Category: Uncategorized

NLRB Jettisons Browning-Ferris; Reverts Back to Longstanding Joint-Employer Test

On December 14, 2017, the National Labor Relations Board (“NLRB” or the “Board”), issued a case styled Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156, that expressly overruled the controversial Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (Browning-Ferris) decision issued in 2015. When doing so, the Board reverted to its prior (and longstanding) joint-employer standard.

In a 3–2 vote, the Board overturned the joint-employer standard enunciated in Browning-Ferris, which provided that two or more entities, such as a company and a contractor, would be considered joint employers where (for example) the company possessed “indirect control” over aspects of the contractor’s workforce, such as wages, hours, or other material terms and conditions of employment. The Board majority commented:

“We think that the Browning-Ferris standard is a distortion of common law as interpreted by the board and the courts, it is contrary to the [National Labor Relations Act], it is ill-advised as a matter of policy, and its application would prevent the board from discharging one of its primary responsibilities under the Act, which is to foster stability in labor-management relations.”

The Board then announced it was returning to its longstanding joint-employer standard that existed prior to Browning-Ferris, which provides that two or more separate entities ( such as the company and contractor discussed above) will be considered joint-employers where the company exerts “direct and immediate” control over the contractor’s employees’ terms and conditions of employment. According to the Board majority:

“A finding of joint-employer status shall once again require proof that putative joint employer entities have exercised joint control over essential employment terms (rather than merely having ‘reserved’ the right to exercise control), the control must be ‘direct and immediate’ (rather than indirect), and joint-employer status will not result from control that is ‘limited and routine.’”

Applying the reinstated joint-employer standard, the Board affirmed the Administrative Law Judge’s determination that Hy-Brand Industrial Contractors, Ltd. and Brandt Construction Co. — companies owned by the same individuals –are joint employers and therefore jointly and severally liable for the unlawful discharge of seven striking employees.

The Hy-Brand decision represents a welcome change for employers that make use of another entity’s employees, such as franchisors and franchisees or contractors and subcontractors, among many other business relationships. Indeed, the Board’s decision to overrule Browning-Ferris provides businesses with greater certainty when entering into relationships with other entities, and further decreases the risk an employer will be found liable for a separate entity’s unfair labor practices.

© Polsinelli PC, Polsinelli LLP in California
This article was written by Adam B. Merrill of Polsinelli PC
For more updates on labor law, click here.

Administration’s Regulatory Agenda Signals Continued Push to Align Visa Programs With “Hire American” Goals

On December 14, 2017, the Office of Information and Regulatory Affairs (OIRA) released the Fall 2017 Unified Agenda of Regulatory and Deregulatory Actions, which is a report on the rulemaking efforts U.S. administrative agencies intend to pursue in the near- and long-term.

If enacted, several items in the agenda have the potential to impact employers’ immigration programs. The relevant proposals include the following items:

  • U. S. Citizenship and Immigration Services (USCIS) is proposing to issue a rule that would eliminate the ability of certain H-4 spouses to obtain employment authorization documents (EADs).
  • USCIS is proposing to issue a rule (originally introduced in 2011) that would establish an electronic registration system for H-1B petitions that are subject to the annual quota (H-1B cap filings). DHS notes that the rule is “intended to allow USCIS to more efficiently manage the intake and lottery process” for these petitions. USCIS notes that this rule may include a provision for a modified selection process, as outlined in the Buy American and Hire American Executive Order, such that “H-1B visas are awarded to the most-skilled or highest-paid petition beneficiaries.”
  • USCIS is proposing to issue a rule that would revise the definitions of “specialty occupation,” “employment,” and “employer-employee relationship” in the H-1B context. USCIS notes that the purpose of these changes would be to “ensure that H-1B visas are awarded only to individuals who will be working in a job which meets the statutory definition for [H-1B eligibility].” The rule may also contain provisions regarding the payment of appropriate wages to H-1B visa holders.
  • The Department of State is proposing and finalizing several rules that would enact various modifications to the exchange visitor (J-1) program. These changes include arrangements relating to the administration of the J-1 program, provisions to help ensure the safety and well-being of foreign nationals who enter the U.S. as exchange visitors, and efforts to reinforce the cultural exchange and public diplomacy aspects of the program. Changes may also include an expansion of the types of jobs that are prohibited under the summer work travel category.
  • As a “long term action,” U.S. Customs and Border Protection (CBP) is proposing a rule that would clarify the criteria for admission to the United States as a temporary visitor for business (B-1) or pleasure (B-2). CBP also notes that the proposed revisions would “make the criteria [for entry as a temporary visitor] more transparent.”
  • Immigration and Customs Enforcement (ICE) is proposing to issue a rule that would effectuate a comprehensive reform of the practical training options (OPT) available to nonimmigrant students. The proposed provisions include increased oversight over the schools and students participating in the program. The stated purpose is to “improve protections of U.S. workers who may be negatively impacted by employment of nonimmigrant students.”

Employers may want to keep in mind that although the abstracts listed in the agenda seemingly have the potential to impact many areas of the immigration system, it is premature to draw conclusions about the effect of these proposed changes without first seeing the text of the rules themselves—none of which have been released, and some of which may not even be drafted. Additionally, both the agenda itself and the timing for the rules, are aspirational; in prior years, only a select number of proposals have actually turned into rules, and ever fewer have actually followed the stated timelines. As noted previously, for example, a proposed regulation on the electronic registration system for H-1B quota petitions was originally introduced in 2011, but no further action occurred.

Should a proposed rule actually be issued, the agencies must conform to the notice-and-comment protocols of the Administrative Procedure Act. Effectively, this requires the agency to issue a proposed rule that explains the agency’s plan to accomplish a certain goal or address a problem.  This is followed by a comment period, during which time any interested parties can submit comments about the proposed rule. Prior to issuing the final rule, the agency must review all comments and indicate its reasoning for either modifying the rule on account of a comment or explain why the proposed comment does not merit a revision to the rule. Rulemaking is typically a prolonged process that takes a minimum of several months to accomplish. In other words, a proposed rule (which is different than most of the abstracts found in this agenda, which only state the intent to issue a rule) would be the first step in what could be a complex and lengthy rulemaking process that may take many months before promulgation of any final rule.

Finally, employers may want to take note that many of the administration’s prior attempts to enact changes to the immigration system have been subject to lengthy and robust legal challenges. Any such litigation on a proposed rule could increase the timeline for implementation, assuming the rule survives the legal challenge at all.

In summary, although the agenda provides some insight into the goals of the administration on employment-based immigration, the publication of the agenda itself does not alter the status quo.

© 2017, Ogletree, Deakins, Nash, Smoak & Stewart, P.C

This post was written by Jacob D. Cherry of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

For more information check out the National Law Review’s Immigration page.

Handbook Wars – Common Sense Returns NLRB Overhauls Standard for Legality of Work Rules

We have noted many times over the years how the NLRB’s zeal to review employer policies, or more correctly, fragments of employer policies, for lawfulness has led to nettlesome issues that rarely, if ever, involve actual employees.  The results have been absurd and have raised an entire cottage industry of attacks on language by unions and vetting of employer policies for lawfulness.

This may be ending.  As we noted yesterday, the NLRB issued a significant decision that will have far-reaching implications for both unionized and non-unionized workplaces.  In Boeing Company, 365 NLRB No. 154 (2017), the Board established a new standard for evaluating whether facially lawful workplace rules, policies or employee handbook provisions unlawfully interfere with employees’ exercise of Section 7 rights.  In so doing, the Board placed in doubt the applicability of scores of decisions issued in the 13-years since Lutheran Heritage, 343 NLRB 646 (2004), was decided.  We previously identified this issue as a case that the NLRB would revisit once a new majority was installed.

“Reasonably Construe” Standard

For the last 14 years the Board evaluated whether an employee would “reasonably construe” the language of a work rule to prohibit the exercise of NLRA rights.  If it did, then the rule—regardless of whether it actually restricted Section 7 activity—was found unlawful.  Applying this standard, an inconsistent line of cases developed.  Take, for instance, a sampling or recent decisions concerning “civility in the workplace.”  A rule prohibiting “abusive or threatening language to anyone on Company premises” was lawful, while a rule restricting “loud, abusive or foul language” was not.  And, as noted, a policy or fragment of a policy could be found unlawful even if there was no evidence that employees read the policy or were even aware of its existence.  It was, in terms of the NLRA, a victimless crime.

Policy Considerations Behind Abandoning The Lutheran Village Standard

The new three member Board majority (Miscimarra, Kaplan and Emmanuel) decided to change this standard because employers were often held to an impossible standard of precision in drafting language in which they would need to foresee any potential impact on any Section 7 right, regardless of how remote.  An employer would have to foresee the future, which the majority characterized as requiring “perfection that literally is the enemy of the good.”  The Lutheran Heritage standard has been criticized as unworkable by many in the employer community, and by various Board members over the years.  So it is not surprising that that a new standard was on the agenda.

New Balancing Test

The Board abandoned the singularly-focused and vague “reasonably construe” standard, in favor of a new balancing test, which would consider the impact of the rule on NLRA rights and an employer’s business justification for the rule.  Going forward,  in order to provide greater clarity and certainty to all parties, the Board indicated it would categorize the results of future decisions in three ways:

  • Category 1: Lawful rules because (i) when “reasonably interpreted,” the rule does not prohibit or interfere with the exercise of NLRA rights or (ii) the potential adverse impact on protected rights is outweighed by justifications associated with the rule.  Examples of these types of rules include the no-camera requirement in the Boeing case, where the employer supported its rule with multiple business and security justifications.  The Board also found that a rule requiring employees to have “harmonious interactions and relationships” in the workplace, and other rules requiring employees to abide by basic standards of civility would be categorically lawful.
  • Category 2: Rules warranting individual scrutiny on a case-by-case basis.
  • Category 3: Unlawful rules because they would prohibit or limit NLRA-protected conduct, and the adverse impact is not outweighed by legitimate business justifications (e.g., a rule prohibiting discussion of wages or benefits with another).

The Board proceeded to use this new framework to find that Boeing’s policy restricting the use of camera-enable devices was justified in light of the employer’s security concerns.  As it does in every case in which it overrules precedent and/or sets a new standard, the Board weighed whether to apply this new test retroactively, and decided to apply the standard to all pending cases in whatever stage.

Impact of this Decision

It will be some time before the full impact of the decision will be felt as rules are evaluated under the new standard.  However, the fact Lutheran Heritage was overruled likely will inhibit unions from attacking employer policies as the forum for these sorts of claims is less receptive.

Because the Board will evaluate the purpose for the rule, employers should consider clearly articulating the reasons for a rule in the policy.

Also, employers may feel less constrained by the thicket created by the previous standard; however, the true impact of Boeing likely will be felt once the host of pending cases work their way through ALJs and the Board under this new paradigm.  Only then will employers understand how the Board’s new categories will work.  We will keep you posted…there is sure to be more to follow.

© 2017 Proskauer Rose LLP.
This post was contributed by Mark Theodore and Joshua S Fox of Proskauer Rose LLP.
For more on the NLRB go to the National Law Review’s Labor and Employment Practice group page.

Social Hosts Beware: “One More for the Road?” May Be a Bad Idea

The company was hosting its annual holiday party.  The company had arranged to hold the event that Saturday night in a hotel ballroom.  Moods were festive, especially because the company’s profits were up about 10%.  Because he enjoyed doing it and served as a freelance bartender in his spare time, one of the company’s new sales employees, Tom Collins, was helping to tend bar.

Much of the company’s success that year was attributable to the efforts of Johnny Walker, V.P. of Sales, who, for understandable reasons, was in a celebratory mood.  When he, at about 11 p.m., bellied up to the bar for a fourth round, Tom couldn’t help but notice that Johnny, normally the epitome of self-control, seemed more than a little impaired.  Tom said to Johnny, “Mr. Walker, with all due respect, don’t you think that it may be time to slow down?  In fact, given the hour, I’ll be happy to arrange a ride to take you home.”  Johnny, now irritated, replied “Tom, you make an excellent highball, but I’d be grateful if you’d mind your own business, OK?”  Tom did as he was asked and poured Walker another drink.  With that, Johnny, armed with another scotch and soda, disappeared into the crowd.

The next morning, Tom, to his shock, learned that Johnny had gotten into his Volvo to drive home and promptly collided with another driver.  The other driver, as a result, was seriously injured and remained hospitalized in a coma for about nine months.  He then died.

Candy is dandy, but liquor is quicker, so be careful out there . . .

May an employer with employees in North Carolina, in appropriate circumstances, be held liable for the malfeasance of its employees and, specifically, be held liable as a “social host” because one of its employees served alcohol to a person when the employee knew or should have known that the person was drunk and would soon be driving on public roads and might hurt or kill someone?

Absolutely.  The doctrine of “social host liability” was first declared in North Carolina about 25 years ago.  The North Carolina Supreme Court, in the 1992 case of Hart v. Ivey, ruled that the plaintiffs had stated a valid claim when they alleged that various defendants had been negligent in throwing a party at which beer was served to an 18-year-old, under circumstances in which the defendants knew or should have known that the young man was intoxicated at the time he was served, that he would drive a motor vehicle from the party, and that he was likely to injure someone.

The court wrote that it had not been able to find a North Carolina case dealing with similar facts, but concluded “that the principles of negligence established by our decisions require that we hold that the plaintiffs .  .  . have stated a claim.”  The court emphasized that it was not recognizing a new claim, but was merely applying the established elements of negligence to find that the plaintiffs stated claims recognized by law.

What had the plaintiffs claimed?  Only:

  • That “the defendants served an alcoholic beverage”;
  • To a person they knew or should have known was under the influence of alcohol; and,
  • That the defendants knew that person would shortly thereafter drive an automobile.

The court’s conclusions in Hart, if you think about them, aren’t surprising:

If proof of these allegations were offered into evidence, [then] the jury could find from such evidence that the defendants had done something a reasonable man would not do and were negligent.  The jury could also find that a man of ordinary prudence would have known that such or some similar injurious result was reasonably foreseeable from this negligent conduct.  The jury could find from this that the negligent conduct was the proximate cause of the injury to plaintiffs.

Sadly, the court later had occasion to encounter just such a claim brought by the estate of a man killed by an employee who had attended a party for a retiring supervisor at the home of an officer of the employer.  In the 1995 case of Camalier v. Jeffries, the employer sponsored the party and hired a catering company to help with food and drink service and another company to handle parking arrangements.  The catering company and a company that it hired supplied all of the bartenders at the party.

The employee downed three or four gin and tonics and then decided to leave, and was taken by van to his car.  He then drove his car into an automobile whose driver suffered serious injuries and then died of the injuries about nine months later.  Within two hours after the time of the accident, a blood sample was drawn from the employee showing that his blood-alcohol concentration was well over the legal limit.

In ruling on the case, the North Carolina Supreme Court reiterated the elements of “social-host liability” that it had declared in Hart.  In Camalier, the defendant company and one of its officers dodged liability, but only because the evidence was insufficient to show that they knew or should have known that the employee was hammered when he was served alcohol at the officer’s home.

The court observed that there was no question that the defendant employer and its officer caused alcohol to be served to the employee and knew or should have known that the employee would be driving an automobile after the party.  Thus, the first and third factors set forth in Hart were not in dispute.  But the court also found that the predicted evidence didn’t show that either the employer or the officer knew or should have known that the employee was drunk when he was being served.

The impaired employee who caused injury in Camalier had been served by a vendor hired by the employer rather than by an employee of the defendant employer.  It appears that North Carolina’s appellate courts have not yet held an employer liable as a “social host” based on the actions of an employee, but the circumstances in which a court may do so are not difficult to imagine.  Such liability can arise from an employer-hosted event at a restaurant, country club, pub, or similar establishment.  The location will not matter and a court is likely to find employer liability if there is proof that an employee, under circumstances intended to promote the interests of the employer, served alcohol to a person when the employee, or its representative, knew or should have known that the person was intoxicated and would soon be driving and that a third-party was injured as a result.

The Supreme Court of New Mexico, addressing such an issue, highlighted the principles of employers’ and employees’ liability as “social hosts” where the host purchases liquor and causes it to be served to a guest and, as a result, a third person is injured.  In the 2011 case of Delfino vs. Griffo, employees of a pharmaceutical company, in the course of their employment, entertained a physician’s employee in several restaurants.  The guest consumed considerable alcohol, became very intoxicated, departed in her car, and shortly thereafter caused a fatal accident.

The New Mexico court, discussing liability as a “social host,” observed:

Social hosting need not occur in a home; one may host in a bar or restaurant where the actual delivery of alcoholic beverages to the guests is performed by a licensed server.  Factors that are key to determining whether one is a social host in a public establishment are whether the alleged social host exercised control over the alcohol consumed by the guests; whether the alleged social host convened the gathering for a specific purpose or benefit to the alleged social host, such as promoting business good will; and whether the alleged host intended to act as ‘host’ of the event, meaning arrange for the service of and full payment for all food and beverages served to the guests.

The New Mexico court found, based on the facts of the Delfino case, that the employer was a “social host” for the drunk driver and, in such capacity, the employer could be sued and held liable.

Bring your carrier along for the ride . . .

Employers may consider purchasing general liability insurance to insure them against losses arising from the provision of alcohol by their employees to an intoxicated driver who then causes injury or death.  A typical general liability insurance policy includes a business liability provision that will pay for damages arising from causing or contributing to the intoxication of a third party, so long as the insured entity is not in the business of manufacturing, distributing, selling, or furnishing alcoholic beverages.  Employers can also buy a one-time special event policy if their current insurance doesn’t provide that kind of coverage.

Employers may also try to insulate themselves from “social host” liability by hiring professional caterers or bartenders who maintain such general liability insurance coverage, so that the employer, if it encounters a “social host” liability claim, may at least try to pass the liability to the caterer’s or bartender’s insurance carrier.

Employers should bear in mind, however, if tragedy occurs and litigation ensues, that it is the employer—not the insurance company—that will be sued, and that having insurance does not mean that the employer is immunized from liability.  It means only that the insurance carrier may have to pay if the employer is found liable (or, more likely, if the employer convinces the carrier to pay a pre-trial settlement to enable the employer to avoid an embarrassing lawsuit).  Moreover, a policy’s limits of liability are not always high enough to cover all claims.  The amount of liability can exceed the limits, in which case the employer, if held liable as a “social host,” can, to one degree or another, be on its own to pay a settlement or judgment.

Conclusion

One useful tip for employers who want to celebrate with their employees and host social events at which alcohol is served is to limit the access to alcohol, such as by setting limits on how much or how long alcohol is served at the event.  You can’t mandate good judgment, but you can decide how much temptation you’re willing to pour.

 

© 2017 Ward and Smith, P.A..
This post was written by Grant B. Osborne of Ward and Smith, P.A..
Read more Labor and Employment News on the National Law Review’s Labor and Employment Practice Group page.

Insurance Coverage in the Post-Weinstein Era

With new headlines involving sexual harassment and other inappropriate sexual conduct continuing to emerge on a daily basis, insurance coverage for claims that might emerge is something every company should consider.

Recently, media reports have discussed settlements of shareholder derivative claims against members of the boards of directors and other senior executives of public companies. These settlements illustrate both the type of corporate liability that can ensue from allegations that a company turned a blind eye to, or otherwise failed to prevent, sexual misconduct allegations, causing financial and reputational harm to the organization, and the critical role insurance can play in protecting companies and their executives against such claims.While reports indicate that one or more of the settlements is being funded entirely from insurance proceeds, it is unclear whether the settlement proceeds will be coming from D&O insurance or EPLI insurance, or both. D&O insurance is intended to cover corporate mismanagement claims but typically contains some form of employment practices liability exclusion. EPL insurance is intended to cover employment practices liability claims but may not cover management liability claims arising from allegations of sexual harassment. This creates a potential gap in coverage that could have serious consequences.

D&O and EPLI policies are not standard and contain different wording and exclusions.

WHAT TO DO?

In this environment, it behooves corporate management of every company to understand the scope of insurance coverage for sexual harassment and management liability claims and to ensure that appropriate coverage is in place without coverage gaps.

Here is what policyholders should do: comprehensively review all relevant corporate insurance programs to determine what coverage is in place for sexual harassment claims of any variety, and for claims arising from corporate actions that might be necessary in the wake of an issue or claim, such as claims of wrongful termination and defamation.

Policies to be reviewed should include CGL, EPL, D&O and E&O.

Determine whether coverage gaps exist and if so, consider enhancing coverage to ensure proper protection.

Understand what needs to happen in terms of notice to insurers in the event of a claim or knowledge of circumstances that might lead to assertion of a claim.

And be aware of the potential for coverage before agreeing to any payments or settlements that might preclude or limit coverage.

© 2017 Proskauer Rose LLP.
This post was written by Seth B Schafler of Proskauer Rose LLP.
Learn more at the Insurance Law Page on the National Law Review.

“Newly Minted” NLRB Majority Begins to Roll Back Decisions of the Obama Board

In two recent developments, the “new” National Labor Relations Board (“NLRB” or the “Board”), which includes two Members nominated by President Trump, has commenced the anticipated roll back of decisions and procedures rendered by the previous Administration’s NLRB.

1. The NLRB General Counsel can no longer demand settlements with a full remedy for all violations. 

In UPMC, 365 NLRB No. 153 (December 11, 2017), the Board reversed a 2016 decision that prohibited settlements of NLRB complaints over the objection of the NLRB General Counsel (Prosecutor) and the party filing the charge, unless the settlement provided complete remedies for all violations alleged in the Complaint. The 2016 decision, United States Postal Service, 364 NLRB No. 116 (2016), had overturned decades-long NLRB precedent established in Independent Stove, 287 NLRB 740 (1987).

In the UPMC majority’s (Chairman Philip Miscimarra, Member William Emanuel, Member Marvin Kaplan) view, requiring a settlement of all violations with a full remedy for the employees (and union) “imposed an unacceptable constraint on the Board itself which retained the right under prior law to review the reasonableness of any … settlement terms” offered by Respondents (employers and unions). According to the UPMC majority, the 2016 USPS decision unduly restricted the settlement of NLRB cases and ignored the risks inherent in NLRB litigation. The UPMC decision now allows a Respondent, with approval of the Administrative Law Judge, to settle a case without providing full and complete relief, so long as the resolution is “reasonable.” This approach should facilitate more settlements, and reduce the costs and uncertainty inherent in litigation (for employers and the NLRB).

The dissent strongly disagreed with what it called “an eleventh hour” decision during Republican Chairman Miscimarra’s last week as a Board member. However, Chairman Miscimarra will soon likely be replaced by another Republican.

2. The NLRB seeks comments on quickie elections – is more change likely? 

The day after the UPMC decision, the NLRB published a Request for Information (“RFI”) in the Federal Register seeking prompt public comments about the controversial 2014 Election Rule, commonly referred to as the “quickie election” rule.

Specifically, the RFI seeks public input from December 13, 2017 until February 12, 2018 regarding the following three questions:

  1. Should the 2014 Election Rule be retained without change?
  2. Should the 2014 Election Rule be retained with modifications? If so, what should be modified?
  3. Should the 2014 Election Rule be rescinded?

The “quickie election” rule, effective since April 2015, impacted NLRB elections in three main ways:

  • It significantly shortened the time period between the date a petition for election is filed and the date of the election. As a result, elections frequently took place approximately three weeks after the petition was filed. This period shortened employers’ time to respond to the union’s campaign efforts from approximately 6 weeks to 23 days.
  • It considerably restricted the scope of any pre-election challenges that might result in litigation, such as individual voter eligibility issues, unless the question relating to eligibility affected twenty percent (20%) of the proposed unit. Eligibility issues, including determining who is a supervisor and thus is precluded from voting, were generally delayed until after the elections if the union won.
  • It forced employers to disclose a substantial amount of private employee information to the unions, including providing unions with employee contact information. In particular, the employer is required to disclose, for the first time, employee personal email addresses and phone numbers, including all cell phone numbers. Previously, only mailing addresses needed to be disclosed.

While the “quickie election” rule has not substantially increased union election win percentage, opponents of the rule have objected to the limited time it provides employers to communicate with employees regarding the election, the deferral of election eligibility issues until after the election, as well as the procedural challenges.

Takeaways

Moving forward, interested parties should monitor the new Board’s actions. The recent developments indicate the new Board could likely overturn some of the decisions rendered and procedures proffered by President Obama’s NLRB.

© Polsinelli PC, Polsinelli LLP in California
This post was written by W. Terrence Kilroy and Henry J. Thomas of Polsinelli PC.
Learn more at our Labor and Employment Practice Group Page.

Continuous Representation Revisited

New York courts have frequently applied the continuous representation doctrine (“CRD”) to toll the three-year statute of limitations period for malpractice claims against accounting firms under CPLR § 214(6), which has exposed accounting firms to additional – and unwarranted – liability. But with two recent rulings by New York’s Appellate Divisions, accounting firms likely will be able to better shield themselves against the deleterious effects of the CRD by inserting into their engagement letters a contractual limitations provision and a merger clause.

The CRD is a court-created doctrine, originating in the medical malpractice context, that tolls the statute of limitations period where there is a “mutual understanding of the need for further representation on the specific subject matter underling the malpractice claim.”1 Courts in New York have varied widely on what that phrase actually means when applied to accountants and accounting firms. This inconsistency has led to increased uncertainty, making it difficult for accountants and accounting firms to limit their liability and to avoid the damaging effects of the CRD. A path to a more consistent approach to limit liability, however, has just been revealed.

fca stethoscope gavel

Until recently, New York courts have not specifically analyzed the CRD in connection with a contractual limitations provision (as opposed to the legislatively created statute of limitations). But the New York Appellate Division, First Department, and the New York Appellate Division, Second Department, have both recently indicated that the CRD does not toll a contractually agreed-upon limitations provision. These decisions thus provide a framework for accountants and accounting firms to avoid the CRD and limit their liability.

In Aaron v. Deloitte Tax LLP, 149 A.D.3d 580, 581 (1st Dep’t 2017), the New York Appellate Division, First Department, affirmed the trial court’s refusal to apply the CRD to toll the parties’ one-year contractual limitations provision to allow a complaint to be filed six years after the purported caused of action accrued. The First Department stated that “plaintiffs may not avail themselves of the continuous representation tolling doctrine because the limitations period was contractual, not statutory, and was reasonable.” Id. The First Department affirmed the trial court’s reliance on the language of the parties’ engagement letter, which stated: “no action, regardless of form, relating to this engagement, may be brought by either party more than one year after the cause of action has accrued.”2The First Department thus expressly found that the contractual limitation provision was a strict bar to the CRD. In addition, as an important practice point, it should be noted that the First Department found “reasonable” the one-year contractual limitation period despite the statutory three-year period under CPLR § 214(6).

In Collins Brothers Moving Corp. v. Pierleoni, 2017 N.Y. App. Div. LEXIS 7661, at *6 (2d Dep’t 2017), the New York Appellate Division, Second Department, also found that the CRD did not apply in connection with the accounting firm’s contractual limitation provision, but had a different rationale than the trial court. The trial court focused solely on the language of the contractual limitation provision in the parties’ engagement letters, which stated: “no action, regardless of form, arising out of the services under this agreement may be brought by either of us more than three years after the date of the last services for the year in dispute provided under this agreement.”3 The trial court determined that this language, in conjunction with a merger clause contained in the parties engagement agreements, demanded that the CRD be inapplicable. The existence of the merger clause was crucial to the trial court’s decision, as the trial court determined that the merger clause precluded the introduction of extrinsic evidence to demonstrate a mutual understanding outside of the parties’ written agreements. The Second Department affirmed the trial court’s ruling that the CRD was inapplicable, but it did so because it found that the plaintiffs’ allegations were conclusory and that the plaintiffs failed to raise an issue of fact that the CRD should apply. Importantly, however, the Second Department did not object to the lower court’s reasoning, and the Second Department did rely on the language of the contractual limitations period to limit the scope of the plaintiffs’ purported claims.

As a result of these recent cases, accounting firms now have the opportunity to better protect themselves against potential liability created when courts choose to arbitrarily impose the CRD to toll a statutory period of limitations. These decisions suggest that accountants and accounting firms can proactively avoid the application of the CRD, and the potential additional liability it imposes, by including in the firms’ engagement letters a contractual limitations clause and a merger clause. And as a practice pointer, accountants and accounting firms can further limit their liability with a contractual limitation provision that is shorter than three years.

Steven R. Berger and Haley P. Tynes also contributed to this post.

© 2017 Vedder Price
This post was written by John H. Eickemeyer and Marc B. Schlesinger of Vedder Price.
Learn more on our Malpractice page.

Sixty-Day Grace Period for Nonimmigrant Workers after Loss of Employment

The U.S. Department of Homeland Security has promulgated a regulation affecting highly skilled foreign workers when they lose their jobs. The stated purpose of the regulation is to improve the ability of U.S. employers to hire and retain highly skilled foreign workers and to increase the ability of those workers to pursue new employment opportunities.

Nonimmigrant workers are individuals who enter the United States for a temporary period of time and are restricted to the activity consistent with their visas (those in E-1, E-3, H1B, H1B1, L-1, O-1 and TN status). Prior to this regulation, a nonimmigrant worker who was laid off or whose employment was terminated would immediately begin to accrue unlawful status. Since the beneficiary of a visa petition must be in valid status at the time of filing, a sudden loss of employment was particularly problematic in terms of transferring the visa to a new employer. While U.S. Citizenship and Immigration Services (USCIS) was somewhat forgiving if a new sponsoring employer was identified quickly, the conventional wisdom was that the USCIS would not approve a transfer petition if the beneficiary was out of work in excess of one month.

The new regulation provides for a 60-day discretionary grace period, during which a nonimmigrant worker does not accrue unlawful status. This allows nonimmigrant workers two months to locate a sponsoring employer to whom the visa may be transferred, to apply for a change of status or to wind up their affairs before departing the United States.

Employment is not authorized during the grace period, but the nonimmigrant worker may begin working with the filing of a transfer petition by a new employer. A worker may use the grace period only once for each validity period. For instance, if a worker loses his job and then uses the grace period to transfer his visa to another employer, he may still be eligible for another 60-day grace period should he lose that job. Unused days in the first grace period cannot be carried over into a subsequent grace period. USCIS has the discretion to deny or shorten a grace period if there are violations of status such as unauthorized employment, fraud or criminal convictions, among others.

The 60-day grace period is a welcome accommodation to nonimmigrant workers who find themselves suddenly laid off or their employment terminated.

© 2017Wilson Elser Moskowitz Edelman & Dicker LLP
Learn more on our Immigration Practice Group page.

FDA Issues Fourth and Final Software as a Medical Device Clinical Evaluation Guidance

Summary

The FDA recently released “Software as a Medical Device (SAMD): Clinical Evaluation,” a final guidance document that aims to establish a common understanding of clinical evaluation and principles for demonstrating the safety, effectiveness and performance of Software as a Medical Device. Rather than replace or conflict with existing regulatory requirements or provide recommendations for application to specific situations, the guidance provides an evidentiary and technical framework to evaluate safety and performance of SaMDs throughout the product’s lifecycle.

In Depth

On December 7, 2017, the US Food and Drug Administration (FDA) released a final “Software as a Medical Device (SAMD): Clinical Evaluation” guidance document (Guidance). The goal of the final Guidance is to establish a common understanding of clinical evaluation and principles for demonstrating the safety, effectiveness and performance of SaMD. As with previously issued SaMD guidance documents, the Guidance is not intended to replace or conflict with existing premarket or postmarket regulatory requirements related to the regulatory classification of medical devices, and it does not provide recommendations for application to specific regulatory situations. Rather, the Guidance provides an evidentiary and technical framework to evaluate safety and performance of SaMDs throughout the product’s lifecycle. It incorporates established quality management principles that developers should consider in the development and design of medical software. FDA intends to consider the principles set forth in the Guidance in the development of its regulatory approaches for digital health technologies through public processes. SaMD software uses an algorithm that operates on data input to produce an output intended for medical purposes, such as to treat, diagnose, drive clinical management, or inform clinical management. Mobile applications that meet this definition are considered SaMD. These products include many functions that are regulated by FDA as medical devices.

DNA

The Guidance is intended to build on the previous three SaMD guidance documents: “Software as a Medical Device (SaMD): Key Definitions,” “Software as a Medical Device: Possible Framework for Risk Categorization and Corresponding Considerations” and “Software as a Medical Device (SaMD): Application of Quality Management System,” all issued by the International Medical Device Regulators Forum (IMDRF). The IMDRF is a voluntary group of medical device regulators from Australia, Brazil, Canada, China, Japan, Russia, Singapore, the United States and European countries. The group provides harmonized principles for individual jurisdictions to adopt based on their own regulatory framework. Collectively, the previous IMDRF SaMD guidance documents and the clinical evaluation Guidance provide a framework for defining which functions are considered SaMD, identifying and characterizing risks associated with SaMD functions, developing quality management systems (QMS) and controls for SaMDs, and validating the clinical effectiveness and safety of SaMDs.

As we summarized in our FDA 2016 Year in Review report, FDA released a draft of the Guidance in October 2016. The final Guidance provides further detailed instruction to manufacturers but does not represent a departure from the October 2016 draft.

SaMDs are categorized on the basis of the state of the health care situation or condition in which it is used (critical, serious or non-serious) and the intended medical purpose of the information provided by the SaMD (treat or diagnose, drive clinical management or inform clinical management). The four categories (I, II, III and IV) are based on the levels of impact the SaMD has on patient or public health. The categories are in relative significance to each other. Category IV has the highest level of impact, Category I the lowest. SaMD output used to treat or diagnose a critical health care situation or condition is the highest categorization (IV). Below is the risk categorization framework in the IMDRF SaMD “Possible Framework for Risk Categorization and Corresponding Considerations” guidance. This framework is not intended to supersede FDA’s framework for medical device classifications but, rather it is intended to provide a framework for determining what type and how much data will be required to validate the performance of the device.

State of Health care Situation or Condition

Significance of information provided by SaMD to the healthcare decision

Treat or Diagnose

Drive Clinical

Management

Inform Clinical

Management

Critical

IV

III

II

Serious

III

II

I

Non-Serious

II

I

I

The Guidance emphasizes the importance of independent review, i.e., review conducted by outside experts such as formal consultation with regulators, third parties on behalf of regulators, the editorial board of a peer-reviewed journal or “non-conflicted” internal expert reviewers without significant involvement in the development of the SaMD, particularly for SaMDs categorized as III or IV.

The Guidance describes clinical evaluation as an ongoing lifecycle process that involves a set of activities conducted in the assessment and analysis of a SaMD’s clinical safety, effectiveness and performance as intended by the manufacturer. Monitoring real world performance data can help SaMD functionality and intended use evolve after initial introduction into the market. The reference to the use of real world data for performance validation reflects the growing importance of real world evidence (RWE) and real world data (RWD) for product development. See Use of Real-World Evidence to Support Regulatory Decision-Making for Medical Devices (Aug. 31, 2017). The Guidance focuses on three key principles for clinical evaluation:

  • Valid Clinical Association: whether there is a valid clinical association (i.e., scientific validity) between the SaMD output and its targeted clinical condition in the real world through existing evidence (e.g., literature searches, clinical research, professional society guidelines) or by generating new evidence (e.g., secondary data analysis, clinical trials). In other words, Clinical Association demonstrates the level of clinical acceptance and how much meaning and confidence can be assigned to the clinical significance of the SaMD’s output in the intended health care situation and the clinical condition or psychological state (i.e., well-established or novel).

  • Analytical Validation: whether the SaMD correctly processes input data to generate accurate, reliable and precise output data (i.e., confirms and provides objective evidence that the software was correctly constructed through display of accuracy, repeatability and reproducibility and demonstrates the software meets its specifications that conform to user needs and intended uses) through verification and validation activities as part of quality management system (QMS) or by generating new evidence (e.g., curated databases, previously collected patient data). In other words, Analytical Validation is intended to confirm whether the software was correctly constructed.

  • Clinical Validation: whether use of SaMD’s accurate, reliable and precise output data achieves its intended purpose in the target population in the context of clinical care, i.e., yields a clinically meaningful output. Clinically meaningful means a positive impact on the health of an individual or population, to be specified as meaningful, measurable, patient-relevant clinical outcome(s), including outcome(s) related to the function of the SaMD (e.g., diagnosis, treatment, prediction of risk, prediction of treatment response), or a positive impact on individual or public health. In other words, Clinical Validation shows the relationship between the verification and validation results of the SaMD algorithm and clinical conditions of interest as part of QMS or good software engineering practices or by generating new evidence (e.g., clinical data).

If the foregoing cannot be established, the manufacturer must modify the SaMD’s intended use such that it can be supported by available evidence, modify the target clinical association and/or make changes to the software.

On the same day that this Guidance was issued, FDA published draft guidance on clinical decision support software and made technical corrections to existing medical software policies. We describe both guidance documents in detail here. Taken together, the guidance statements clarify how developers should approach the development and classification of software-based medical device products in preparation for pre and postmarket decision-making.  In the absence of specific guidance on the implementation of FDA’s Medical Device Quality System Regulation (QSR) for digital health products and software-based medical devices, this guidance and the previously issued IMDRF Guidance documents provide a useful framework for designing, testing and validating medical software.

© 2017 McDermott Will & Emery

Race to Connected, Self-Driving Cars Not Without Speed Bumps

Those racing to fill the streets with driverless and shared vehicles are weighing their competitive pursuits and market moves against the new regulations and industry standards coming down the pike.

Automotive and technology companies are forging ahead and jockeying for market position in the rapidly evolving area of connected and self-driving cars, but there remain challenges before the industry achieves widespread deployment and regulatory uncertainty fades. These are among the takeaways from Foley & Lardner LLP’s 2017 Connected Cars & Autonomous Vehicles Survey.

At their base, our findings shed light on the business and legal strategies of those racing to fill the streets with driverless and shared vehicles, including leading automakers, suppliers, startups, investment firms and technology companies. However, when you dig deeper, you start to see how they are weighing their competitive pursuits and market moves against the new regulations and industry standards coming down the pike.

Different Technologies, Different Timelines, Different Obstacles

While “connected cars” and “autonomous vehicles” often are used interchangeably under the self-driving banner, there are clear and important differences between the two technologies. We define them distinctly as:

  • Connected Cars: Vehicles equipped with any variety of sensors that enable communication with the driver, other vehicles, roadside infrastructure and the cloud in order to improve vehicle safety, efficiency and rider experience.
  • Autonomous Vehicles: Fully automated or self-driving vehicles that are capable of operating without direct driver action to control steering, acceleration and braking. Currently, vehicles may be computer-driven or computer-assisted-driven, with various levels of autonomy, as well as connected features that allow exchanges of data.

Connected-car technologies already are prevalent today, with increasing ease of access, convenience and affordability, whereas the deployment of autonomous and shared vehicles is further on the horizon. Alongside the differences in where these technologies stand in their development and implementation, our survey found they face varying obstacles to growth. Our survey respondents identify cybersecurity and privacy issues as their most pressing concern for connected cars, whereas safety and readiness to adopt autonomous vehicles emerge as the greatest barriers for them.

Despite the differing timelines for adoption, our survey also shows automotive and technology companies are only slightly more focused on developing technology for connected cars (56%) than autonomous vehicles (52%). This reinforces the fact that resources must be devoted concurrently to both types of technology to keep pace in a competitive marketplace.

Lawmakers Responding to Calls for Stronger Regulatory Framework

Given the significant financial and safety stakes, the sophisticated nature of the technology and the expected pervasive impact on society, regulatory certainty at the federal level is critical to keep this industry moving forward. It is not efficient for 50 different states to dictate the development of connected cars and autonomous vehicles.

Lawmakers in Washington are catching up and are close to setting the course for future development, as there are legislative packages working their way through Congress that would address the deployment of self-driving cars and pre-empt state laws. Additionally, the U.S. National Highway Traffic Safety Admin. recently released a report concerning “unnecessary regulatory barriers” and is seeking public comments on how to spur R&D, prioritize safety and accelerate deployment.

These are welcomed developments for an industry seeking an alternative to the patchwork of differing state requirements. Most of our survey respondents (62%) believe nationally consistent rules from the federal government are the best way to regulate connected cars and autonomous vehicles. “Developing and fielding autonomous-vehicle technology is going to become increasingly dependent on the support of the federal government to develop national regulations,” one automotive supplier told us.

Together with traditional cars on the road, clear-cut rules for such autonomous vehicles can’t come soon enough, as the first public tests of self-driving cars without backup drivers have begun.

 

© 2017 Foley & Lardner LLP
This post was written by Mark A. Aiello and Steven H. Hilfinger of Foley & Lardner LLP.