Administrative & Regulatory Archives - Page 85 of 110

Federal Court Upholds Validity of 2011 H-2B Prevailing Wage

The Temporary Non-agricultural Employment 2011 H-2B Wage Rule for calculating the prevailing wage rates (“Rule”) has cleared one of the last hurdles to implementation by the U.S. Department of Labor, with a ruling by a federal appeals court in Philadelphia upholding the regulation. The U.S. Court of Appeals for the Third Circuit held on February 5 that the DOL has authority to make rules regulating the H-2B program, that the Rule was lawfully promulgated and that it did not violate the Administrative Procedure Act or the Immigration and Naturalization Act. The lawsuit was brought by employer associations that recruit H-2B workers and stand to face higher labor costs as a result of the Rule. The case is La. Forestry Ass’n v. Sec’y United States DOL, 2014 U.S. App. LEXIS 2167 (3d Cir. Feb. 5, 2014).

The Rule (76 Fed. Reg. 3,452 (Jan. 19, 2011) (codified at 20 C.F.R. § 655.10)) eliminated the “four-tier wage methodology” in favor of the mean Occupational Employment Statistics (OES) wage for each occupational category, and established a wage calculation regime wherein the prevailing wage is the highest of the applicable collective bargaining agreement(s), the rate established under the DBA[???] or Service Contract Act, or the OES mean. It also barred use of employer-submitted surveys if the prevailing wage can be determined based on OES data or the rates established under the DBA or SCA. According to DOL’s estimates, “the change in the method … will result in a $4.83 increase in the weighted average hourly wage for H-2B workers and similarly employed U.S. workers[,]” and a total annual transfer cost of $847.4 million.

This Third Circuit decision is welcomed by DOL, which has faced numerous court challenges in its efforts to promulgate new H-2B rules since 2008. The 2011 H-2B Wage Rule was published in response to an August 2010 court order enjoining the agency from implementing its 2008 H-2B wage rule on the ground that it violated the APA, promulgated without seeking public comment. The court ordered the DOL to promulgate new, APA-compliant rules.

Even though DOL published the 2011 Rule within the time ordered, its implementation has been held up by court action and by Congressional “appropriations concerns” denying DOL funding. DOL continued to use its 2008 rule. This was challenged and in March 2013, a federal district court vacated the 2008 wage rule and permanently enjoined the agency form implementing it (see www.globalimmigrationblog.com/2013/03). The court gave the DOL 30 days to comply. As a result, DOL and USCIS published a joint interim final rule in April 2013 that established a new methodology for calculating H-2B prevailing wages (seewww.globalimmigrationblog.com/2013/04), which DOL indicated would be effective only until the 2011 H-2B Wage Rule took effect.

Since Congress lifted the appropriations ban on the Rule when it enacted the DOL Appropriations Act, 2014 (see Pub. L. 113-76, Div. H, Title I (2014)), we anticipate DOL will now apprise the public of the status of H-2B prevailing wages and the effective date of the Rule by publishing a notice in the Federal Register.

The Third Circuit recognized its decision may lead to a rift in the courts of appeals. In Bayou Lawn & Landscape Servs. v. Sec. of Labor, 713 F.3d 1080 (11th Cir. 2013), the Atlanta court affirmed an injunction barring implementation of the interim rule preliminarily, finding DOL had no rulemaking authority over the program. The Third Circuit cautioned, however, that Bayou may not be the last word on the subject from its sister circuit: “The three-member panel in Bayou opined only on whether the District Court abused its discretion…, not on whether the DOL actually has that authority or not….”

Article by:

Otieno B. Ombok

Of:

Jackson Lewis P.C.

Dewonkify – Risk Corridors Re: Affordable Care Act

The Patient Protection and Affordable Care Act –commonly referred to as “the ACA”—is a law that reformed nearly twenty-percent of the economy through modifications to regulations and changes to existing law. Its primary goals were to expand health care coverage and control rising costs. Among a number of reforms, the ACA mandated that all citizens have health insurance for a minimum of nine months of the year (or face a penalty); allowed children to remain on their parents plan until the age of 26; created health insurance market places where anyone can shop for health insurance; and banned insurance companies from denying coverage on the basis of pre-existing conditions.

Word: Risk Corridors

Used in a sentence: “Risk corridors, a provision of the ACA, limits both the amount of money that a health-insurance plan can make and lose during the first three years it is sold on the new health-care exchanges. Related programs that mitigate risk for insurance companies are also being targeted by conservative Republicans.” –Rep. Tom Cole quoted in The Washington Post.

Definition: Risk corridors are a component of the ACA that limit the risk borne by qualified health plans on the insurance marketplaces. Risk Corridors are a mechanism to minimize the year-end losses of insurers who covered a disproportionate share of sicker, often older, insured customers. The federal government, through the Department of Health and Human Services, agrees to cover 50% of the excess costs borne by insurers if those costs exceeded premiums by 3-8%. In the event those losses amount to greater than 8%, the government will defray 80% of those losses. However, if insurance companies see similar gains then the situation is reversed and the federal government is the beneficiary of those excess funds. This is the risk adjustment portion of the ACA where “healthier” insurance companies help ones shouldering more expensive populations.

History: Ideally, insurance is a system whereby a company manages risk by distributing moneys from a sizeable portion of healthy participants—needing minimal to moderate medical services—to a much smaller portion of sicker participants that need a lot more medical services. This results in a margin or profit where premiums exceed the medical costs of the consumers participating in a given plan. This is a simplified way of explaining what actuaries do every year. They take consumers in a given plan and compare their likelihood to use medical services with the expected revenues from monthly insurance premiums and other out-of-pocket costs like yearly deductibles. However, the advent of the ACA brought on this new frontier of health insurance marketplaces where no one could be denied care due to pre-existing conditions: previous surgery, diabetes, HIV, cancers, benign tumors, hypertension, etc.

Although, risk was managed by mandating that everyone be covered, this did not completely allay the fears of private insurers. Actuaries remained nervous. Anyone from the individual market—usually those not eligible for Medicaid/Medicare or employer sponsored coverage—could enter the exchanges and purchase insurance coverage. This uncertainty could have resulted in excessive premiums to consumers. To mitigate that risk and help with the possibility that consumers would be sicker and older—and thus more likely to use many costly medical procedures—the authors of the law created risk corridors. This would be a temporary program to help insurers on the insurance market places for three years.

Article by:

José Woss

Of:

Drinker Biddle & Reath LLP

It’s That Time of the Year Again Re: Wisconsin Property Taxes

It’s time to open up the unwelcome envelope with your property tax bill inside. Property taxes are necessary, of course, for roads and schools and all of the other services your property receives, but you should take some time to make sure that you are not paying more than your fair share of these taxes.

Wisconsin’s State Constitution has a provision requiring that all real estate be taxed “uniformly.” Regular real estate and personal property is taxed by the local municipality. Property which is used for manufacturing purposes, is taxed by the State of Wisconsin, in an effort to make sure that manufacturing property throughout the State is taxed in the same manner. Land which is in agricultural use enjoys a separate “use value assessment” system, which not only allows a lower assessment for land in that use, but also requires a per-acre penalty if that land is removed from the ag use, as defined by those statutes.

Of course, each of those taxing categories is controlled by pages of regulations containing definitions and limitations which are too complicated to insert into this article. Be aware that if you bought a parcel during calendar year 2013, your tax assessment may rise next year to the sale price named on the Transfer Tax Return filed with that deed, and you will receive a notice next spring of that increased assessment. The notice will tell you the procedure for contesting that new higher assessment and the time period, usually very short, during which you must file an appeal or lose the opportunity for another year. However, if your tax assessment should have been reduced and was not, you might not receive a notice at all, which means you must affirmatively seek out the date for filing the tax challenge and the forms needed to preserve the right to challenge. You must affirmatively notify the assessor if you demolished a building, lost a tenant, suffered a casualty loss, signed new leases for lower rents or had to offer rent concessions to renew a lease, or moved a parcel of land into or out of ag use, if you want to be sure the tax assessment is properly calculated for the actual use of the land and actual income from it. We can help you evaluate behind the scenes if the property is accurately assessed, and if it is not, file and defend a claim for you. We often charge a nominal amount for the investigation and then take the tax challenge on a contingency basis so you are only billed if we secure a tax savings for you.

Article by:

Nancy Leary Haggerty

Of:

Michael Best & Friedrich LLP

FDA (Food and Drug Adminsitration) Releases Final Electronic Medical Device Reporting (eMDR) Rule and Deadline for Compliance

The Food and Drug Administration (FDA) announced and is promulgating today the Final Rule on Electronic Medical Device Reporting (eMDR). Originally proposed in 2009, the rule is now final and a deadline for compliance has been identified. The rule impacts device manufacturers and importers and mandates electronic submission of individual medical device adverse event reports. User facilities may continue to submit only written reports.

As of August 14, 2015, postmarket medical device adverse event reports by manufacturers and importers must be submitted only electronically to the FDA’s Center for Devices and Radiological Health via the Electronic Submissions Gateway (ESG). The ESG is used for all forms of electronic filing to the FDA; information specific to medical device submissions is available here. Guidance about the eMDR is available here.

It is recommended you review your current system for submitting reports, and if you are not already utilizing the ESG for all reporting, develop a plan now for integrating the electronic process into your operations.

Article by:

Daniel J. Herling

Joseph P. Hammang, PhD

Of:

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

The NLRB Revives Controversial Expedited Election Rules – National Labor Relations Board

On February 6, 2014, the National Labor Relations Board (NLRB) reissued its controversial rules aimed at expediting union elections in the workplace. This rule, referred to as the “Ambush Election Rule,” could limit an employer’s right to express its views to employees and respond to union statements. The proposed rules mirror the NLRB’s June 2011 proposal, which ultimately was struck down by a district court in May 2012.

Analogous to the June 2011 proposal, the NLRB’s most recent proposal seeks to significantly impact the current union election process. The proposed reforms are aimed at shortening the election cycle from the current median of 38 days from petition to election to as little as 10 to 21 days. The proposed reforms also would move resolution of voter eligibility determination to after the election; reduce the NLRB’s review of representation cases; expand employer disclosure of employee contact information (including e-mail addresses); and allow more electronic filing with the NLRB.

Despite reducing the amount of time an employer has to communicate its message or rebut the union’s statements, NLRB Chairman Mark Gaston Pearce has stated the proposed rules are intended to “improve the process for all parties.” The NLRB is likely to issue a final rule governing union elections later this year.

Action Steps?

The NLRB has issued a proposed rule, and by law, will allow for public comments through April 7, 2014. Employers may direct comments regarding the proposed reforms to the NLRB here. Additionally, the NLRB will hold a public hearing on the proposed rules in Washington D.C. during the week of April 7, 2014, and employers may voice their concerns at the forum.

Finally, employers should consider conducting a vulnerability audit to identify any concerns that can be addressed now (rather than after a final rule is put in place) and should provide supervisors and management with training so they are prepared to address any potential NLRB election situation.

Article by:

Brian P. Paul

Katherine L. Goyert

Of:

Michael Best & Friedrich LLP

Philadelphia Enacts Pregnancy Accommodation Law

An amendment to the city’s ordinance enhances protections for nondisabled employees affected by pregnancy or childbirth and imposes greater accommodation requirements on employers.

On January 20, Philadelphia Mayor Michael Nutter signed an amendment^[1] to the city’s Fair Practices Ordinance (Chapter 9-1100 of The Philadelphia Code), expressly banning discrimination based upon pregnancy, childbirth, or a related medical condition and imposing new workplace accommodation requirements on Philadelphia employers. The amendment places Philadelphia among a growing number of jurisdictions that require employers to provide workplace accommodations to employees who are “affected by pregnancy,” regardless of whether those employees are “disabled.”

Impact of the Amendment

Unlike its federal and state counterparts—the Pregnancy Discrimination Act, the Americans with Disabilities Act, and the Pennsylvania Human Relations Act—Philadelphia’s amended ordinance actually compels employers to make reasonable workplace accommodations for female employees “affected by pregnancy”—i.e., women who are pregnant or have medical conditions relating to pregnancy or childbirth—regardless of whether those employees have been “disabled” by the pregnancy. The ordinance identifies a number of possible accommodations that may be required, including restroom breaks, periodic rest for those whose jobs require that they stand for long periods of time, special assistance with manual labor, leave for a period of disability arising from childbirth, reassignment to a vacant position, and job restructuring.

This new law imposes a significant burden on employers, requiring that they grant the requested accommodations unless doing so would impose undue hardship on the operation of the employers’ businesses. The factors to be considered in the undue hardship analysis include the following: (a) the nature and cost of the accommodations; (b) the overall financial resources of the employer’s facility or facilities involved in the provision of the reasonable accommodations, including the number of persons employed at such facility or facilities, the effect on expenses and resources, or the impact otherwise of such accommodations upon the operation of the employer; (c) the overall financial resources of the employer, including the size of the employer with respect to the number of its employees and the number, type, and location of its facilities; and (d) the type of operation or operations of the employer, including the composition, structure, and functions of the workforce, and the geographic separateness or administrative or fiscal relationship of the facility or facilities in question to the employer.

Perhaps the most significant aspect of the amendment is that it extends privileges to employees affected by pregnancy that are unavailable to other employees, including many disabled employees. For example, the law requires an employer to consider job reassignment and job restructuring for pregnant employees, even though these types of accommodations are generally not required for disabled employees under state or federal law. As such, employers with operations in Philadelphia (along with those in other jurisdictions that have recently passed heightened pregnancy accommodation laws like California,^[2]Maryland,^[3] New Jersey,^[4]and New York City^[5]) should revisit their existing reasonable accommodation policies to ensure that they are providing required accommodations for pregnant workers—even those who are healthy and not incapacitated by the pregnancy.

From a litigation perspective, the law specifies the affirmative defenses that will be available to employers facing claims under the amended ordinance. In addition to the undue-burden defense described above, an employer will have an affirmative defense if it can show that the employee “could not, with reasonable accommodations, satisfy the requisites of the job.” This language is important because it will allow employers to continue managing the performance of pregnant workers who, even with accommodation, simply cannot perform their jobs. Nonetheless, the impact of this affirmative defense remains to be seen given the amendment’s language suggesting that job restructuring and reassignment may be required accommodations.

Employees aggrieved by a violation of the amended ordinance are entitled to the same remedies that are available for other unlawful employment practices—including injunctive or other equitable relief, compensatory damages, punitive damages, and reasonable attorney fees. Additionally, certain factual scenarios, such as a failure to properly respond to a request for accommodations (e.g., lactation breaks or nursing an infant), may trigger a pregnancy accommodation cause of action, as well as causes of action under the Fair Labor Standards Act and/or Title VII.^[6]

As mentioned above, the amendment places Philadelphia squarely in the middle of a significant legislative trend that has been gaining momentum. In the last 18 months, California, Maryland, New Jersey, and New York City have passed similar pregnancy accommodation laws. Several other jurisdictions are, or will soon be, considering comparable legislation. The West Virginia House of Representatives unanimously passed a similar bill on February 5, 2014, and Pennsylvania legislators announced in December 2013 that they will be introducing Pennsylvania’s Pregnant Workers Fairness Act in the near future. In addition, a federal version of the Pregnant Workers Fairness Act was introduced in the U.S. Senate in May 2013 but stalled in committee. Several other states—including Alaska, Connecticut, Hawaii, Illinois, Louisiana, Michigan, New Hampshire, and Texas—already require some type of pregnancy accommodation.

Notice Requirement

The new law requires that Philadelphia employers provide written notice—in a form and manner to be determined by the Philadelphia Commission on Human Relations—by April 20, 2014. The notice must be posted conspicuously in an area accessible to employees.

Moving Forward

For employers with operations in Philadelphia, the amendments to the Fair Practices Ordinance may signal that now is the time to revisit or revamp employee handbooks and train human resources and benefits employees on the new requirements in this area. Specifically, the amended ordinance will require most Philadelphia employers to overhaul their reasonable accommodation policies and train human resources professionals and managers regarding when the interactive process is triggered for employees affected by pregnancy, what steps must be followed to ensure effective engagement in that process, and when accommodations must be granted for such employees.

_{[1]. View the amendment here.}

_{[2]. See our December 28, 2012 LawFlash, “New California Disability Regulations to Become Effective December 30,” available here.}

_{[3]. See our July 1, 2013 LawFlash, “Maryland Enacts Three New Employment Laws,” available here.}

_{[4]. See our January 10, 2014 LawFlash, “New Jersey Assembly Passes Pregnancy Discrimination Bill,” available here, and our January 27, 2014 LawFlash, “New Requirements for New Jersey Employers,” available here.}

_{[5]. See our September 27, 2013 LawFlash, “New York City Offers Greater Protections for Pregnant Workers,” available here.}

_{[6]. See our June 12, 2013 LawFlash, “New Developments Surrounding Lactation Discrimination,” available here.}

Article by:

Sean P. Lynch

Of:

Morgan, Lewis & Bockius LLP

Caveat Emptor: Due Diligence of the United Kingdom Continental Shelf Oil and Gas Assets

This article explores the due diligence of United Kingdom continental shelf (“UKCS”) oil and gas assets from a buyer’s perspective. Good management, organisation, communication, clarity and common sense are the key to a successful due diligence exercise. The scope of the due diligence review will depend on a number of factors, including whether the buyer has any knowledge of or a current participating interest in the target asset, whether the asset is in the exploration or production phase or is an operated asset, the size of the deal and any cost and time restraints. Whether a buyer requires a red flag due diligence report or a comprehensive report on the asset, care must be taken to ensure that no stone is left unturned during the course of the review. Failure to do so may result in undesirable consequences.

Preparation

Before embarking on an extensive review of the documentation provided by the seller, the buyer should seek to determine the scope of the due diligence exercise at the outset to prevent it from becoming a moving target which may lead to inefficiencies and unexpected cost implications. Sometimes the prospective buyer will investigate the asset with a view to purchase. More often than not, due diligence of the asset will amount to no more than a tyre-kicking exercise. The intention of the prospective buyer will therefore ultimately colour the scope of the due diligence undertaken.

As well as considering the information memorandum prepared by the seller (if any), it is also useful for the buyer to geographically place the asset by consulting a map of theUKCS licence interests and blocks. Such preparations will enable the buyer to better piece together the documentation provided in respect of the target asset and request any missing information from the seller.

Data Room

Whether the seller furnishes the buyer with a virtual or a physical data room, the buyer must keep an accurate record of the documents that have been disclosed. If a virtual data room is employed, the buyer must ensure that it is notified when new documents have been provided and, if documents are supplied in soft or hard copy outside of the virtual data room arrangement, details should be kept of these by the buyer as well. This is all essential because all disclosure will later form part of the sale and purchase arrangements between the buyer and seller.

Data rooms for asset disposals typically include legal, financial, technical, commercial and operational documents. One of the first tasks that a buyer should undertake is to review the data room index, if one has been provided, and allocate documents to the various specialists for review; careful coordination is paramount to ensure that all bases are covered. If no index has been supplied, one should be requested from the seller and, if such index is not forthcoming, it is recommended that the buyer compiles an index so that it can keep a running record.

Depending on the scale of the exercise and number of people employed to assist, the coordinator of the due diligence exercise should ensure that team members effectively communicate with each other. Typically, virtual data rooms limit access rights to a small pool of permitted entrants, so responsibilities should be allocated between professionals at an early stage. Data rooms are often poorly organised so it is important that the coordinator is made aware of documents which have been filed out of place in order for them to be allocated to the correct team members for review. This way, no document will be overlooked.

Title Verification

A UKCS asset is typically represented by a licence, a joint study and bidding agreement (“JSBA”) or joint operating agreement (“JOA”) and, in some cases, a working interest assignment. Assets may also be subject to a unitisation and unit operating agreement (“UUOA”), transportation, processing and petroleum sales agreements and other material project contracts.

One of the key objectives of the buyer’s due diligence is to determine whether the seller actually holds an interest in the asset. Often an asset will be described inconsistently in the documentation by which it is governed and may not correspond accurately with the information held by the Department of Energy and Climate Change (“DECC”). This is especially true of those assets historically operated under a JOA which has been subsequently sub-divided to apply to multiple blocks within a licence, or those assets with an alias which has stuck over the passage of time. It is therefore very important that both parties are agreed on the correct identity of the asset being bought and sold from the outset.

Similarly, infrastructure assets are frequently referred to under a variety of guises and are often complex in nature. For instance, the Sullom Voe Terminal, which is one of the largest oil terminals in Europe, handles production from more than twelve oil fields in the east Shetland Basin and approximately twenty different companies presently hold interests in the terminal. This, combined with the fact that it has been 35 years since first oil arrived at the Sullom Voe Terminal, means that tracing title to this infrastructure asset is likely to be a knotty and time-consuming exercise.

Although DECC holds data on all offshore licences, this should by no means act as a substitute for mechanically tracing title to an asset, however tempting this may be. Many UKCS assets date back over 40 years and so tracing title back to their inception can be a lengthy process. The buyer must therefore decide whether it wants to undertake or commission such work, or whether it can take comfort from tracing title back through only a limited number of transfers and seek a full title guarantee from the seller. Extensive title representations and warranties may reduce the scope of title due diligence but often they will be qualified by the information, or lack thereof, disclosed to the buyer in the data room and so are not a reliable remedy if there is a title defect.

There may be some merit in tracing title of each material contract back to the date on which it became effective in order to determine whether or not it is relevant to the transaction. Sometimes contracts in the data room will have been entered into by parties which are neither the seller nor its predecessors in title and, in other cases, may not be relevant to the target asset at all. In these circumstances, and depending on the purchaser’s view of the asset, it may be more efficient to determine which contracts are required to be assigned or novated at the due diligence stage rather than when the parties are seeking to complete the deal.

An additional complication is that a company which was originally the holder of an interest in an asset may have changed its name since it was first registered at Companies House. The buyer should therefore consult the change of name register held by Companies House at the start of the due diligence exercise and take note of any previous names. This will enable the buyer to piece together information relating to the asset more easily.

Title to assets, excluding infrastructure, is evidenced by the relevant licence, JSBA or JOA and, if applicable, UUOA. Typically, a transfer of a participating interest will be evidenced by a JSBA or JOA deed of novation, and if applicable a UUOA deed of novation, which will provide for the transfer of the relevant participating interest from the seller to the buyer. Conversely, not every transfer of a participating interest will be evidenced by a licence assignment. An example of this is where the buyer and seller are already party to the JOA and/or UUOA. If neither the buyer nor the seller is joining or leaving the licence, and the parties are simply adjusting their participating interests under the JOA and/or UUOA, a licence assignment will not be required. In the same way, where a licence governs multiple blocks and the buyer has an interest in another block covered by the licence and the seller is also remaining on the licence, either because it has an interest in another block covered by the licence or because it is only selling part of its interest to the buyer in the relevant block, when the buyer acquires the interest in the relevant block, a licence assignment will not be required.

There is often a question asked as to whether working interest assignments are required to show a complete chain of title to an asset. A working interest assignment evidences the transfer of the beneficial interest in the asset. The more prevalent view is that this type of assignment is no longer necessary to perfect title, especially where there is a JSBA, JOA or UUOA already in place. Its purpose, being a document on which stamp duty was levied, is now obsolete. Although, buyers and sellers still frequently include the working interest assignment in their suite of completion documents by means of convention, it is not obligatory to enter into this assignment to complete an asset transfer. Due to the disproportionate amount of time and energy that buyers and sellers may spend in hunting for non-existent working interest assignments to evidence a complete chain of title, the better view may be to exclude the working interest assignment from the scope of the title due diligence exercise.

Assignment

Pre-emption rights and consent provisions are principal deal-structure considerations and should therefore be given top priority when conducting the due diligence exercise. Their consequences may prevent the proposed deal from going ahead, increase the cost of the transaction if co-venturers are permitted to withhold their consent on the grounds of financial incapability unless some form of financial security is provided by the buyer and/or cause the deal to be restructured as a share sale. It will therefore be important to review the assignment provisions of all the material contracts, and particularly any JSBAs, JOAs and UUOAs, to identify such obstacles at the earliest possible stage.

If an asset is governed by both a JOA and UUOA, care needs to be taken in order to determine whether the pre-emption and/or consent provisions in one or both agreements apply. Often the UUOA will expressly state that the provisions in the UUOA supersede the provisions in the JOA to the extent that they conflict. In this case, the assignment provisions in the UUOA will override the assignment provisions in the JOA in respect of the area covered by the JOA which forms part of the unit area. Any remaining area that is solely governed by the JOA will be subject to the JOA pre-emption and consent provisions. If it is not clear from the documentation whether the provisions in the UUOA or JOA will prevail, the better approach for a buyer to take may be to err on the side of caution; in other words, to apply the more onerous pre-emption and/or consent provisions to the whole of the asset transfer or consider restructuring the transaction as a share sale.

Material Contracts

The scope of the due diligence review of material contracts is likely to be determined by the materiality threshold proposed by the buyer with respect to contract value. The buyer should review all material contracts in order to ascertain whether the seller has the necessary rights under such contracts and identify potential liabilities, risks and onerous provisions that affect the valuation of the asset or, worse still, could prevent the deal.

It is important that the correct selling entity holds an interest in the relevant material contract and any inconsistencies should be highlighted to the buyer so that the seller can arrange for any necessary inter-group transfers in good time if required. The buyer should also be vigilant to any poison pills that kill the contracts in the event of a change of party or change of control.

If time, cost and scope permit, it can be invaluable to prepare full and accurate contract summaries of all material contracts. The simplest and most efficient way of doing this is to table contract summary templates for the various categories of contract. For instance, there could be separate templates for licences; JSBAs, JOAs and UUOAs; petroleum sales agreements; transportation and processing arrangements; and sundry agreements, if applicable. Templates are useful aides to those reviewing the asset documentation. Firstly, they ensure that all members of the team focus and report on every provision of the contract within the scope of the due diligence exercise. Secondly, and especially for large scale due diligence reviews, they are important for the purposes of consistency and efficiency. The buyer’s due diligence report should be informative, concise, on point and appear to have been written by one person. Full, tailored contract summaries help to achieve this purpose.

Contract summaries also serve a bigger purpose. If after the due diligence exercise the buyer decides to enter into a sale and purchase agreement with the seller and proceed to completion, the closing documents will include deeds of assignment and novation for the various material contracts. Complete contract summaries make the task of deducing which material contracts will need to be assigned or novated easier. They also make for a more efficient process as they prevent the buyer from having to re-locate each document in the data room and re-review their provisions.

If the asset is producing or has an approved field development plan, the buyer should expect to see material contracts in the data room relating to petroleum sales agreements and lifting, transportation and processing arrangements. Particularly in respect of some of the older UKCS assets, it is not always clear whether a document is historical or not. Typically, the buyer will exclude historical construction, tie-in commissioning and joint development agreements from its due diligence scope and place less emphasis on reviewing pipeline crossing and proximity agreements, unless it has a particular interest in the provisions of such documents.

It is likely that the data room will include some material contracts which are governed by the laws of another country or state. Depending on the importance of such contracts, the buyer should consider whether to seek advice from local counsel. In addition, in the course of due diligence for an asset acquisition, it is likely that there will be property and tax related documentation and these should be reviewed by specialists in those fields. It may also be necessary to examine the proposed transaction from a competition perspective and so the need for competition lawyers should be considered at an early stage.

During the due diligence exercise, the buyer should be aware of any information which evidences that the seller has been acting in breach of contract or is in breach of its licence obligations. Any current or anticipated claims from third parties or on-going litigation will be of particular interest to the buyer and should be noted. The buyer should also be alerted to whether any contractual provisions will be breached by the acquisition of the target asset if they are ignored by the buyer. For instance, often under seismic data contracts data must be returned or a supplemental fee paid if the identity of the purchasing company alters.

On completion of a transaction, the buyer will want all material contracts to be novated to it from the seller, unless the transaction is structured as a share sale. In some circumstances this may not be possible if third-party consents remain outstanding and so the seller and buyer should use their reasonable endeavours to obtain such consents post completion. Typically, this approach is only taken in respect of those contracts of limited value or importance. The seller will agree to hold such contracts as trustee and agent of the buyer and the buyer will agree to perform such contracts on the seller’s behalf and indemnify the seller against any costs or liabilities it incurs in respect of such arrangement. This split completion approach is not always possible in respect of those agreements which are contractually linked to others or to the transfer of the participating interest. The buyer should therefore bear in mind any linkage provisions that it uncovers in its due diligence exercise.

Decommissioning

The buyer will be keen to discover whether a field-wide decommissioning security agreement is in place for the target asset or whether the JSBA, JOA and/or UUOA include decommissioning security provisions. Where decommissioning security provisions exist, the buyer should consider the type and amount of security required, the credit rating of such security, whether the asset is in the run-down period and/or how the trigger date is calculated. Depending on the terms of the transaction and whether a section 29 notice has been served on the seller before the asset is transferred to the buyer, the buyer may need to provide security for decommissioning under the sale and purchase agreement to the seller as well. Decommissioning arrangements will be a fundamental consideration to the buyer’s valuation of the asset and will therefore always require financial and/or actuarial input.

Encumbrances

The buyer should conduct a charges search at Companies House in order to determine whether the seller should arrange for any outstanding encumbrances over the asset to be released as part of the transaction. The buyer should also be concerned with any third-party royalties over the seller’s interest in the asset. Any royalty payments on production in respect of all petroleum won and saved will have an impact on the financial value of the target asset and so the buyer should factor the existence of these into its valuation.

Likewise, details of any outstanding cash calls, sole risk activity or carried interests may also be important considerations for the buyer and their existence may result in an adjustment of the price the buyer is prepared to pay for the asset.

Questions and Answers

The question and answer process is central to the due diligence exercise and is an important string to the buyer’s bow. By asking the seller questions, the buyer can better understand the seller’s asset from the responses provided and seek to address any holes or limitations in the data room documents. A classic example of the curious incident of the dog that didn’t bark in the night is the unknown existence of an area of mutual interest agreement which, in the most draconian of circumstances, may prevent a buyer from completing its transaction with the seller, or may prevent the buyer from applying for and/or acquiring an interest in another particular licence area post completion of its transaction with the seller.

If draft contracts have been included in the data room the buyer should ask the seller to confirm whether final versions have been executed and, where documents which have been provided during the due diligence exercise refer to others which have not, the buyer should request these missing documents from the seller. The buyer should maintain an accurate list of questions that have been submitted to the seller and the responses received. Sometimes questions will be answered unsatisfactorily and it is therefore important for the buyer to re-phrase or pursue answers to the originals.

The buyer may also choose to contact DECC with questions on an unnamed basis during the due diligence exercise if there appears to be an inconsistency between the asset data held by DECC and the documentation provided by the seller in the data room. In doing so, the buyer must be careful not to breach any provisions contained in any confidentiality or non-disclosure agreement that has been entered into between the buyer and seller in respect of the transaction.

Conclusion

The buyer conducts due diligence so that it can properly evaluate the risks and benefits to it in acquiring a particular asset, re-negotiate the price that it is prepared to pay for the asset, and decide whether or not to go ahead with the purchase. The due diligence report should identify and quantify issues found and propose solutions for the buyer to consider. Depending on the concerns identified, traditional contractual protections in the sale and purchase agreement may be insufficient and, consequently, the buyer may decide to walk away from the deal. The importance of the due diligence exercise is therefore paramount.

Article by:

Rebecca Downes

Of:

Andrews Kurth LLP

Supreme Court Limits Stipulations to Circumvent CAFA (Class Action Fairness Act)

The U.S. Supreme Court decided in State Fire Insurance Co. v. Knowles that a class representative plaintiff cannot use a precertification stipulation to evade the federal jurisdictional amount of CAFA. 28 U.S.C. 1332 (d)(2) &(6). In Knowles, plaintiff sued State Fire Insurance Co. but stipulated precertification that damages would not exceed $5 million dollars, the threshold limit to invoke CAFA jurisdiction. State Fire removed the case from Arkansas state court but the Federal District Court remanded it to the state court concluding that the amount in controversy fell below the CAFA threshold in light of plaintiff’s stipulation. The Supreme Court found that the stipulation could tie plaintiff’s hands because stipulations are binding on the party that makes them. However, such a stipulation would not be binding at this stage of the litigation because a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified. The Court therefore, vacated and remanded the case for further proceedings.

A good practice pointer learned from this case is that defendant’s should be mindful of the advantages of the CAFA and invoke federal court jurisdiction where possible. Also, a pretrial stipulation by the class representative does not prevent using CAFA if the other jurisdictional requirements for CAFA are met.

Article by:

Casey O. Housley

Of:

Armstrong Teasdale

The Affordable Care Act—Countdown to Compliance for Employers, Week 47: The Reporting Conundrum

The Affordable Care Act establishes three new, high-level, reporting requirements:

Code § 6051(a)(14)

Employers must report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement;

Code § 6055

Entities that offer minimum essential coverage (i.e., health insurance issuers, certain sponsors of self-insured plans, government agencies and other parties that provide health coverage) must report certain information about the coverage to the employee and the IRS; and

Code § 6056

Applicable large employers must provide detailed information relating to health insurance coverage that they offer.

The W-2 reporting rules have been in effect for a while, and I do not address them in this post. This post instead addresses Code §§ 6055 and 6056, which were originally slated to take effect in 2014, but which were subsequently delayed by one year in IRS Notice 2013-45.

The Treasury Department and IRS issued proposed regulations under both rules on September 30, 2012. (For an explanation of the proposed regulations, please see our October 21, 2013 client advisory. Although garnering far less attention than the Act’s pay-or-play rules, the rules under newly added Code §§ 6055 and 6056 should not be overlooked. Both provisions require a good deal of specific information about covered persons and the particular features of the group health plan coverage such persons are offered. Required reports must be furnished to both the government and covered individuals.

Under Code section 6055, plan sponsors must report to the IRS who is covered by the plans and the months in which they were covered. Plan sponsors must also provide this information to the employees who are enrolled in their plans along with additional contact information for the plan.
Under Code section 6056, applicable large employers must report to the IRS, and provide to affected full-time employees, information that includes:

(i) The employer’s contact information;

(ii) Whether the company offered minimum essential coverage to full-time employees and their dependents;

(iii) The months during which coverage was available;

(iv) The monthly cost to employees for the lowest self-only minimum essential coverage;

(v) The number of full-time employees during each month; and

(vi) Information about each full-time employee and the months they were covered under the plan.

Absent regulatory simplification, the costs of compiling, processing, and distributing the required reports will be substantial. But the regulators are in a difficult position, since they must remain true to the requirements of the law. The proposed regulations do offer some suggestions for simplification. For example:

Employers might be permitted to report coverage on IRS Form W-2, rather than requiring a separate return under Section 6055 and furnishing separate employee statements. But this approach could be used only for employees employed for the entire calendar year and only if the required contribution for the lowest-cost self-only coverage remains stable for the entire year.
The W-2 method could also be extended to apply in situations in which the required monthly employee contribution is below a specified threshold (e.g., 9.5% of the FPL) for a single individual, i.e. the individual cannot be eligible for the premium assistance tax credit.
Employers might be permitted to identify the number of full-time employees, but not report whether a particular employee offered coverage is full-time, if the employer certifies that all employees to whom it did not offer coverage during the calendar year were not full-time.

Industry comments filed in response to the proposed regulations have seized these suggestions to ask for further relief. Some commenters suggested replacing the reporting process with a certification process under which an employer could simply certify that it has made the requisite offer of coverage. Others have asked that information be provided to employees only on request, on the theory that not all employees will need to demonstrate that the employer either failed to offer coverage or that the coverage was either unaffordable or did not constitute minimum value.

While many of the comments submitted in response to the proposed regulations were both thoughtful and practical, many are also difficult to square with the terms of the statute. As a result, the most likely outcome is that the final rules under Code §§ 6055 and 6056 will look a lot like the proposed rules—which look a lot like the statute.

Article by:

Alden J. Bianchi

Of:

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Show Me the Money: When Can I Expect My Tax Refund?

Tax filing season got a late start this year thanks to the 2013 government shutdown; the IRS pushed back its official return acceptance date from January 21 to January 31. Now that IRS is accepting returns, when can taxpayers expect to see their refund?

The IRS claims that 9 out of 10 refunds are issued in less than 21 days. The IRS website has a tool called, “Where’s My Refund?” that can be used to check the status of a return 24 hours after the agency receives it electronically or 4 weeks after it is received by mail (i.e., paper return).

The IRS and tax professionals alike strongly encourage taxpayers to file electronically. Doing so can result in a quicker refund. In addition, how a taxpayer elects to receive a refund, via direct deposit or paper check, can affect wait times. Generally, the closer to the deadline (April 15th) that a return is filed, the longer the wait will be (as a majority of filers tend to wait until the deadline approaches).

It is important to note that a return can be filed without immediate payment. No penalty or interest will be levied until the April 15th deadline. Of course, there is always the option of filing for an extension, but generally speaking it is better to timely file your return, and it is important to remember that payments are still due by April 15th even when an extension has been timely filed.

In some cases, individuals can receive tax breaks and refundable credits even if they do not have to pay income tax for a given year. Thus, just because a tax return is not filed does not mean that an individual cannot benefit from professional assistance.

Don’t delay – April 15th will be here before you know it!

Article by:

H. Trigg Mitchell

Of:

McBrayer, McGinnis, Leslie and Kirkland, PLLC

Category: Administrative & Regulatory

Federal Court Upholds Validity of 2011 H-2B Prevailing Wage

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