Administrative & Regulatory Archives - Page 16 of 110

Eleventh Circuit Affirms Dismissal of FCRA Claims Since Alleged Inaccurate Information Was Not Objectively and Readily Verifiable

In Holden v. Holiday Inn Club Vacations Inc., No. 22-11014, No. 22-11734, 2024 WL 1759143 (11th Cir. 2024), which was a consolidated appeal, the United States Court of Appeals for the Eleventh Circuit (“Eleventh Circuit” or “Court”) held that the purchasers of a timeshare did not have actionable FCRA claims since the alleged inaccurate information reported to one of the consumer reporting agencies (“CRAs”) was not objectively and readily verifiable. In doing so, the Eleventh Circuit affirmed two decisions issued by United States District Court for the Middle District of Florida (“District Court”) granting of summary judgment in favor of the timeshare company in the respective cases.

Summary of Facts and Background

Two consumers, Mark Mayer (“Mayer”) and Tanethia Holden (“Holden”), entered into two separate purchase agreements with Holiday Inn Club Vacations Incorporated (“Holiday”) to acquire timeshare interests in Cape Canaveral and Las Vegas, respectively. Holiday is a timeshare company that allows customers to purchase one or more of its vacation properties in weekly increments that can be used annually during the designated period. As part of the transaction, Holiday’s customers typically elect to finance their timeshare purchases through Holiday, which results in the execution of a promissory note and mortgage.

Mayer’s Purchase, Default, and Dispute

On September 15, 2014, Mayer entered into his purchase agreement with Holiday, which contained a title and closing provision stating the transaction would not close until Mayer made the first three monthly payments, and Holiday recorded a deed in Mayer’s name. The purchase agreement also included a purchaser’s default provision stating that upon Mayer’s default or breach of any of the terms or conditions of the agreement, all sums paid by Mayer would be retained by Holiday as liquidated damages and the parties to the purchase agreement would be relieved from all obligations thereunder. Further, the purchase agreement provided that any payments made under a related promissory note prior to the closing would be subject to the purchaser’s default provision. On the same day, Mayer executed a promissory note to finance his timeshare purchase, which was for a term of 120 months. On July 13, 2015, Holiday recorded a deed in Mayer’s name, and he proceeded to tender timely monthly payments until May 2017. As a result of Mayer’s failure to tender subsequent payments, Holiday reported Mayer’s delinquency to the CRA.

Approximately two years later, Mayer obtained a copy of his credit report and discovered Holiday had reported a past-due balance. Thereafter, Mayer sent multiple letters to the CRA disputing the debt, as he believed the purchase agreement was terminated under the purchaser’s default provision. Each dispute was communicated to Holiday, who in turn certified that the information was accurately reported. Mayer sued Holiday for an alleged violation of 15 U.S.C. § 1681s-2(b) of the FCRA based on the furnishing of inaccurate information and failure to “fully and properly re-investigate” the disputes. Holiday eventually moved for partial summary judgment, which the District Court granted. The District Court reasoned that the underlying issue of whether the default provision excused Mayer’s obligation to keep paying was a legal dispute rather than a factual inaccuracy and, in turn, made Mayer’s claim not actionable under the FCRA. Mayer timely appealed to the Eleventh Circuit.

Holden’s Purchase, Default, and Dispute

On June 25, 2016, Holden entered into her purchase agreement with Holiday, which contained a nearly identical title and closing provision to that of Mayer’s purchase agreement. Additionally, Holden’s purchase agreement incorporated a similar purchaser’s default provision. Similarly, Holden executed a promissory note to finance her timeshare purchase, which was for a term of 120 months, and entered into a mortgage to secure the payments under the note. After making her third payment, Holden defaulted and hired an attorney to cancel the purchase agreement pursuant to the closing and title provision and purchaser’s default provision. However, Holiday disputed the purchase agreement was canceled and, on June 19, 2017, recorded a timeshare deed in Holden’s name. More importantly, Holiday reported Holden’s delinquent debt to the CRA.

In response, Holden’s attorney sent three dispute letters to Holiday, which resulted in Holiday investigating the dispute and determining the reporting was accurate since Holden was still obligated under the note. Eventually, Holden sued Holiday for various violations of Florida State law and the FCRA. Holden claimed Holiday reported inaccurate information to the CRA, failed to conduct an appropriate investigation, and failed to correct the inaccuracies. The parties filed competing motions for partial summary judgment, which ended with the District Court granting Holiday’s motion and denying Holden’s motion. Specifically, the District Court held that Holden’s FCRA claim failed because contract disputes regarding whether Holden still owed the underlying debt are legal disputes and not factual inaccuracies. Holden timely appealed to the Eleventh Circuit.

The Fair Credit Reporting Act

As the Eleventh Circuit reiterated in Holden, when a furnisher is notified of a consumer’s dispute, the furnisher must undertake the following three actions: (1) conduct an investigation surrounding the disputed information; (2) review all relevant information provided by the CRA; and (3) report the results of the investigation to the CRA. When a furnisher determines an item of information disputed by a consumer is incomplete, inaccurate, or cannot be verified, the furnisher is required to modify, delete, or permanently block reporting of the disputed information. See 15 U.S.C. § 1681s-2(b)(1)(E). Additionally, any disputed information that a furnisher determines is inaccurate or incomplete must be reported to all other CRAs. See 15 U.S.C. § 1681s-2(b)(1)(D). Despite the foregoing, consumers have no private right of action against furnishers merely for reporting inaccurate information to the CRAs. The only private right of action a consumer may assert against a furnisher is for a violation of 15 U.S.C. § 1681s-2(b) for failure to conduct a reasonable investigation upon receiving notice of a dispute from a CRA. See 15 U.S.C. § 1681s-2(c)(1)).

To successfully prove an FCRA claim, the consumer must demonstrate the following: (1) the consumer identified inaccurate or incomplete information that the furnisher provided to the CRA; and (2) the ensuing investigation was unreasonable based on some facts the furnisher could have uncovered that establish the reported information was inaccurate or incomplete.

The Eleventh Circuit’s Decision

In affirming the District Court’s decisions granting summary judgment and dismissing the FCRA claims, the Eleventh Circuit clarified that whether the alleged inaccuracy was factual or legal was “beside the point. Instead, what matters is whether the alleged inaccuracy was objectively and readily verifiable.” Specifically, the Eleventh Circuit cited to Erickson v. First Advantage Background Servs. Corp., 981 F. 3d 1246, 1251-52 (11th Cir. 2020), which defined “accuracy” as “freedom from mistake or error.” The Eleventh Circuit continued by reiterating that “when evaluating whether a report is accurate under the [FCRA], we look to the objectively reasonable interpretations of the report.” As such, “a report must be factually incorrect, objectively likely to mislead its intended user, or both to violate the maximal accuracy standards of the [FCRA].”

Based on this standard, the Eleventh Circuit held that the alleged inaccurate information on which Mayer and Holden based their FCRA claims was not objectively and readily verifiable since the information stemmed from contractual disputes without simple answers. As such, the Eleventh Circuit found that Holiday took appropriate action upon receiving Mayer and Holden’s disputes by assessing the issues and determining whether the respective debts were due and/or collectible, which thereby satisfied its obligation under the FCRA. While Mayer and Holden argued to the contrary, the Eleventh Circuit held that the resolutions of these contract disputes were not straightforward applications of the law to facts. In support of its decision, the Eleventh Circuit cited to the fact that Florida State courts have reviewed similar timeshare purchase agreements and reached conflicting conclusions about whether the default provisions excused a consumer’s obligation to pay the underlying debt.

Conclusion

Holden is a limited victory for furnishers, as the Eleventh Circuit declined to impose a bright-line rule that only purely factual or transcription errors are actionable under the FCRA and held a court must determine whether the alleged inaccurate information is “objectively and readily verifiable.” Accordingly, there are situations when furnishers are required by the FCRA to accurately report information derived from the readily verifiable and straightforward application of the law to facts. One example of such a situation is misreporting the clear effect of a bankruptcy discharge order on certain types of debt. Thus, furnishers should revisit their investigation and verification procedures so they do not run afoul of the FCRA. Furnishers should also continue to monitor for developing case law as other circuit courts confront these issues.

A Closer Look at the FTC’s Final Non-Compete Rule

On April 23, 2024, the Federal Trade Commission (FTC) issued its Final Non-Compete Agreement Rule (Final Rule), banning non-compete agreements between employers and their workers. The Final Rule will go into effect 120 days after being published in the Federal Register. This Final Rule will impact most US businesses, specifically those that utilize non-compete agreements to protect their trade secrets, confidential business information, goodwill, and other important intangible assets.

The Final Rule prohibits employers from entering or attempting to enter into a non-compete agreement with “workers” (employees and independent contractors). Employers are also prohibited from even representing that a worker is subject to such a clause. The Final Rule provides that it is an unfair method of competition for employers to enter into non-compete agreements with workers and is therefore a violation of Section 5 of the FTC Act.

There are few exceptions under the Final Rule. For senior executives, existing non-compete agreements can remain in force. However, employers are barred from entering or attempting to enter into a non-compete agreement with a senior executive after the effective date of the Final Rule. The Final Rule defines “senior executive” as a worker who is both (1) earning more than $151,164 annually and (2) in a “policy-making position” for the business. For workers who are not senior executives, existing non-competes are not enforceable after the effective date. If not invalidated all together, the Final Rule will likely have extensive litigation related to “policy-making position.” According to the current commentary on the Final Rule, the FTC will likely take the position that “senior executive” is a very limited definition.

Further, the Final Rule does not apply to non-competes entered into pursuant to a “bona fide sale of a business entity, of the person’s ownership interest in [a] business entity, or of all or substantially all of a business entity’s operating assets.” As a result, parties entering into transactions can continue to use non-compete agreements in the sale of a business. But transactional lawyers should note that any non-compete in a subsequent employment agreement with a seller will likely be subject to the Final Rule. The Final Rule also does not prohibit employers from enforcing non-compete clauses where the cause of action related to the non-compete clause occurred prior to the effective date of the Final Rule.

The Final Rule also states that agreements that “penalize” or “function to prevent” an employee from working for a competitor are banned and unlawful. For example, a non-disclosure agreement may be viewed as a non-compete when it is so broad that it functions to prevent workers from seeking or accepting other work or starting a business after they leave their job. Similarly, non-solicitation agreements may also be banned under the new rule “where they function to prevent a worker from seeking or accepting other work or starting a business after their employment ends.” The commentary makes clear that the enforceability and legality of these types of agreements will need to be analyzed on a case-by-case basis.

Under the Final Rule, employers are required to provide clear and conspicuous notice to workers who are subject to a prohibited non-compete. This notice must be sent in an individualized communication (text message, hand delivery, mailed to last known address, etc.) and indicate that the worker’s non-compete clause will not be enforced.

The Final Rule has already been challenged in at least two lawsuits, both filed in the state of Texas. The US Chamber of Commerce filed suit in the US District Court for the Eastern District of Texas seeking a declaratory judgment and an injunction to prevent the enactment of the Final Rule. A second suit, filed by Ryan, LLC, a tax services firm, was filed in the US District Court for the Northern District of Texas. Both suits raise similar arguments: (1) the FTC lacks authority to enact the rule due to the major questions doctrine; (2) the Final Rule is inconsistent with the FTC Act; (3) the retroactive nature of the Final Rule exceeds the FTC’s authority and raises Fifth Amendment concerns; and (4) the Final Rule is arbitrary and capricious. The US Chamber of Commerce has also filed a motion to stay the effective date of the Final Rule pending resolution of the lawsuit.

The very nature of how business entities protect their intangible assets is at risk, and the Final Rule will change the contractual dynamic of the employer-employee relationship.

A New Day for “Natural” Claims?

On May 2, the Second Circuit upheld summary judgment in favor of KIND in a nine year old lawsuit challenging “All Natural” claims. In Re KIND LLC, No. 22-2684-cv (2d Cir. May 2, 2024). Although only time will tell, this Circuit decision, in favor of the defense, may finally change plaintiffs’ appetite for “natural” cases.

Over the many years of litigation, the lawsuit consolidated several class action filings from New York, Florida, and California into a single, multi-district litigation with several, different lead plaintiffs. All plaintiffs alleged that “All Natural” claims for 39 KIND granola bars and other snacks were deceptive. Id. at 3. Plaintiff had alleged that the following ingredients rendered the KIND bars not natural: soy lecithin, soy protein isolate, citrus pectin, glucose syrup/”non-GMO” glucose, vegetable glycerine, palm kernel oil, canola oil, ascorbic acid, vitamin A acetate, d-alpha tocopheryl acetate/vitamin E, and annatto.

The Second Circuit found that, in such cases, the relevant state laws followed a “reasonable consumer standard” of deception. Id. at 10. Further, according to the Second Circuit, the “Ninth Circuit has helpfully explained” that the reasonable consumer standard requires “‘more than a mere possibility that the label might conceivably be misunderstood by some few consumers viewing it in an unreasonable manner.’” Id. (quoting McGinity v. Procter & Gamble Co., 69 F.4^th 1093, 1097 (9th Cir. 2023)). Rather, there must be “‘a probability that a significant portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled.’” Id. To defeat summary judgement, the plaintiffs would need to present admissible evidence showing how “All Natural” tends to mislead under this standard.

The Second Circuit agreed with the lower court that plaintiffs’ deposition testimony failed to provide such evidence where it failed to “establish an objective definition” representing reasonable consumer understanding of “All Natural.” Id. at 28. While one plaintiff believed the claim meant “not synthetic,” another thought it meant “made from whole grains, nuts, and fruit,” while yet another believed it meant “literally plucked from the ground.” Id. The court observed that plaintiffs “fail[ed] to explain how a trier of fact could apply these shifting definitions.” Id. The court next rejected as useful evidence a dictionary definition of “natural,” which stated, “existing or caused by nature; not made or caused by humankind.” Id. at 29. The court reasoned that the dictionary definition was “not useful when applied to a mass-produced snack bar wrapped in plastic” – something “clearly made by humans.” Id.

The court, finally, upheld the lower court’s decision to exclude two other pieces of evidence the plaintiffs offered. First, the Second Circuit agreed that a consumer survey was subject to exclusion where leading questions biased the results. Id. at 21-22. The Second Circuit also agreed that an expert report by a chemist lacked relevance where it assessed “typical” sourcing of ingredients, not necessarily how KIND’s ingredients were manufactured or sourced. Id. at 22-24.

For more news on Food Advertising Litigation, visit the NLR Biotech, Food, Drug section.

Understanding the New FLSA Overtime Rule: What Employers Need to Know

Changes to overtime rules under the Fair Labor Standards Act (FLSA) announced on April 23, 2023 affect most U.S. employers. The Final Rule substantially increases the number of employees eligible for overtime pay. It is critical that employers understand the rule and its implications for their business.

Current FLSA Overtime Regulations: The Basics

The FLSA requires employers to pay overtime pay of at least 1.5 times an employee’s standard pay rate for hours worked in excess of 40 hours per week. However, “white collar” and “highly compensated” employees are exempt from this overtime pay requirement if they meet a three-part test:

Salary Basis Test – an employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.
Salary Level Test – the amount of salary paid must meet a minimum specified amount. (Spoiler Alert: The new rules change the salary level.)
Duties Test – the employee’s job duties must primarily involve executive, administrative, or professional duties.

THE WHITE COLLAR EXEMPTION

The white-collar exemption applies to employees who perform primarily executive, administrative, and professional tasks. Workers who perform these tasks are considered to have more autonomous, managerial, or specialized roles justifying exemption from overtime. Therefore, if an employee’s duties are executive, administrative, and professional, and they satisfy the salary basis and salary level tests in the FLSA, they are not entitled to overtime pay under the FLSA.

HIGHLY COMPENSATED EMPLOYEES

A highly compensated employee (HCE) is someone who earns a high annual compensation (according to salary thresholds in the FLSA) and whose role includes one or more executive, administrative, or professional duties. The FLSA exempts “highly compensated employees” from the overtime pay requirement.

Key Changes to the FLSA Overtime Rules

The new rule increases the salary thresholds in the salary level test for highly compensated and white collar employees. As a result of the changes, less employees will be considered exempt and employers will be liable for significantly more overtime pay. Notably, the types of duties eligible for exemption are not impacted.

The new salary thresholds are introduced in two phases with the first increase becoming effective on July 1, 2024, and the second occurring on January 1, 2025. Importantly, the new rule also includes a mechanism for automatically updating these salary thresholds every three years based on current wage data. This means employers will need to stay vigilant for future increases.

THE NEW SALARY THRESHOLDS

In general, the minimum annual salary to qualify for the white collar exemption is increasing from $35,568 to $58,656 and the total annual compensation requirement for the highly compensated employee exemption is increased from $107,432 to $151,164. Here’s a detailed breakdown of the higher salary thresholds and their effective dates:

New FLSA Overtime Rule - The New Salary Thresholds

Why This Rule Matters: Essential Steps for Employers

This rule will have a significant impact on Pennsylvania employers, potentially reclassifying millions of currently exempt employees as non-exempt and eligible for overtime pay. Employers who fail to comply risk costly back pay, penalties, and lawsuits.

There are practical steps that employers can consider to ensure compliance with the new FLSA rule:

Review Current Employee Salaries, Hours, and Duties: Audit current salaries, hours, and job duties. This review will help identify which employees’ status may be affected by the new salary thresholds for exempt status under the FLSA.
Reclassify Employees as Non-Exempt as Necessary: Based on the review, determine which employees will need to be reclassified from exempt to non-exempt, or awarded a salary increase, to comply with the new rules. This reclassification will make them eligible for overtime pay, altering how their work hours are managed and compensated. It is advisable to consider an employee’s perception of this reclassification when taking this step.
Time Recording Policies and Processes: For employees who are reclassified as non-exempt, implement or update timekeeping procedures to accurately track hours worked. This may also require training employees on time-keeping systems. Effective and accurate time recording is essential for managing overtime and ensuring compliance.
Update Overtime Policies: Revise company overtime policies to reflect changes in employee classifications. Include clear procedures for overtime approval to manage overtime work more effectively and ensure it aligns with budget constraints and business needs.
Bonuses, Incentive Pay, Commissions: Evaluate how non-salary forms of compensation will factor into the new salary thresholds for exempt status. The FLSA determines how this compensation should be treated in determining total annual compensation, which could influence exemption status.
Remember Contractual Obligations: The FLSA is a federal law which applies to all U.S. employers. However, any additional salary commitments in an employment contract still legally bind the employer. These should not be ignored.

Despite the quickly approaching compliance date, we also anticipate legal challenges to this rule, which could delay or change the rules. For now, though, employers should proceed on that basis that the updated regulations will take effect on July 1, 2024. Preparing for this deadline ensures that employers will not be caught off guard and can avoid any potential legal and financial repercussions.

EEOC Publishes Long-Awaited Final Guidance on Workplace Harassment

On April 29, 2024, the U.S. Equal Employment Opportunity Commission (EEOC) issued the final version of new workplace harassment guidance for employers, formally updating the EEOC’s position on the legal standards and employer liability under federal antidiscrimination laws for the first time in more than two decades.

Quick Hits

The EEOC issued a final version of new guidance for employers clarifying its positions on the applications of federal laws prohibiting harassment and retaliation.
The new guidance is the first update to the EEOC’s workplace harassment guidance since 1999 and incorporates several new developments in the law and modern workforces.
Key to the new guidance is that it recognizes unlawful harassment against LGBTQ+ individuals and addresses workplace protections for “pregnancy, childbirth, or related medical conditions,” including “lactation.”
The new guidance took immediate effect upon issuance.

The new guidance, “Enforcement Guidance on Harassment in the Workplace,” clarifies the EEOC’s position on several key issues following its receipt of nearly 40,000 comments in response to its proposed guidance published on October 2, 2023.

“The EEOC’s updated guidance on harassment is a comprehensive resource that brings together best practices for preventing and remedying harassment and clarifies recent developments in the law,” EEOC Chair Charlotte Burrows said in a statement released with the new guidance.

In that regard, the final guidance aligns with the Supreme Court of the United States’ 2020 decision in Bostock v. Clayton County, Georgia—wherein the prohibition under Title VII of the Civil Rights Act of 1964 against gender discrimination was held to include claims predicated on sexual orientation and gender identification—and recognizes potentially unlawful workplace harassment against LGBTQ+ individuals. The final guidance also addresses another key area of focus, that is, workplace protections for “pregnancy, childbirth, or related medical conditions,” including “lactation” in accordance with the Pregnant Workers Fairness Act (PWFA) and Providing Urgent Maternal Protections for Nursing Mothers Act (PUMP Act), and the EEOC’s final guidance on the PWFA issued on April 15, 2024.

While claims of harassment represented more than a third of all discrimination charges filed with the EEOC between fiscal years 2016 and 2023, the Commission has not updated its guidance on harassment since 1999. The final guidance consolidates and replaces the EEOC’s five guidance documents issued from 1987 through 1999.

Significant for employers, the final guidance provides more than seventy hypothetical examples of potential unlawful harassment, including examples reflective of today’s modern workforce with both hybrid and remote workers and widespread use of electronic communication and social media.

Covered Harassment

The EEOC made several key updates to what it considers covered harassment under Title VII and other federal antidiscrimination laws.

Race and Color

The new guidance expands the EEOC’s explanation on potential harassment based on “color” under Title VII, separating it out into its own section that was not included in the proposed guidance. The guidance states that while discrimination based on color is “sometimes related to harassment based on race or national origin, color-based harassment due to an individual’s pigmentation, complexion, or skin shade or tone is independently covered by Title VII.”

The guidance provides an example of potential color-based harassment where a supervisor harasses Black employees with “darker complexions” and not Black employees with “lighter skin tones,” even though they are all of the same race or national origin.

Pregnancy, Childbirth, or Related Medical Conditions

The guidance states that harassment based on pregnancy, childbirth, or related medical conditions “can include issues such as lactation; using or not using contraception; or deciding to have, or not to have, an abortion,” if that harassment “is linked to a targeted individual’s sex.” The new guidance adds multiple hypothetical examples of such harassment not included in the proposed guidance, including a situation where employees make negative comments about a pregnant employee who is allowed to “telework up to three days per week and utilize flexible scheduling” as an accommodation for “pregnancy-related morning sickness.” Another example highlighted a situation where negative comments are directed toward a female worker who expresses milk in the lactation room at work and other inappropriate behavior, namely a male worker knocking on the door of the lactation room and feigning intent to enter the room.

Sexual Orientation and Gender Identity

The new guidance explains the EEOC’s view that discrimination based on sexual orientation or gender identity is a form of unlawful sex-based discrimination under Title VII, including epithets, physical assault, “outing” (meaning disclosing an individual’s sexual orientation or gender identity without permission), or other harassing conduct toward individuals because they do “not present in a manner that would stereotypically be associated with that person’s sex.”

Further, the guidance identifies as potential harassment the “repeated and intentional use of a name or pronoun inconsistent with the individual’s known gender identity (misgendering); or the denial of access to a bathroom or other sex-segregated facility consistent with the individual’s gender identity.” Importantly, the final guidance requires some intentional or knowing behavior, that is “repeated and intentional” misgendering based on an individual’s “known” gender identity. (Emphasis added.)

Genetic Information

The new guidance further clarifies the EEOC’s understanding of unlawful harassment under the Genetic Information Nondiscrimination Act (GINA) as applying to “harassment based on an individual’s, or an individual’s family member’s, genetic test or on the basis of an individual’s family medical history.” For instance, the guidance states that such harassment could include harassing an employee “because the employee’s mother recently experienced a severe case of norovirus, which resulted in overnight hospitalization.”

Retaliatory Harassment

The final guidance includes a new section that addresses the concept of “retaliatory harassment.” The guidance clarifies the EEOC’s position that “retaliatory harassing conduct” may still be challenged as unlawful retaliation “even if it is not sufficiently severe or pervasive to alter the terms and conditions of employment by creating a hostile work environment.” The EEOC explained that the legal standards for hostile work environment and retaliation are different as the anti-retaliation provisions proscribe a broader range of behaviors, namely, “anything that might deter a reasonable person from engaging in protected activity.”

Intraclass and Intersectional Harassment

The guidance includes examples of “intraclass” harassment where the harasser is in the same protected category as the individual being harassed. One hypothetical involves a fifty-two-year-old supervisor making derogatory comments toward a sixty-five-year-old employee as an example of harassment based on age, even though both individuals are over the age of forty. “Intersectional” harassment refers to situations where individuals are targeted based on their membership in more than one protected category. In one example, the hypothetical raises a situation where a male manager made comments to a female worker about her having a “hot flash” and being menopausal. The EEOC explained that such targeting based on “stereotypes about older women is covered as both age and sex discrimination.”

Reporting Procedures, Complaint Process, and Training

The proposed guidance outlined the “minimum” features of an effective anti-harassment policy, the “minimum” features for an effective complaint process, and the “minimum” features for effective anti-harassment training. The final guidance eliminates the “minimum” language, but the features of each are substantively the same otherwise.

As it concerns remedial measures, the Commission removed language from the proposed guidance that seemingly recognized the “fewer options” available to employers when faced with instances of harassment perpetrated by nonemployees, harassment toward employees working at client locations as is common for temporary staffing agencies, or harassment arising from off-duty conduct. In its place, the final guidance simply provides that employers have an “arsenal of incentives and sanctions” available to them to address harassment, but those options “may vary depending on who engages in the conduct and where it occurs, among other considerations.”

Next Steps

While the final guidance is likely to face legal challenges in the courts, employers may want to review their workplace policies and practices, particularly in light of potential liability for discrimination or harassment against LGBTQ+ employees. Additionally, employers may want to note differing state or local laws and state or local agency guidance that differ from Title VII and other federal laws enforced by the EEOC.

In addition to the new guidance, the EEOC published a “Summary of Key Provisions” document and a fact sheet for small businesses, with more information for employers.

Justice Department has Opportunity to Revolutionize its Enforcement Efforts with Whistleblower Program

Over the past few decades, modern whistleblower award programs have radically altered the ability of numerous U.S. agencies to crack down on white-collar crime. This year, the Department of Justice (DOJ) may be joining their ranks, if it incorporates the key elements of successful whistleblower programs into the program it is developing.

On March 7, the Deputy Attorney General Lisa Monaco announced that the DOJ was launching a “90-day policy sprint” to develop “a DOJ-run whistleblower rewards program.” According to Monaco, the DOJ has taken note of the successes of the U.S.’s whistleblower award programs, such as those run by the Securities and Exchange Commission (SEC) and Internal Revenue Service (IRS), noting that they “have proven indispensable.”

Monaco understood that the SEC and IRS programs have been so successful because they “encourage individuals to report misconduct” by “rewarding whistleblowers.” But how any award program is administered is the key to whether or not the program will work. There is a nearly 50-year history of what rules need to be implemented to transform these programs into highly effective law enforcement tools. The Justice Department needs to follow these well defined rules.

The key element of all successful whistleblower award programs is very simple: If a whistleblower meets all of the requirements set forth by the government for compensation the awards must be mandatory and based on a percentage of the sanctions collected thanks to the whistleblower. A qualified whistleblower cannot be left out in the cold. Denying qualified whistleblowers compensation will destroy the trust necessary for a whistleblower program to work.

It is not the possibility of money that incentives individuals to report misconduct but the promise of money. Blowing the whistle is an immense risk and individuals are only compelled to take such a risk when there is real guarantee of an award.

This dynamic has been laid clear in recent legislative history. There is a long track record of whistleblower laws and programs failing when awards are discretionary and then becoming immensely successful once awards are made mandatory.

For example, under the 1943 version of the False Claims Act awards to whistleblowers were fully discretionary. After decades of ineffectiveness, in 1986, Congress amended the law to set a mandate that qualified whistleblowers receive awards of 15-30% of the proceeds collected by the government in the action connected with their disclosure.

The 1986 Senate Report explained why Congress was amending the law:

“The new percentages . . . create a guarantee that relators [i.e., whistleblowers] will receive at least some portion of the award if the litigation proves successful. Hearing witnesses who themselves had exposed fraud in Government contracting, expressed concern that current law fails to offer any security, financial or otherwise, to persons considering publicly exposing fraud.

“If a potential plaintiff reads the present statute and understands that in a successful case the court may arbitrarily decide to award only a tiny fraction of the proceeds to the person who brought the action, the potential plaintiff may decide it is too risky to proceed in the face of a totally unpredictable recovery.”

In the nearly four decades since awards were made mandatory, the False Claims Act has established itself as America’s premier anti-fraud law. The government has recovered over $75 billions of taxpayer money from fraudsters, the vast majority from whistleblower initiated cases based directly on the 1986 amendments making awards mandatory.

Similar transformations occurred at both the IRS and SEC where ineffective discretionary award laws were replaced by laws which mandated that qualified whistleblowers receive a set percentage of the funds collected thanks to their whistleblowing. Since these reforms, the whistleblower programs have revolutionized these agencies’ enforcement efforts, leading directly to billions of dollars in sanctions and creating a massive deterrent effect on corporate wrongdoing.

Most recently, Congress reaffirmed the importance of mandatory whistleblower awards when it reformed the anti-money laundering whistleblower law. The original version of the law, which passed in January 2021, had no set minimum amount for awards, meaning that they were fully discretionary. After the AML Whistleblower Program struggled to take off, Congress listened to the feedback from whistleblower advocates and passed the AML Whistleblower Improvement Act to mandate that qualified money laundering whistleblowers are awarded.

Monaco states that the DOJ has long had the discretionary authority to pay whistleblower awards to individuals who report information leading to civil or criminal forfeitures and has “used this authority here and there — but never as part of a targeted program.”

The most important step in turning an underutilized and ineffective whistleblower award law into an “indispensable” whistleblower award program has been made clear over the past decades. Qualified whistleblowers must be guaranteed an award based on a percentage of the sanctions collected in connection with their disclosure.

By administering its whistleblower program in a way that mandates award payments, the DOJ would go a long way towards creating a whistleblower program which revolutionizes its ability to fight crime. The Justice Department has taken the most important first step – recognizing the importance of whistleblowers in reporting frauds. It now must follow through during its “90-day sprint,” making sure reforming the management of the Asset Forfeiture Fund works in practice. Whistleblowers who risk their jobs and careers need real, enforceable justice.

The 80/20 Rule is Here: CMS Finalizes HCBS Care Worker Payment Requirements

In May 2023, the Centers for Medicare and Medicaid Services (“CMS”) proposed a series of rule changes intended to help promote the availability of home and community-based services (“HCBS”) for Medicaid beneficiaries. Chief among these proposals was a new rule that would require HCBS agencies to spend at least 80% of their Medicaid payments for homemaker, home health aide, and personal care services on direct care worker compensation (the “80/20 Rule”). Intended to help stabilize the HCBS workforce, the proposal faced immediate backlash from HCBS providers and Medicaid agencies, who expressed concern that the 80/20 rule would harm HCBS providers by mandating specific allocations to worker compensation and bogging down providers and Medicaid agencies with burdensome reporting requirements.

After reviewing thousands of comments, CMS released an advance copy of the final rule this week. Defying stakeholder anticipation that the 80/20 Rule would be relaxed, or updated to provide more flexibility for providers, CMS finalized the 80/20 Rule largely as originally proposed, including the following key requirements:

HCBS providers must spend at least 80% of Medicaid payments on direct care worker compensation;
HCBS providers will have six years (increased from four) from the effective date of the final rule to demonstrate compliance with the 80/20 Rule;
States must begin collecting and tracking data on direct care worker compensation within four years of the effective date of the final rule; and
States are permitted to establish different standards for smaller HCBS providers and to establish hardship exemptions – in both cases based on objective and transparent criteria.

Under the broad mandate of the 80/20 Rule, there are a number of key definitions that HCBS providers must consider as they evaluate these new requirements:

Direct Care Workers

Because the 80/20 Rule was adopted largely to stabilize the HCBS workforce, a key component is whose compensation qualifies for inclusion. CMS’s proposed definition encompassed almost any person with a role in providing direct care to patients (e.g., RNs, LPNs, individuals practicing under their supervision, home health aides, etc.). Under the final 80/20 Rule, CMS clarified that “direct care workers” also include those whose role is specifically tied to clinical supervision (e.g., nurse supervisors).

Compensation

Compensation of direct care workers means:“[s]alary, wages, and other remunerations as defined by the Fair Labor Standards Act and implementing regulations; [b]enefits (such as health and dental benefits, life and disability insurance, paid leave, retirement, and tuition reimbursement); and [t]he employer share of payroll taxes for direct care workers delivering services authorized under section 1915(c) of the Act.” CMS clarified that “compensation” also includes:

Overtime pay;
All forms of paid leave (e.g., sick leave, holidays, and vacations);
Different types of retirement plans and employer contributions; and
All types of benefits: CMS intentionally used the phrase “such as” to indicate the list of benefits was non-exhaustive, and indicated technical guidance to states on this subject is forthcoming.

Excluded Costs

CMS expressed concern that HCBS providers would include training costs for direct care workers as “compensation,” and that calculating compensation in this way could result in negative outcomes, such as diminished training opportunities. To address these concerns, CMS created the concept of “excluded costs,” which are excluded from the percentage calculations under the 80/20 Rule. See § 441.302(k)(1)(iii) (“costs that are not included in the calculation of the percentage of Medicaid payments to providers that are spent on compensation for direct care workers.”). Excluded costs are limited to:

Costs of required direct care worker training;
Direct care worker travel costs (mileage, public transportation subsidy, etc.); and
Personal protective equipment costs.

Medicaid Payments

CMS largely adopted its expansive view of what qualifies as a “Medicaid Payment” for purposes of 80/20 Rule calculations. CMS clarified that the 80/20 Rule encompasses both standard and supplemental payments and applies regardless of whether HBCS services are delivered through fee-for-service or managed care delivery systems. CMS also declined to create a formal carve-out for value-based care or pay-for-performance arrangements, despite recognizing their value.

What Comes Next?

HCBS providers and state Medicaid agencies have six years to sort out their compliance with the 80/20 Rule (though data tracking and reporting begins after year three). On the provider side, this means carefully evaluating the business and economic impacts of compliance with the 80/20 Rule and monitoring CMS and state-level guidance on implementation as it develops over time. For multi-state providers, this process becomes even more complicated, as there is a high likelihood that states will choose to implement the 80/20 Rule in different, and potentially contradictory, ways.

Providers also need to work with the state agencies to address the adequacy of HCBS rates generally. CMS recognized the important role that the underlying rates play in HCBS sustainability but declined to mandate specific payment rates or methodologies. As a result, positive momentum on the rates themselves must come from state initiatives.

U.S. EPA Finalizes Designation of Two PFAS Chemicals as Hazardous Substances Under CERCLA

On April 19, the U.S. Environmental Protection Agency (EPA) released its long-awaited final rule designating perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS), including their salts and structural isomers, as “hazardous substances” under Section 102(a) of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA” or “Superfund”) (the “Final Rule”). The designation, which takes effect 60 days after the final rule is published in the Federal Register, will provide expanded investigation and remediation authority to EPA, will provide a powerful tool for private actions under CERCLA, and will trigger additional release reporting requirements. It will also expand enforcement authority in states that regulate CERCLA-designated hazardous substances.

Hazardous Substance Designation of PFOA and PFOS Has Broad Implications for Cleanups and CERCLA Liability

PFOA and PFOS are two specific chemical compounds within a broad group of thousands of manmade chemicals known as per- and polyfluoroalkyl substances (PFAS). EPA focused its regulatory efforts on these two PFAS; however, the vast majority of PFAS remain unregulated under CERCLA even after issuance of the Final Rule.

Designating PFOA and PFOS as hazardous substances triggers numerous requirements. The primary impact of the Final Rule is that it incorporates PFOS and PFOA into CERCLA’s strict, joint and several liability framework. This change grants EPA the power to investigate releases of PFOA and PFOS and compel potentially responsible parties (PRPs), including owners and operators of a property or facility, to remediate releases of PFOA and PFOS through the specific CERCLA enforcement provisions. PRPs also now have a clear private right of action under CERCLA to pursue cost recovery and contribution actions. Additionally, when the Final Rule becomes effective, facilities will be required to immediately report releases of PFOA and PFOS above their designated “reportable quantities,” (currently one pound within a 24-hour period), to the National Response Center and relevant state or tribal authorities.

Furthermore, many states include CERCLA hazardous substances under their cleanup statutes, meaning these states will now be able to require remediation of PFOA and PFOS under state law.

Listing PFOA and PFOS as “hazardous substances” under CERCLA does not make PFOA or PFOS contaminated waste a “hazardous waste” or a “hazardous constituent” under the Resource Conservation and Recovery Act. However, this designation does require the U.S. Department of Transportation to designate PFOA and PFOS as “hazardous materials” for purposes of transport under the Hazardous Materials Regulations.

While the PFOA and PFOS CERCLA Listing is Final, Questions Remain

As noted in our prior article on the proposed rule, EPA’s designation of PFOA and PFOS as “hazardous substances” leaves several questions unanswered.

How will EPA’s CERCLA enforcement discretion policy really play out in practice?
Concurrently with the publication of the Final Rule, EPA also released a PFAS Enforcement Discretion and Settlement Policy under CERCLA. This enforcement policy captures EPA’s current position that it does not intend to pursue PRPs under circumstances where “equitable factors” do not support doing so. Enumerated circumstances in the policy include so-called “passive receivers” of PFAS, including community water systems and publicly-owned treatment works, publicly-owned municipal solid waste landfills, publicly-owned airports and local fire departments, and farms where PFAS-containing biosolids are applied to the land. However, EPA’s enforcement policy—which is not binding upon the agency and is subject to change at any time—should be viewed with a healthy dose of skepticism among regulated industries, considering the sheer breadth of potential CERCLA liability for these substances, as well as continued Congressional proposals to codify exemptions for passive receivers within the CERCLA statute itself. Notably, the agency’s enforcement position does not in any way prevent private parties from initiating cost recovery or contribution actions under CERCLA.
How will regulated industries manage the costs of PFOA and PFOS cleanup?PFAS contamination can be wide-ranging due to several factors unique to the chemicals themselves. Further, unlike remediation technologies for other well-studied contaminants, existing remediation technologies for PFOA and PFOS are nascent at best and are expensive at a large scale. It is therefore often difficult to even estimate accurate cost ranges for PFOA and PFOS cleanups, but costs can easily run into the millions of dollars at complex sites. Although EPA has published interim guidance on PFOA and PFOS disposal methods, and the recently passed Infrastructure Investment and Jobs Act provides $3.5 billion over five years for Superfund cleanups, the methods and money may not go as far as planned if cleanup costs for PFOA and PFOS sites end up exponentially higher.
How will EPA handle potential PFOA and PFOS contamination at closed Superfund sites?In response to comments seeking clarification on whether designating PFOA and PFOS will lead to the reopening of closed Superfund sites, EPA stated that the final rule “has no impact” on EPA’s authority to list PFOA and PFOS sites as Superfund sites. EPA’s question-and-answers page—which we note is not a binding statement from the agency—also states that “[d]esignation will not change EPA’s process for listing and/or deleting [National Priorities List (NPL)] sites or evaluating remedies’ protectiveness through five-year reviews, and it will not require PFOA and PFOS sampling at NPL (final or deleted) sites.” While the final rule does not require PFOA and PFOS sampling at closed sites, it does not prevent EPA from ordering sampling at these sites. PRPs who may have long ago stopped budgeting for remedial costs at existing or legacy locations that were remediated years and even decades ago, may find that they are required to revisit these sites where PFOA and PFOS may be present.
What cleanup standards will govern PFOA and PFOS remediation?There is a current patchwork of state regulatory standards relating to PFAS, ranging from binding cleanup levels, advisory guidance, or no PFAS standards at all, which may lead to similarly patchwork cleanup standards depending on which standards are applied as an appropriate “applicable or relevant and appropriate requirement” (ARAR) at a specific site. In addition, on April 10, 2024, EPA issued a final rule setting Maximum Contaminant Levels (MCL) for PFOA and PFOS in drinking water at 4.0 parts per trillion (ppt), individually. While these drinking water standards are separate from EPA’s final rule listing PFOA and PFOS as “hazardous substances” under CERCLA, the “hazardous substances” rule notes that the MCL may be an appropriate ARAR for cleanup efforts under CERCLA.
What other PFAS will EPA next target under CERCLA?As noted above, PFOA and PFOS are two specific PFAS among thousands of others currently and historically used. Much of the science on the potential health effects of PFAS (both individual chemical compounds and as a class) continues to evolve. In the meantime, EPA has moved to regulate additional types of PFAS under other statutes. For example, as we noted in a previous client alert, EPA recently published a proposed rule listing seven other PFAS compounds as hazardous constituents under RCRA. Some or all of these PFAS may eventually be targets of future CERCLA rulemaking efforts.

Next Steps

The Final Rule will take effect 60 days after it is published in the Federal Register. Affected parties should consider their portfolio of planned, active, and in some cases, closed remediation sites for potential implications, and companies may consider reviewing and updating their hazardous substance reporting and transportation protocols to address PFOA and PFOS as applicable.

U.S. Supreme Court: Forced Transfers of Employees Without Loss of Pay or Rank Violate Title VII

Federal law prohibits employers from relying on certain protected statuses (race, color, religion, sex, or national origin) when making employment decisions. Lower courts have required employees suing employers to point to a materially adverse harm caused by the alleged employer discrimination. But is a forced transfer of an employee to another department—with no loss of pay or rank—an “adverse employment” decision? On April 17, 2024, the U.S. Supreme Court ruled 9-0 in the affirmative.

In Muldrow v. City of St. Louis, a female police sergeant alleged she was transferred from one job to another because she is a woman, in violation of Title VII. While her rank and pay remained the same in the new position, her responsibilities (moving from being a plainclothes intelligence officer to a more administrative role), perks (e.g., no longer having a take-home car), and schedule (fewer weekends off) did not. The District Court reiterated Title VII’s prohibition against basing employment decisions on a person’s gender, but further opined that because the female police sergeant did not demonstrate there was a “significant” change in working conditions producing “material employment disadvantage,” her discrimination claim failed as a matter of law. The District Court reached this conclusion because she suffered no “change in salary or rank,” and therefore, there was no harm and no foul. The U.S. Court of Appeals for the Eighth Circuit agreed, concluding that the plaintiff did not have a viable employment discrimination claim because her job transfer “did not result in a diminution to her title, salary, or benefits.”

Writing for a unanimous court, Justice Elena Kagan reversed the Eighth Circuit, ruling that an employee need not show “significant, serious” or “material” change in employment conditions to maintain a discrimination claim “because the text of Title VII imposes no such requirement.” More specifically, the Supreme Court reasoned that there is nothing in Title VII that distinguishes “between transfers causing significant disadvantages and transfers causing not-so-significant ones.” All a plaintiff need show in a forced discriminatory transfer case is that the transfer left the employee “worse off,” but not “significantly worse” as numerous federal appellate decisions have previously held.

USCIS Announces Information on EB-5 Regional Center Audits

U.S. Citizenship and Immigration Services (USCIS) has announced new provisions regarding EB-5 regional center audits in accordance with the EB-5 Reform and Integrity Act of 2022. Each designated regional center will be audited at least once every five years, and audits will review documentation required to be maintained by the regional center and the flow of immigrant investor capital into capital investment projects. Audits aim to enhance the integrity of the EB-5 program by verifying information in regional center applications, annual certifications, and associated investor petitions.

During site visits for audits, if a regional center representative refuses to participate, the visit will be canceled and the audit report will be completed using available data, noting the cancellation at the request of the regional center. Regional centers that refuse consent or obstruct audits may have their designation terminated.

However, there are generally no immediate adverse consequences for EB-5 associated entities or petitioners solely based on a negative audit result, except in cases of deliberate noncompliance or obstruction. The findings may be used to evaluate a regional center’s eligibility to remain designated and compliance with applicable requirements.

Starting April 23, 2024, audits will adhere to Generally Accepted Government Auditing Standards to ensure uniformity. USCIS launched a new EB-5 Regional Center Audits webpage to provide information on the auditing process.

Category: Administrative & Regulatory

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