolution planning down to LBOs, particularly focusing on “Category III” firms with $250 billion to $700 billion in total assets. The main focus of the ANPR is on whether LBOs ought to be required to issue long-term debt similar to the total loss-absorbing capacity (“TLAC”) requirements for GSIBs. The ANPR notes that the Fed and FDIC are considering “whether an extra layer of loss-absorbing capacity could increase the FDIC’s optionality in resolving the insured depository institution,” but also costs associated with such a requirement.

The ANPR flows logically from remarks made by Acting Comptroller Hsu at the Wharton Conference on Financial Regulation in April (and which we discussed in a previous issue), and that Acting Comptroller Hsu noted in his statement when he voted in favor of the ANPR at the FDIC Board meeting.

As noted above, in the same press release announcing the ANPR, the FRB announced the approval of the application by U.S. Bancorp to acquire MUFG Union Bank. The FRB’s order noted that upon consummation, U.S. Bancorp’s consolidated assets would total approximately $698.7 billion, and noting the close proximity to becoming a “Category II” firm over $700 billion in assets imposed a unique commitment to give quarterly implementation plans for complying with Category II requirements. The commitment by U.S. Bancorp also could trigger a need for U.S. Bancorp to comply with Category II requirements by December 31, 2024, even if its asset size has not gone above the $700 billion threshold. FRB Governor Michelle Bowman issued a statement supporting both the issuance of the ANPR and the approval of U.S. Bancorp’s application, but questioned the appropriateness of imposing Category II requirements on a one-off basis. The OCC’s approval was conditioned, among other things, on U.S. Bank making plans for its possible operability in the event of a resolution in order to facilitate its sale to more than one acquiring institution.

Article By Daniel Meade of Cadwalader, Wickersham & Taft LLP

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Supreme Court Questions Whether Highly Compensated Oil Rig Worker Is Overtime Exempt

On October 12, 2022, the Supreme Court of the United States heard oral arguments in a case regarding whether an oil rig worker who performed supervisory duties and was paid more than $200,000 per year on a day rate basis is exempt from the overtime requirements of the Fair Labor Standards Act (FLSA).

The case is especially significant for employers that pay exempt employees on a day rate. It could have a major impact on the oil and gas industry in the way that it recruits, staffs, and compensates employees who work on offshore oil rigs and at remote oil and gas work sites. In addition, depending on how the Supreme Court rules, its decision could have much broader implications.

During the arguments in Helix Energy Solutions Group, Inc. v. Hewitt, the justices questioned whether, despite the employee’s high earnings, he was eligible for overtime compensation because he was paid by the day and not on a weekly salary basis. There is no express statutory requirement that an employee be paid on a “salary basis” to be exempt from overtime requirements, but such a requirement has long been included in the regulations issued by the U.S. Department of Labor (DOL) applicable to the FLSA’s white-collar exemptions. Notably, Justice Brett Kavanaugh suggested during the arguments that the regulations may be in conflict with the text of FLSA, although Helix did not raise this issue in its petition for certiorari.

Background

The case involves an oil rig “toolpusher,” an oilfield term for a rig or worksite supervisor, who managed twelve to fourteen other employees, was paid a daily rate of $963, and earned more than $200,000 annually. Between December 2014 and August 2017, when Michael Hewitt was discharged for performance reasons, he worked twenty-eight-day “hitches” on an offshore oil rig where he would work twelve-hour shifts each day, sometimes working eighty-four hours in a week. After his discharge, Hewitt filed suit alleging that he was improperly classified as exempt and therefore was entitled to overtime pay. The district court ruled in favor of Helix.

In September 2021, a divided (12-6) en banc panel of the U.S. Court of Appeals for the Fifth Circuit held that Hewitt was not exempt from the FLSA because his payment on a day-rate basis did “not constitute payment on a salary basis” for purposes of the highly compensated employee (HCE) exemption that is found in the FLSA regulations.

The Fifth Circuit further concluded that the employer’s day-rate pay plan did not qualify as the equivalent of payment on a salary basis under another FLSA regulation because the guaranteed pay for any workweek did not have “a reasonable relationship” to the total income earned. In other words, the court found that the employee was not exempt because the $963 he earned per day was not reasonably related to the $3,846 the employee earned on average each week.

Oral Arguments

Oral arguments at the Supreme Court focused on the interplay between the DOL’s HCE regulation, 29 C.F.R. § 541.601, and another DOL regulation, 29 C.F.R. § 541.604(b), which states that an employer will not violate the salary basis requirement under certain limited circumstances even if the employee’s earnings are computed on an hourly, daily, or shift basis.

At the time of Hewitt’s employment, the HCE exemption required an employee to be paid at least $455 per week on a “salary or fee basis” and to earn at least $100,000 in total annual compensation. Those threshold amounts have since been increased to $684 per week and $107,432 per year.

The other regulation, 29 C.F.R. § 541.604(b), states that an employee whose earnings are “computed on an hourly, a daily or a shift basis” may still be classified as exempt if the “employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned. The reasonable relationship test will be met if the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily, or shift rate for the employee’s normal scheduled workweek.”

Hewitt earned double the minimum total compensation level for the HCE exemption. Since the minimum salary level for the exemption was only $455 per week, and Hewitt was guaranteed that he would be paid at least $963 per week for each week he worked at least one day, Helix argued that he was exempt from the FLSA’s overtime requirements because the HCE exemption was completely self-contained and to be applied without regard to other regulations, including the “salary basis” test and the minimum guarantee regulation. Hewitt argued that the HCE exemption required compliance with either the “salary basis” test or the minimum guarantee regulation since he was admittedly paid on a day rate basis.

However, Justice Ketanji Brown Jackson suggested that it was not that simple. Justice Jackson said the question of salary basis is more about the “predictability and regularity of the payment” for each workweek. “What he has to know is how much is coming in at a regular clip so that he can get a babysitter, so that he can hire a nanny, so that he can pay his mortgage,” Justice Jackson stated. Justice Jackson echoed the language of the salary basis test requiring that an exempt employee be paid a predetermined amount for any week in which she performed any work.

Similarly, Justice Sonia Sotomayor asked Helix, “so what you’re asking us to do is take an hourly wage earner and take them out of 604, which is the only provision that deals with someone who’s not paid on a salary basis.” Justice Sotomayor additionally raised the FLSA’s goal of “preventing overwork and the dangers of overwork.”

In contrast, Justice Clarence Thomas suggested that Hewitt’s high annual compensation relative to the average worker is a strong indication that he was paid on a salary basis and should be exempt. “The difficulty is just, for the average person looking at it, when someone makes over $200,000 a year, they normally think of that as an indication that it’s a salary,” Justice Thomas stated.

Justice Kavanaugh asked if the issue of whether the DOL regulations conflict with the FLSA is being litigated in the courts. He said, “it seems a pretty easy argument to say, oh, by the way, or maybe, oh, let’s start with the fact that the regs [sic] are inconsistent with the statute and the regs [sic] are, therefore, just invalid across the board to the extent they refer to salary.” He further stated, “if the statutory argument is not here, I’m sure someone’s going to raise it because it’s strong.”

Key Takeaways

It is difficult to predict how the Supreme Court will rule in this case. A decision that requires strict adherence to the regulation’s reasonable relationship test, even when the minimum daily pay far exceeds the minimum weekly salary threshold, would have a significant negative impact on the manner in which certain industries compensate their workers. It also could lead to even more litigation by highly compensated employees, many of whom make more money without receiving overtime pay than what many people who currently are paid overtime compensation make.

Depending upon its breadth, a decision that the regulations are in conflict with the statutory text of the FLSA could provide a roadmap for additional challenges to other parts of the regulations. This could have a wide-ranging impact, as the DOL currently is in the process of preparing a proposal to revise its FLSA regulations. Then again, if a future litigant takes up Justice Kavanaugh’s invitation to challenge whether the salary regulations are overbroad compared to the language of the FLSA, the current effort to revise the regulations regarding exemptions for executive, administrative, and professional employees may be moot.

Article By Andrew P. Burnside, Steven F. Pockrass, and Zachary V. Zagger of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

For more supreme court and litigation legal news, click here to visit the National Law Review.

November 2022 Visa Bulletin – A Warning for EB-2 All Other Countries

The Visa Bulletin is released monthly by the Department of State and is used to determine when a sponsored foreign national can submit the final step of the green card process, or if already pending, when the final step can be adjudicated.

Below is a summary of the November Visa Bulletin, including Final Action Dates and changes from the previous month.

China: EB-1 remains current; EB-2 holds at June 8, 2019; EB-3 freezes at June 15, 2018; EB-3 other workers advances three months to December 1, 2012.

India: EB-1 remains current; EB-2 holds at April 1, 2012; EB-3 freezes at April 1, 2012; and EB-3 other workers remains April 1, 2012.

All Other Countries: EB-1, EB-2 and EB-3 remain current (except for EB-3 Other Workers which has a cutoff date of June 1, 2020).

NOTE 1: The November Visa Bulletin warns of possible future retrogression in the EB-2 All Other Countries category due to increased demand for overall visa numbers.

NOTE 2: USCIS will accept I-485 applications in November based on the Department of State’s slightly more favorable Dates for Filing chart.

This post was written by Courtland C. Witherup and the Immigration & Nationality Law Practice at Hunton Andrews Kurth.

For more immigration legal news, click here to visit the National Law Review.

USTR Seeks Comments on Section 301 Tariffs on Chinese Goods; Portal Opens Nov. 15

The Office of the U.S. Trade Representative (USTR) announced Oct. 17 that starting Nov. 15, it will begin soliciting comments on the effectiveness of Section 301 tariffs the Trump administration placed on Chinese goods. The notice and request for comments relate to USTR’s ongoing four-year statutory review of the Section 301 investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation.

In the Federal Registrar Notice, USTR said it is seeking “public comments on the effectiveness of the actions in achieving the objectives of the investigation, other actions that could be taken, and the effects of such actions on the United States economy, including consumers.”

The USTR is specifically interested in comments on the following:

The effectiveness of the actions in obtaining the elimination of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation.
The effectiveness of the actions in counteracting China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation.
Other actions or modifications that would be more effective in obtaining the elimination of or in counteracting China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation.
The effects of the actions on the U.S. economy, including on U.S. consumers.
The effects of the actions on domestic manufacturing, including in terms of capital investments, domestic capacity and production levels, industry concentrations, and profits.
The effects of the actions on U.S. technology, including in terms of U.S. technological leadership and U.S. technological development.
The effects of the actions on U.S. workers, including with respect to employment and wages.
The effects of the actions on U.S. small businesses.
The effects of the actions on U.S. supply chain resilience.
The effects of the actions on the goals of U.S. critical supply chains.
Whether the actions have resulted in higher additional duties on inputs used for additional manufacturing in the United States than the additional duties on particular downstream product(s) or finished good(s) incorporating those inputs.

The continuing assessment of these additional duties has been criticized by some business groups and lawmakers who believe they have hurt both U.S. businesses and U.S. consumers but have not checked China’s behavior. They also have called for the reinstatement of previously issued exclusions and for a new, robust tariff exclusion process. Some labor and civil society groups, however, want the tariffs to remain in place. The fate of these tariffs is closely tied to the Biden administration’s ongoing review and the overall U.S.–China trade relationship. The controversial tariff program that covers upwards of $300 billion worth of imports from China has sparked lawsuits from more than 3,500 importers.

The comment period begins on Nov. 15 and extends until Jan. 17. USTR said it will post specific questions on its website Nov. 1 before the portal opens.

Article By Laura Siegel Rabinowitz, Donald S. Stein, and Madeline Orlando of Greenberg Traurig, LLP

For more trade regulation news, click here to visit the National Law Review.

Author: National Law Forum

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