Category: Uncategorized

Administrative Agency Deference Theme Reemerges with SCOTUS Considering Overturning Auer

The U.S. Supreme Court signaled that it remains concerned with the issue of administrative deference following its grant of certiorari last week to hear Kisor v. O’Rourke specific to the issue of whether the Court should overrule Auer v. Robbins and Bowles v. Seminole Rock & Sand Co. Overruling one or both of these decisions could result in courts giving considerably less deference to agencies’ interpretations of their own regulations.

The ability of regulatory agencies to interpret their own regulations is a fundamental issue in many environmental disputes. Both Auer and Seminole Rock are frequently cited in environmental cases to support agency actions, as these decisions require courts to give agencies near-absolute deference, so long as their decisions are not “plainly erroneous or inconsistent” with other regulations.

In practice, agencies that promulgate vague regulations through notice-and-comment procedures required by the federal Administrative Procedure Act can later expand the ambit of these regulations through informal memoranda or regulatory interpretations. These less formal processes preempt the ability of the public and regulated community to meaningfully participate in the regulatory process.

Administrative deference is an ongoing theme that we have seen arise a number of times in the past few years. Indeed, the legal community had pondered whether the Supreme Court would review administrative deference issues in the Weyerhaeuser Co. v. U.S. Fish & Wildlife Service caseinvolving the dusky gopher frog that was decided a few weeks ago. Although the Supreme Court decided Weyerhauser without reference to issues of administrative deference, the Kisor case is a clear example that this is not going away.

However, Kisor actually arises in a context fairly atypical for administrative deference. The case involves a claim for PTSD-related retroactive disability benefits brought by a former Vietnam-War-era Marine who was denied retroactive disability benefits for PTSD he suffered as a result of his service in Vietnam. Kisor’s eligibility for such benefits hinged on whether the VA received “relevant official service department records” after initially denying his claim for benefits in 1982.

Kisor argued that material he submitted to the VA relating to his service in Vietnam constituted “relevant official service department records” and entitled him to retroactive benefits. The Board of Veterans Appeals (“Board”) disagreed, stating that, in Kisor’s case, “relevant” records were those relating to a diagnosis of PTSD (which was contested at the time of his initial denial). That Kisor served in the military was never in dispute.

The Court of Federal Claims upheld the Board’s interpretation of the meaning of “relevant.” In so holding, the court concluded that the term was ambiguous, and that the Board’s interpretation was entitled to deference under Auer, Seminole Rock, and their progeny, because it was neither “plainly erroneous or inconsistent” with the VA’s regulatory framework.

Kisor illustrates the breadth of power granted to agencies by Auer and Seminole Rock – the agency’s determination of whether “relevant” records were provided was quite possibly outcome-determinative for the involved claims.

The case is expected to be heard by the Court at some point in 2019. We will keep an eye out for further developments on Kisor and similar cases touching on administrative deference.

 

© 2018 Schiff Hardin LLP
Read more Litigation news at the National Law Review’s Litigation page.

More Employers Were “ICED” in Fiscal Year 2018

The U.S. Immigration and Customs Enforcement agency (ICE) recently released statistics on its worksite enforcement activities for the federal fiscal year ending on September 30, 2018. It should surprise no one that worksite enforcement designed to crack down on the employment of undocumented aliens has skyrocketed.

In FY 2018, 6,848 worksite investigations were initiated, representing a fourfold increase from the prior fiscal year. Similarly, ICE conducted 5,981 audits of employers’ Form I-9s, which is five times the number from the prior year. Criminal and worksite arrests were also way up and readers will recall that immigration law violations are one of the few areas of employment law which can result in direct criminal prosecution.

As stated by ICE, “[our] worksite enforcement strategy continues to focus on the criminal prosecution of employers who knowingly break the law, and the use of I-9 audits and civil fines to encourage compliance.”

What does this flurry of activity mean for employers? Under the Immigration Reform and Control Act of 1986, all employers must verify the identity and work eligibility of all individuals hired by completing a Form I-9 within three days of starting work. While appearing to be fairly simple on its face, many employers fail to pay attention to the details and fail to properly complete and certify that they have carefully verified the identity and work authorization of each hire. This can be especially true when hiring is done in remote locations where there are no trained management personnel to supervise the completion of the I-9.

When an employer receives a Notice of Inspection from ICE, it has three business days after which ICE will physically inspect the I-9s. Noncompliance could result in civil fines or even criminal prosecution. ICE worksite investigations are also designed to look for evidence of mistreatment of workers, human trafficking, and document fraud.

Given the reality that immigration enforcement activities are not likely to update anytime soon, employers are well-advised to take the following steps now:

  • Conduct a self-audit of all of your I-9s and if mistakes are identified take the appropriate steps to correct them. Consult the Handbook for Employers to know how the form must be completed.

  • Review and, where necessary, retrain all employees who are responsible for reviewing the documents presented by the new hire and certifying the accuracy of the form I-9.

  • Be sure you know the right way to fix errors that are identified.

  • Audit the records of any employees who are working under temporary visas. Oftentimes, employers verify work authorization at the time of hire but then fail to track expirations and renewals. What may have been legal at the time of hire may not be the case years later.

© 2018 Foley & Lardner LLP
This post was written by Mark J. Neuberger of Foley & Lardner LLP.
More immigration news at the National Law Review’s Immigration Page.

Don’t Let Down Your Guard: An Object Lesson In Dealing With Government Investigators

Every time we turn on the news recently, it seems there is a new government investigation being taken up. Putting aside any political angles, these investigations and the way they unfold highlight a very important life lesson for employers.

Employers frequently are visited by government agents of varying stripes. While these visits typically do not involve the FBI or something as serious as a criminal investigation, most employers can expect site visits at some point by agents of the Department of Labor, the EEOC, OSHA, ICE or a myriad of other federal, state and local agencies.

The government employees behind those visits can be friendly, cordial and in some cases may be people the employer knows personally. While employers have every reason (and in fact are legally required) to cooperate with government agents, it is vital that employers remember not to lower their guard. An off-hand comment – even one the employer may regard as innocent – potentially could be turned against the employer.

As with anything in life, the key in dealing with any government investigation is preparation. Preparation helps employers avoid getting caught flat-footed when agents show up at their doorstep. The single most critical component of that preparation should be to engage counsel as soon as possible.

Getting counsel involved not only brings in an ally and resource to coordinate the defense (and hopefully provide some much-needed reassurance), but also should help employers dodge landmines along the way.

For instance, if an investigator comes on site, the company may want to talk to employees about what is going on. While that sounds reasonable at first glance, consider that, if viewed in the wrong light, such discussions could be seen as retaliatory or interfering with the investigation. It would be best to confer with counsel first and work out a strategy to deal with questions about whether employees should be notified and, if so, how that will go down, what message will be communicated, and when it will be delivered.

In the same light, if an employer talks to the government without the benefit of counsel, then there is no one who can interject that topics are outside of the scope of the investigation, or who can spot potential problems and work out a strategy for dealing with them ahead of time.

Another point to consider is that government investigations can be very stressful for an employer – which raises the possibility that the employer may say something out of context or which could be taken the wrong way. All in all, this is not the best time for an employer to represent themselves. To paraphrase Abraham Lincoln, an employer that represents itself has a fool for a client.

If the government comes calling, it is best to lawyer up. And anytime a government agent says that you don’t need to have a lawyer present, it would be a good idea to treat that as a red flag.

 

© 2018 Barnes & Thornburg LLP
This post was written by Hannesson Murphy of Barnes & Thornburg LLP.

Pennsylvania Supreme Court Holds Employers Have a Duty to Exercise Reasonable Care to Safeguard Sensitive Personal Information About Their Employees

To date, Pennsylvania has not adopted a comprehensive law specifying how sensitive personal information about individuals must be secured or the protections that holders of this information must use to minimize risk of breach. [1] Pennsylvania only requires that, in the event of a breach, holders of sensitive personal information notify the affected individuals so they can take appropriate precautions against misuse of their information. Pennsylvania does have some laws specific to particular industries, such as health care and insurance, regarding how sensitive personal information may be used or disclosed, but there is no single mandate across all industries obligating holders of sensitive personal information to secure it in any particular way.

Employers, however, are a common denominator among all industries, and recently, the Pennsylvania Supreme Court in Dittman v. UPMC d/b/a The University of Pittsburgh Medical Center held that when employers (regardless of the industry, the size of the employer, or the number of employees they hire) require their employees to provide sensitive personal information, such as Social Security numbers, bank accounts, tax returns, or other financial information, those employers have a legal duty to exercise reasonable care to safeguard that information when they store it on an Internet-accessible computer system. [2] Employers who do not exercise reasonable care to safeguard the sensitive personal information may be liable for financial damages to their employees in the event of a breach. [3]

All employers who collect sensitive personal information about their employees and maintain the information electronically on an Internet-accessible system are affected by the court’s decision. The court’s analysis also suggests that, regardless of how the information is stored (i.e., electronically or otherwise), an employer has a duty to exercise reasonable care to safeguard the sensitive personal information it collects about its employees from known threats to the information. This alert examines the court’s holding and identifies questions employers should be asking about their data requests, data security practices, and data-retention policies and procedures, and it offers suggestions for mitigating associated risks that apply regardless of whether employers store the information on an Internet-accessible computer.

What Happened?

UPMC’s Internet-connected computer system was hacked and sensitive personal information about its employees was accessed and stolen. This information included names, birth dates, Social Security numbers, addresses, tax forms, and bank account information. The hackers used the stolen information to file false tax returns, and affected employees incurred financial damages. As a result, several UPMC employees filed a class-action lawsuit against UPMC on behalf of all 62,000 current and former UPMC employees whose data were accessed and stolen. The employees alleged that:

• UPMC affirmatively required employees to provide certain sensitive personal and financial information (including names, birth dates, Social Security numbers, addresses, tax forms, and bank account information) as a condition of employment.
• UPMC had a duty to exercise reasonable care to protect their employees’ personal and financial information from being compromised, lost, stolen, misused, and/or disclosed to unauthorized parties.
• UPMC stored the employees’ sensitive personal information on its Internet-accessible computer system without adopting adequate security measures, such as encryption, adequate firewalls, and an adequate authentication protocol, to safeguard that information, which allowed hackers to access the system and steal the information.
• UPMC breached its duty to exercise reasonable care to protect the information, which allowed hackers to access the system and steal the information.
• UPMC was liable to the employees for the financial damages they incurred resulting from the breach.

UPMC filed preliminary objections to the complaint — Pennsylvania’s form of a motion to dismiss — and asserted that the economic-loss doctrine barred the employees from recovering purely economic damages. Under the economic-loss doctrine, actions sounding in tort require physical injury or property damage in order to recover for a breach of duty. [4] The trial court agreed with UPMC that the economic-loss doctrine barred recovery. [5] The trial court also found UPMC owed no existing duty to the employees as they alleged, and the “‘courts should not impose ‘a new affirmative duty of care that would allow data breach actions to recover damages recognized in common law negligence actions.’” [6] The trial court accordingly dismissed the complaint.

The employees appealed to the Pennsylvania Superior Court, and in a split decision, the Superior Court affirmed the trial court’s determination that employers did not owe their employees a duty under Pennsylvania law to exercise reasonable care to safeguard their sensitive personal information. [7] The Superior Court also agreed that the economic-loss doctrine barred recovery. [8] The Superior Court therefore affirmed the trial court’s order sustaining UPMC’s preliminary objections and dismissing the claim. [9]

The Pennsylvania Supreme Court’s Review

The Pennsylvania Supreme Court granted a discretionary appeal to determine the narrow questions of (1) whether an employer in Pennsylvania has a legal duty to use reasonable care to safeguard sensitive personal information about its employees when the employer chooses to store such information on an Internet-accessible computer system, and (2) if so, whether the employees could recover purely financial damages resulting from the breach of the duty. As discussed more fully below, the Supreme Court held that (i) employers have an existing duty to employees under Pennsylvania common law to exercise reasonable care in collecting and storing their sensitive personal information on their computer systems, and (ii) purely financial damages may be recovered if employers fail to exercise reasonable care in securing the sensitive personal information. [10]

First, the Supreme Court disagreed with the lower courts’ analysis that, if employers owed such a duty to exercise reasonable care to safeguard their employees’ sensitive personal information, such duty was a “new, affirmative duty” and was being created solely by the employees’ allegations. [11] In the Supreme Court’s view, the employees’ allegations were simply a “novel factual scenario” to apply an existing duty employers owe to the employees. [12]The Supreme Court stated that, as it has observed previously, “in scenarios involving an actor’s affirmative conduct, he is generally ‘under a duty to others to exercise the care of a reasonable man to protect them against an unreasonable risk of harm arising out of the act.’” [13] The Supreme Court concluded that, in this case, the employees alleged such affirmative conduct on the part of UPMC — namely, that “as a condition of employment, UPMC required them to provide certain personal and financial information, which UPMC collected and stored on its internet-accessible computer system without use of adequate security measures, including proper encryption, adequate firewalls, and an adequate authentication protocol. These factual assertions plainly constitute affirmative conduct on the part of UPMC.” [14] The Supreme Court also agreed with the employees that “this affirmative conduct resulted in UPMC owing the employees a duty to exercise reasonable care to protect them against an unreasonable risk of harm arising out of that act.” [15]

With respect to the economic-loss doctrine, the Supreme Court held that the decisions relied upon by the trial court and the Superior Court “do not stand for the proposition that the economic loss doctrine, as applied in Pennsylvania, precludes all negligence claims seeking solely economic damages.” [16] Instead, the ability to recover “turns on the determination of the source of the duty plaintiff claims the defendant owed.” [17] In cases where the duty arises outside the context of a contract between the parties, the breach of that duty may be the basis of a negligence claim. [18] According to the Supreme Court, the employees’ allegations in the complaint existed independently from any contractual obligations between the parties. Accordingly, the employees had stated a claim upon which they could recover if their allegations proved to be true.

The Implications of the Court’s Holding for Employers

Private employers in Pennsylvania (regardless of industry) who affirmatively request sensitive personal information from their new or existing employees and who maintain the sensitive personal information on Internet-connected computer systems have an existing duty to exercise reasonable care to safeguard that information. [19] As a result, employers (regardless of size or number of employees) should be evaluating their data collection and maintenance policies and procedures to mitigate the risk of being found not to have exercised reasonable care in safeguarding the information. In particular, employers should be answering the following questions:

1. Is the information really needed? Employers should be able to connect each data request to a legitimate business need (e.g., a legal requirement) and limit the data requested to the minimum amount of data required to achieve that legitimate business purpose. Some data elements are essential: names, addresses, Social Security numbers, and birth dates. This data is necessary to pay employees, to report tax withholdings, and to prevent fraud, among other purposes. Any data being requested from employees that is not absolutely necessary for a legitimate business purpose should be reevaluated and collection discontinued if it is determined to be unnecessary. Unnecessary data should also be deleted.

2. Could any of the information collected and maintained about the employees and determined to be necessary for a legitimate employer-purpose harm employees if it were stolen? To make this determination, employers must have a thorough understanding of precisely what information they maintain about employees. Information such as names and addresses likely does not qualify as sensitive personal information (although there are always exceptions) but financial information does. In order for an employer to be able to show it exercised reasonable care, it must first know the nature of the data in its possession.

3. What are foreseeable threats to the information being inappropriately accessed or stolen?Information being stored electronically is literally under attack. If employers maintain sensitive personal information about their employers electronically (or employers hire vendors who do so), they must understand these threats and how they might come to fruition. As noted above, however, the Supreme Court’s analysis applies equally to sensitive personal information in other forms, such as paper. If an employer could reasonably foresee that the paper records could be misused, the employer likewise has an existing duty to exercise reasonable care to protect it (e.g., locked file cabinets with limited access).

4. Based on the nature of the information and the identified foreseeable threats to that information, have appropriate safeguards to protecting the information been identified and implemented?Safeguards may vary depending on the nature of the underlying data and the identified foreseeable risks, although certain security practices have become or are quickly becoming fairly standard and failure to implement them would likely be seen as a failure to exercise reasonable care. At a minimum, employers should be able to demonstrate that people with appropriate experience and knowledge in safeguarding information are involved in these decisions.

5. Have the steps taken to safeguard the information been documented? The Supreme Court’s holding does not impose strict liability on employers in the event they get hacked and sensitive personal information about employees is accessed or stolen. The Supreme Court’s holding requires the exercise of reasonable care to safeguard the information from foreseeable threats. The best way to be able to support that reasonable care was exercised is to document all the steps taken including those listed above.

6. Does the cyber insurance policy cover breaches of employee data? It probably does, but employers should check the scope of coverage and ensure that nothing in the policy excludes the types of financial damages the employees in UPMC experienced.

Conclusion

The Supreme Court’s holding drives home that employers must use reasonable care in the collection of sensitive employee data and adds an incentive for doing so (the risk of incurring economic damages for breach).

NOTES:

[1] Indeed, there is no overarching definition of “sensitive personal information,” but it typically includes personal information that if acquired inappropriately could be used to harm the person to whom it belonged, such as Social Security or a driver’s license number coupled with bank account information.
[2] Dittman v. UPMC d/b/a The Univ. of Pittsburgh Med. Ctr. & UPMC McKeesport, No. 43 WAP 2017, slip op. at 1–2 (Pa. Nov. 21, 2018) (herein, “UPMC”).
[3] Id.
[4] See Bilt-Rite v. The Architectural Studio, 866 A.2d 270, 273 (Pa. 2005).
[5] See UPMC, slip op. at 4–5.
[6] See id. at 5 (quoting Bilt-Rite, supra). The trial court also “observed that the Legislature is aware of and has considered the issues that Employees sought the court to consider herein as evidenced by the Breach of Personal Information Notification Act (Data Breach Act), 73 P.S. §§ 2301 – 2329. Specifically, the court explained that, under the Data Breach Act, the Legislature has imposed a duty on entities to provide notice of a data breach only … and given the Office of the Attorney General the exclusive authority to bring an action for violation of the notification requirement … The court thus reasoned that, as public policy was a matter for the Legislature, it was not for the courts to alter the Legislature’s direction.” Id. at 6–7.
[7] Id. at 8–9.
[8] Id. at 7.
[9] Id.
[10] Id. at 1–2.
[11] Id. at 15.
[12] Id. at 10. Indeed, “[c]ommon-law duties stated in general terms are framed in such fashion for the very reason that they have broad-scale application.” Id. at 15–16. “‘Like any other cause of action at common law, negligence evolves through either directly applicable decisional law or by analogy, meaning that a defendant is not categorically exempt from liability simply because appellate decisional law has not specifically addressed a theory of liability in a particular context.’” Id. at 16 (quoting Scampone v. Highland Park Care Ctr., LLC, 57 A.3d 582, 299 (Pa. 2012)).
[13] Id. at 16 (emphasis added).
[14] Id. (emphasis added).
[15] Id. at 16–17. In arriving at this conclusion, the Supreme Court also rejected UPMC’s argument that “the presence of third-party criminality in this case eliminates the duty it owes to Employees …” Id. at 17. The Supreme Court acknowledged that an actor otherwise owing a duty “cannot be liable for third-party conduct that could ‘conceivably occur.’” Id. at 17. However, the Supreme Court agreed that “liability could be found if the actor ‘realized or should have realized the likelihood that such a situation might be created and that a third person might avail himself of the opportunity to commit such a tort or crime.’” Id. at 17–18 (quoting Mahan v. Am-Gard, Inc., 841 A.2d 1052 1061 (Pa. Super. 2003)) (emphasis added).
[16] Id. at 28.
[17] Id.
[18] Id.
[19] The court did not consider whether a cause of action would exist against local or state agencies under the limited waivers of sovereign immunity.

 

Copyright 2018 K & L Gates
This post was written by Patricia C. Shea of K & L Gates.
Read more about Cybersecurity concerns on the National Law Review’s Communication page.

Social Security Administration ‘No Match’ Letters to Employers Make Another Comeback

Social Security Administration (SSA) has begun notifying employers that the information reported on an individual employee’s W-2 form does not match the SSA’s records with “Request for Employer Information” letters, known as “No-Match” letters.

SSA started sending these controversial informational requests in 1993, but the practice has waxed and waned in part due to litigation. In 2011, SSA resumed the practice of notifying employers of social security number mismatches. But in 2012, the Obama Administration decided to simply stop the practice.

Now, the letters are back! In July 2018, probably in response to President Donald Trump’s Buy American, Hire American Executive Order, SSA re-started the practice by sending “informational notifications” to employers and third party providers telling them of mismatches on their 2017 Forms W-2 and explaining where to find helpful resources. The plan was to send 225,000 of these notices every two weeks. Starting in Spring 2019, notices will be sent regarding 2018 Forms W-2s, but these letters, unlike the “informational” letters, will tell employers that corrections are necessary.

A mismatch does not necessarily mean that there is any wrongdoing. It can be caused by an administrative error: numbers can be reversed, names might be misspelled or changed, for instance, due to marriage. But once a letter is received, in determining how to respond, employers find themselves caught between agencies. SSA wants to maintain accurate records of earnings. ICE wants to ensure compliance with employment verification laws. And the Immigrant and Employee Rights Section of the Department of Justice (IER) wants to ensure that employers are not discriminating on the basis of citizenship, nationality or by pursuing unfair documentary practices in violation of the INA.

What is an employer to do?

  1. Don’t take any adverse action against an employee based on a No-Match letter alone.

  2. Compare the SSA information with the individual’s employment records.

  3. If the employer’s records match, ask the employee to check the name and number on his or her Social Security card.

  4. If there is a mistake on the card or the card needs to be changed or corrected, ask the employee to reach out to SSA to resolve the issue.

There are no “safe harbors.” Each case is different and must be analyzed individually to avoid missteps and penalties from either SSA, ICE, or IER.

Jackson Lewis P.C. © 2018
This post was written by Sean G. Hanagan of Jackson Lewis P.C.

Now I Get It!: Using the FCC’s Order Keeping Text Messages as “Information Services” to Better Understand the Communications Act

Little known fact: the TCPA is just a tiny little part of something much bigger and more complex called the Communications Act of 1934, as amended by Telecom Act of 1996 (which the FCC loves to just call the “Communications Act.”) And yes, I know the TCPA was enacted in 1991 but trust me it is still part of the Communications Act of 1934.

The Communications Act divides communications services into two mutually exclusive types: highly regulated “telecommunications services” and lightly regulated “information services.”

So let’s look at some definitions:

A “telecommunications service” is a common carrier service that requires “the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available to the public, regardless of the facilities used.”

“Telecommunications” is “the transmission, between or among points specified by the end user, of information of the user’s choosing without change in the form or content of the information as sent and received.”

By contrast, an “information service” is “the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing, but does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service.”

Make sense so far? Basically a telecommunications service is something that telecommunications companies–who are common carriers– can’t tinker with and have to automatically connect without modifying. For instance, if I want to call my friends from law school and wish them well Verizon can’t say–wait a minute, Eric doesn’t have any friends from law school and refuse to connect the call. Verizon must just connect the call. It doesn’t matter who I am calling, how long the call will be, or why I’m making the call, the call must connect. The end.

Information services are totally different animals. Carriers can offer or not offer and tinker and manipulate such messages all they want–see also net neutrality.

So if text messages are a telecommunication then they must be connected without question. But if text messages are an information service then carriers can decide which messages get through and which don’t.

It might seem like you’d want text messages to be information services–after all why would we want the carriers determining how and when we can text each other? Well the FCC has an answer– automatic spam texts.

If text messages are subject to common carrier rules then people can blast your phone with spam text messages and the carriers can’t stop them. True the TCPA exists so you can sue the texter but–as we know–the vast majority of spammers are shady fly-by-nights or off-shore knuckleheads that you can’t find. So the FCC believes that keeping text messages categorized as “information services”–as they are currently defined–will keep spammers away from your SMS inbox. It issued a big order today accomplishing just that. 

And to be sure, the carriers are monitoring and block spam texts as we speak. As the FCC finds: “wireless messaging providers apply filtering to prevent large volumes of unwanted messaging traffic or to identify potentially harmful texts.”  The FCC credits these carrier efforts with keeping text messages relatively spam free:

For example, the spam rate for SMS is estimated at 2.8% whereas the spam rate for email is estimated at over 50%.  Wireless messaging is therefore a trusted and reliable form of communication for many Americans. Indeed, consumers open a far larger percentage of wireless messages than email and open such messages much more quickly.

So from a policy perspective keeping text messages as information services probably makes sense, but let’s review those definitions again.

A telecommunication service is essentially the transmission of information of the user’s choosing.

An information service is “the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications.”

So is a text message the transmission of information of my choosing or is it the use of Verizon’s ability to store and retrieve information I am sending? (And is there really even a difference?)

Well the FCC says texts are absolutely information services and here’s why:

  • SMS and MMS wireless messaging services provide the capability for “storing”
    and “retrieving” information. When a user sends a message, the message is routed through servers on mobile networks. When a recipient device is unavailable to receive the message because it is turned off, the message will be stored at a messaging center in the provider’s network until the recipient device is able to receive it.

  • SMS and MMS wireless messaging services also involve the capability for “acquiring” and “utilizing” information. As CTIA explains, a wireless subscriber can “ask for and receive content, such as weather, sports, or stock information, from a third party that has stored that information on its servers. SMS subscribers can ‘pull’ this information from the servers by making specific requests, or they can signal their intent to have such information regularly ‘pushed’ to their mobile phone.

  • SMS and MMS wireless messaging services involve “transforming” and
    “processing” capabilities. Messaging providers, for example, may change the form of transmitted information by breaking it into smaller segments before delivery to the recipient in order to conform to the character limits of SMS.

Yeah…I guess. But realistically when I send a text I just want it to get there there the way I sent it. Maybe there’s some storing and utilizing and processing or whatever but not very much.

And that was Twilio’s point. It asserted:  “the only offering that wireless carriers make to the public, with respect to messaging, is the ability of consumers to send and receive messages of the consumers’ design and choosing.” That sounds right.

Well the FCC disagrees: “These arguments are unpersuasive.”

The FCC’s point is that “what matters are the capabilities offered by the service, and as we explain above, wireless messaging services feature storage, retrieval, and other information-processing capabilities.”

Hmmm. ok. I guess I’m ok with that if you are.

But let’s get to the good stuff from a TCPA perspective. Recall that a text message is a “call” for purposes of the TCPA. Well if a text isn’t even a telecommunication how can it be a call? Asks Twilio.

Yeah, FCC, how can it be a call? Asks the Czar.

The Commission answers:

the Commission’s decision merely clarified the meaning of the undefined term “call” in order to address the obligations that apply to telemarketers and other callers under the TCPA. That decision neither prohibits us from finding that wireless messaging service is an information service, nor compels us to conclude that messaging is a telecommunications service.

Ok. Well. Why not?

The Commission answers further:

The TCPA provision itself generally prohibits the use of a facsimile machine to send
unsolicited advertisements, but that does not constitute a determination that an individual’s sending of a fax is a telecommunications service, just as the application to an individual’s making “text calls” does not reflect a determination that wireless messaging is a telecommunications service. In any event, for purposes of regulatory treatment, there is a significant difference between being subject to Commission regulation and being subject to per se common carrier regulation. Only the latter requires classification as a telecommunications service. We clarify herein that SMS and MMS wireless messaging are Title I services, and thus, will not be subject to per se common carrier regulation.

Umm FCC, no disrespect intended, but I kind of feel like that doesn’t really answer the question.

But in any event, the FCC plainly believes that text messages are a “call” for purposes of the TCPA but are not a “telecommunication” for purposes of common carrier regulation.

From a policy perspective I’m fine with the conclusion the Commission reached–it makes sense to keep text messages free from spam. But we have to be honest with ourselves here, the Commission just did legal somersaults to get there. Maybe its time for Congress to take another look at the Communications Act hmmm?

In any event, now you get it!

 

Copyright © 2018 Womble Bond Dickinson (US) LLP All Rights Reserved.
This post was written by Eric Troutman of Womble Bond Dickinson (US) LLP.
Read more news about the TCPA at the National Law Review.

No vaccine? No job! Court affirms employer’s ability to condition employment upon vaccinations

On December 7, 2018, the U.S. Eighth Circuit Court of Appeals held that an employee who was terminated for refusing to take a rubella vaccine was not discriminated or retaliated against, under the Americans with Disabilities Act, as amended (“ADA”).  See Hustvet v. Allina Health System, Case No. 17-2963.

In this case, Janet Hustvet worked as an Independent Living Skills Specialist. In May 2013, Hustvet completed a health assessment, during which she stated she did not know whether she was immunized for rubella.  Subsequent testing confirmed she was not.  Her employer — Allina Health Systems — then told Hustvet she would need to take one dose of the Measles, Mumps, Rubella vaccine (“MMR vaccine”).  Hustvet stated to an Allina representative that she was concerned about the MMR vaccine because she had previously had a severe case of mumps and had “many allergies and chemical sensitivities.”  Later, Hustvet refused to take the MMR vaccine, and was terminated for failure to comply with Allina’s immunity requirements.  Hustvet then sued Allina, alleging discrimination, unlawful inquiry, and retaliation claims under the ADA and Minnesota state law.  The district court granted Allina’s motion for summary judgment, and Hustvet appealed.

On appeal, the Eighth Circuit first addressed Hustvet’s unlawful inquiry claim; specifically, Hustvet alleged that Allina violated the ADA when it required her to complete a health screen as a condition of employment.  When affirming the district court’s grant of summary judgment, the court explained that the information requested and the medical exam, which tested for immunity to infectious diseases, were related to essential, job related abilities.  Indeed, Allina sought to ensure their patient-care providers would not pose a risk of spreading certain diseases – such as rubella – to its client base.  Thus, the inquiry was job-related and consistent with business necessity.

The court then did away with Hustvet’s discrimination claim based upon failure to accommodate because Hustvet was not disabled and, thus, she could not state a prima facie case of disability discrimination. There was simply no record evidence to support the conclusion that Hustvet’s purported “chemical sensitivities” or allergies substantially limited any of Hustvet’s major life activities. She was never hospitalized due to an allergic or chemical reaction, never saw an allergy specialist, and was never prescribed an EpiPen.  Rather, Hustvet suffered from “garden-variety allergies,” which was not enough to conclude she was disabled.

Finally, the court affirmed the district court’s grant of summary judgment regarding Hustvet’s retaliation claim. In pertinent part, the court reasoned that Hustvet could not show that Allina’s proffered reason for terminating her employment – her refusal to take an MMR vaccine – was a pretext for discrimination.  The record evidence demonstrated that Allina terminated Hustvet’s employment because her job required her to work with potentially vulnerable patient populations, and she refused to become immunized to rubella, an infectious disease.

This decision comes as welcome news to employers that provide healthcare-related services, and confirms that healthcare providers may condition employment upon taking certain vaccinations, so long as the vaccination is job-related and consistent with business necessity.  Employers with questions regarding implementing or enforcing such policies would do well to consult with able counsel.

 

© Polsinelli PC, Polsinelli LLP in California
This post was written by Cary Burke of Polsinelli PC.

Japan’s Labor Reform Caps Overtime in a Bid to Curb Karoshi

From low productivity to the death of citizens by overwork, Japan’s labor practices have long maintained a complicated relationship with the country’s workforce. The problem of death by overwork is so prevalent the Japanese have created a word for it: karoshi. On June 29, 2018, Japan passed the “Work Style Reform Law” (the Law) to address some of these issues.

Currently, Japanese law permits employers to enter into special agreements with employees that require them to work an unlimited number of overtime hours. The Law however, generally will limit overtime work to 45 hours per month with a maximum of 360 hours in a year. During busy periods, the overtime limit will be relaxed allowing for up to 100 hours of overtime not to exceed a maximum of 720 hours in a year. In addition, employees may not work, on average, more than 80 hours of overtime per month. This figure will be averaged over a period of two, three, four, five, and six consecutive months. These overtime provisions will go into effect in April 2019 for large employers and April 2020 for small and mid-sized employers. Violation of these provisions will subject employers to financial penalties.

Highly skilled professional workers, however, are exempt from the protection of these overtime provisions. Under the law, highly skilled professional workers must: (i) work a job requiring specialized skills, and; (ii) earn an annual salary of ¥10.75 million or more (roughly $95,000 USD). Labor reform supporters have sharply criticized this exemption as a license to continue the practice of overwork. Meanwhile, supporters of the Law have characterized the exemption as a nod to the working style of professionals where hours and results do not necessarily correlate. Future administrative guidelines will provide employers insight as to what jobs fall into the exemption. The exemption will take effect in April 2019.

In addition, the Law will require employers to treat regular and fixed-term employees equally. Although further administrative guidelines will be issued regarding this provision, employers should: (i) prepare to provide increased compensation and benefits for fixed-term and other non-regular employees; and (ii) begin reviewing the compensation differences between their regular and fixed-term employees to identify any disparities. Enforcement of this provision will likely involve disclosure requirements for employers. This provision will take effect in April 2020 for large employers and April 2021 for small and mid-sized employers.

The Law also contains provisions mandating the use of paid time off. Japanese labor culture has long led to a chronic and voluntary under-usage of paid time off by employees. The Law addresses this issue by requiring that employees entitled to 10 days of annual paid leave or more use at least five of those days each year.

The use of a work-interval system is also encouraged under the law. The law notes that employers should “make efforts” to ensure that there is a minimum interval between the end of a day’s working hours and the beginning of the next day’s working hours. This provision will take effect in April 2019.

 

© 2018 Proskauer Rose LLP.

Intentional Accidents: California Supreme Court Announces that General Commercial Liability Policies Apply to Negligent Hiring, Training, and Supervising Claims for Failing to Prevent Intentional Torts

In a recent decision, the U.S. Court of Appeals for the Ninth Circuit observed that under California law, there was an unresolved question as to whether a commercial general liability (“CGL”) insurance policy covers an employer-insured for negligently failing to prevent an employee’s intentional misconduct. In essence, it was unclear whether such an incident constituted an “occurrence” that only covers “accidents,” as an intentional act cannot, by definition, be an accident. Through a certified question from the U.S. Ninth Circuit Court of Appeals, the California Supreme Court answered that such insurance policies indeed cover negligent hiring, training, and supervision claims because the crux of inquiry is the insured’s negligence—not the employee’s intent.

In Liberty Surplus Insurance Corporation, et al. v. Ledesma and Meyer Construction Company, Inc., No. 14-56120 (9th Cir. Oct. 19, 2018), the insured construction company was sued because its employee sexually abused a minor. Ledesma and Meyer Construction Company, Inc. (“L&M”) had been retained by a school district to oversee the construction of a middle school. During the course of construction, an employee sexually abused a 13-year-old student. The student sued L&M alleging claims of negligent hiring, training, and supervision of the employee that committed the intentional tort.

L&M’s CGL carrier filed a declaratory judgment action in federal district court, alleging that the claim against L&M was not covered by the insurance policy because it was premised on an intentional act. The district court granted summary judgment in favor of the plaintiff insurer. It reasoned that, because the policy covered “bodily injury” that was “caused by an occurrence,” and because an “occurrence” is defined as an “accident,” the claims for negligent hiring, training, and supervision were too attenuated from the intentional injury-causing conduct to trigger coverage.

On appeal, the Ninth Circuit certified the question of coverage to the California Supreme Court. The Supreme Court rephrased the question as follows: “When a third party sues an employer for the negligent hiring, training, and supervision of an employee who intentionally inured that third party, does that suit allege an ‘occurrence’ under the employer’s commercial general liability policy?” The Supreme Court answered in the affirmative, reasoning that, “[b]ecause the term ‘accident’ includes negligence, a policy which defines ‘occurrence’ as an ‘accident’ provides ‘coverage for liability resulting from the insured’s negligent acts.’” (internal citations omitted). On the basis of this answer, the Ninth Circuit reversed the district court’s decision and remanded for further proceedings.

This decision solidifies what amounts to an expansion of insurance coverage in the Ninth Circuit over an employer-insured’s employee’s intentional acts, where the claims are premised on the employer-insured’s negligent hiring and supervision of the employee. Underwriters should take note and consider appropriate exclusions and/or pricing of premiums of insured risks in California and elsewhere in the Ninth Circuit.

 

©2011-2018 Carlton Fields Jorden Burt, P.A.

The Illinois Constitution and Taxes

The Illinois Constitution was adopted on December 15, 1970. The constitution sets forth the taxing powers of home rule units and describes the exclusive power of the General Assembly to raise revenue. Because the constitution creates the framework for how Illinois’ taxing system functions, this post will discuss the constitution’s general structure and the impact it has on Illinois taxes.

Background

In 1968, the people of Illinois called a constitutional convention to “modernize, shorten, and liberalize” its 1870 constitution. One of the advocates for the convention was Chicago mayor, Richard J. Daley, who sought two primary goals: (1) obtain constitution home rule power for the City of Chicago, and (2) to allow for classification of real property for ad valorem taxation purposes.[1] Another important motivating factor for revising the constitution was to abolish the state’s personal property tax, which was generally seen as disproportionately affecting downstate taxpayers as compared to those located in Chicago.[2] At the end of the convention, the state voted to adopt the constitution.

The Illinois Constitution of 1970 is composed of fourteen articles. Article VII relates to “Local Government,” Section 6 of which is dedicated to describing the powers of home rule units. Article IX describes the General Assembly’s revenue power. These two sections are the most important in understanding the constitutional constraints on Illinois tax.   

Powers of Home Rule Units

As we have discussed with respect to Chicago and Cook County, the Illinois constitution grants home rule authority to counties and municipalities which have a population of more than 25,000.[3] Other municipalities may elect by referendum to become home rule units or, alternatively, home rule units may by referendum elect not to be a home rule unit. To the extent home rule county ordinances conflict with municipality ordinances, the municipal ordinance will prevail.[4]   

Although home rule units appear to have plenary authority, the constitution does limit their powers. Home rule units only have the power granted by the General Assembly “to license for revenue or impose taxes upon or measured by income or earnings or upon occupations.”[5] Moreover, the General Assembly may limit home rule power to tax where the General Assembly approves such preemption by a three-fifths vote.[6] Otherwise, home rule units may exercise and perform concurrently with the state any power or function of a home rule unit to the extent the General Assembly does not specifically limit the home rule unit’s exercise of such powers or specifically declare the state’s exercise of a similar power to be exclusive.[7]

These constitutional revisions “drastically altered the balance of power between [Illinois] state and local governments, giving local governments greater autonomy.”[8] Indeed, the Illinois Supreme Court has explained that these provisions were “drafted with the intent to give home rule units the broadest power possible under the constitution.”[9] Nonetheless, the three most meaningful limitations on home rule units contained in the constitution are that home rule units may not license for revenue, impose income taxes, or impose occupation taxes without the explicit grant of authority from the General Assembly. 

While Illinois courts have been somewhat hesitant to strike down home rule taxes on the basis that such taxes are impermissible occupation taxes, the Illinois Supreme Court, in 1982, struck down a City of Chicago tax which taxed certain services.[10] The court explained that delegates from the constitutional convention “saw the occupation tax as a corollary to the sales tax which would extend that tax to services, and […] equated the occupation tax with a tax on services.”[11] Thus, generally speaking, home rule units may only impose taxes on services to the extent permitted by the General Assembly. 

State Revenue Power

The General Assembly has the exclusive power to raise Illinois revenue except as limited or otherwise provided by the Constitution. The General Assembly may not surrender, suspend, or contract the power to tax away.[12] Similar to many other states, Illinois has a “Uniformity Clause,” which states that “[i]n any law classifying the subjects or objects of non-property taxes or fees, the classes shall be reasonable and the subjects and objects within each class shall be taxed uniformly.  Exemptions, deductions, credits, refunds and other allowances shall be reasonable.”[13]

The Illinois Constitution also dictates that any income taxes must be at one set rate and may not be graduated. Moreover, income taxes may only be imposed once on individuals and corporations, but tax rates imposed on corporations may differ from tax rates on individuals, so long as corporations are not taxed at a ratio greater than 8 to 5 when compared to individual tax rates.[14] A number of constitutional amendments have recently been proposed to amend the constitution to allow for a progressive income tax.[15]

Another important aspect of the Illinois Constitution is that counties with a population of more than 200,000 may classify real property for purposes of taxation.[16] These classifications must be reasonable and assessment of tax must be uniform within each class. Moreover, real property used in farming in a county may not be assessed at a higher level of assessment than single family residential real property in the county.[17]

Finally, the constitution provides that the “General Assembly by law may classify personal property for purposes of taxation by valuation, abolish such taxes on any or all classes and authorize the levy of taxes in lieu of the taxation of personal property by valuation.”[18] The constitution required, on or before January 1, 1979, the General Assembly to abolish all ad valorem personal property taxes and to replace all revenue lost as a result by imposing statewide taxes on those classes relieved of the burden of paying ad valorem personal property taxes. To the extent such taxes are measured by income, “such replacement tax shall not be considered for purposes of the limitations of one tax and the ratio of 8 to 5” regarding personal and corporate income taxes. The resulting “replacement income tax” is imposed on corporations at a rate of 2.5% of the taxpayer’s net income and for S corporations, partnerships, and trusts, is imposed at a rate of 1.5% of the taxpayer’s net income.[19] The Illinois Supreme Court has confirmed that the constitution’s prohibition on personal property tax is permanent, and such taxes may not be resurrected in the absence of a constitutional amendment.[20]

Conclusion

The Illinois General Assembly retains a substantial amount of authority to structure the state revenue system as it desires. However, the 1970 Constitution provides home rule localities significant power to do the same absent preemption by the General Assembly.  Understanding this unique balance provides useful insight into how to navigate Illinois state and local revenue laws.

[1] Ann M. Lousin, Where are we at? The Illinois Constitution after Forty-Five Years, 48 J. Marshall L. Rev. 1 (2014).

[2] Id; see also Client Follow-Up Co. v. Hynes, 75 Ill. 2d 208 (1979).

[3] Ill. Const. Art. VII, Sec. 6. 

[4] Id. at (c).

[5] Id.  at (e).

[6] Id. at (g).

[7] Id. at (i).

[8] Blanchard v. Berrios, 410 Ill. Dec. 923, 923 (2016) (internal quotation removed); City of Chicago v. StubHub,Inc., 366 Ill. Dec. 43 (2011).

[9] Id. (internal quotations omitted). 

[10] Commercial Nat’l Bank v. Chicago, 89 Ill. 2d 45 (1982). 

[11] Id. at 54-55 (internal quotations omitted).

[12] Ill. Const. Art. IX, Sec. 1.

[13] Id. at Sec. 2.

[14] Id. at Sec. 3.

[15] See Senate Joint Resolution Constitutional Amendments 1, 16, and 39.

[16] Ill. Const. Art. IX, Sec. 4.

[17] Id.

[18] Id. at Sec. 5.

[19] 35 ILCS 5/201(d).

[20] Client Follow-Up Co., 75 Ill. 2d 208.© Horwood Marcus & Berk Chartered 2018. All Rights Reserved.

This post was written by of  Christopher T. Lutz of  Horwood Marcus & Berk Chartered 2018. All Rights Reserved.