The National Law Forum

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

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

Summary of Facts and Background

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

Mayer’s Purchase, Default, and Dispute

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

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

Holden’s Purchase, Default, and Dispute

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

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

The Fair Credit Reporting Act

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

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

The Eleventh Circuit’s Decision

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

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

Conclusion

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

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

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

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

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

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

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

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

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

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

A New Day for “Natural” Claims?

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

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

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

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

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

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

My Safe Florida Condo Pilot Program: Frequently Asked Questions

On April 24, 2024, Florida Governor Ron DeSantis signed House Bill 1029 into law, marking a pivotal moment in bolstering condominium resilience against hurricane damage. This significant milestone is important for Florida’s condominium owners’ associations to recognize in furtherance of efforts to protect Florida’s infrastructure.

House Bill 1029, also known as the My Safe Florida Condominium Pilot Program, aims to provide condominium associations with a mechanism similar to the My Safe Florida Home Program that was previously made available to single family homes. This initiative establishes the My Safe Florida Condominium Pilot Program, enabling eligible condominiums to apply for various grants to fortify their buildings and minimize the impact of hurricanes.

Who is eligible?

Condominium associations that meet specified criteria can apply for mitigation grants under the program.

What are the voting requirements for Condominium Associations?

Associations must obtain approval through a majority vote of the board of directors or a majority vote of the total voting interests of the association to apply for an inspection. Additionally, a unanimous vote of all unit owners within the structure or building subject to the grant is required prior to apply for a grant.

What information needs to be disclosed?

Prior to conducting the vote of unit owners, associations are required to provide clear disclosure of the program using a form that will be created by the Florida Department of Financial Services. The president and treasurer of the board of directors must sign the disclosure form, which will be kept as part of the association’s official records.

Do Condominium Associations need to provide notice?

Yes, condominium associations are required to provide written notice within 14 days of an affirmative vote to participate in the Program to all unit owners, in accordance with the statutory requirements of Section 718.112(2)(d), Florida Statutes.

How much can a Condominium Association apply for in grants?

The grant is capped at $175,000 per condominium association and can be utilized for various improvements, including opening protection, reinforcing roof-to-wall connections, enhancing roof-deck attachments, and implementing secondary water resistance for the roof.

Can individual units participate?

Mitigation grants are awarded to condominium associations collectively, and individual unit owners may not participate in the Program.

House Bill 1029 creates Section 215.5587, Florida Statutes, further solidifying its significance in the state’s efforts to bolster the tens of thousands of condominiums throughout the state. These legislative enhancements are anticipated to enhance community associations in safeguarding their properties and residents against natural disasters.

Bidding Farewell, For Now: Google’s Ad Auction Class Certification Victory

A federal judge in the Northern District of California delivered a blow to a potential class action lawsuit against Google over its ad auction practices. The lawsuit, which allegedly involved tens of millions of Google account holders, claimed Google’s practices in its real-time bidding (RTB) auctions violated users’ privacy rights. But U.S. District Judge Yvonne Gonzalez Rogers declined to certify the class of consumers, pointing to deficiencies in the plaintiffs’ proposed class definition.

According to plaintiffs, Google’s RTB auctions share highly specific personal information about individuals with auction participants, including device identifiers, location data, IP addresses, and unique demographic and biometric data, including age and gender. This, the plaintiffs argued, directly contradicted Google’s promises to protect users’ data. The plaintiffs therefore proposed a class definition that included all Google account holders subject to the company’s U.S. terms of service whose personal information was allegedly sold or shared by Google in its ad auctions after June 28, 2016.

But Google challenged this definition on the basis that it “embed[ded] the concept of personal information” and therefore subsumed a dispositive issue on the merits, i.e., whether Google actually shared account holders’ personal information. Google argued that the definition amounted to a fail-safe class since it would include even uninjured members. The Court agreed. As noted by Judge Gonzalez Rogers, Plaintiffs’ broad class definition included a significant number of potentially uninjured class members, thus warranting the denial of their certification motion.

Google further argued that merely striking the reference to “personal information,” as proposed by plaintiffs, would not fix this problem. While the Court acknowledged this point, it concluded that it did not yet have enough information to make that determination. Because the Court denied plaintiffs’ certification motion with leave to amend, it encouraged the parties to address these concerns in any subsequent rounds of briefing.

In addition, Judge Gonzalez raised that plaintiffs would need to demonstrate that the RTB data produced in the matter thus far was representative of the class as a whole. While the Court agreed with plaintiffs’ argument and supporting evidence that Google “share[d] so much information about named plaintiffs that its RTB data constitute[d] ‘personal information,” Judge Gonzalez was not persuaded by their assertion that the collected RTB data would necessarily also provide common evidence for the rest of the class. The Court thus determined that plaintiffs needed to affirmatively demonstrate through additional evidence that the RTB data was representative of all putative class members, and noted for Google that it could not refuse to provide such and assert that plaintiffs had not met their burden as a result.

This decision underscores the growing complexity of litigating privacy issues in the digital age, and previews new challenges plaintiffs may face in demonstrating commonality and typicality among a proposed class in privacy litigation. The decision is also instructive for modern companies that amass various kinds of data insofar as it demonstrates that seemingly harmless pieces of that data may, in the aggregate, still be traceable to specific persons and thus qualify as personally identifying information mandating compliance with the patchwork of privacy laws throughout the U.S.

Top Five Labor Law Developments for April 2024

Volkswagen employees at a Chattanooga, Tennessee, facility voted to join the United Auto Workers (UAW). The workers voted 2,628 to 985 to join the UAW. The union has been focusing its organizing efforts at foreign automakers with U.S. facilities following successes with the “Big Three” automakers last year. The UAW won record-breaking pay increases for those workers. Those successes likely increased momentum at Volkswagen. According to a UAW press release, the Volkswagen workers are the first Southern autoworkers outside the Big Three to win a union election. The UAW plans to continue its push to organize at other non-union car manufacturers across the country.
The National Labor Relations Board’s General Counsel (GC) Jennifer Abruzzo issued a memorandum instructing Board Regional Offices to seek enhanced remedies for unlawful work rules or contract terms. Memorandum GC 24-04 (Apr. 8, 2024). While the GC noted progress in achieving make-whole relief relating to back pay for employees “discharged for engaging in union or other protected concerted activity,” she stated such relief must be expanded to include all employees harmed as a result of an unlawful work rule or contract term — such as in an employment or severance agreement — “regardless of whether those employees are identified during the course of the unfair labor practice investigation.” The GC asserted that “mere rescission” of the rule or term does not provide adequate relief. Rather, discipline must be expunged or retracted to make impacted employees whole. Accordingly, Regions should seek settlements for make-whole relief where the discipline or legal enforcement action stemming from an unlawful rule or term “targets employee conduct that ‘touches the concerns animating Section 7,’ unless the employer can show that the conduct actually interfered with the employer’s operations and it was that interference, and not reliance on the unlawful rule or term, that led to the employer’s action.” Regions should seek and obtain information from employers regarding which employees were impacted with discipline or legal enforcement action..
The Board reported significant increases in union election petitions and unfair labor practice charges. According to a Board press release, union activity is still on the rise, with both unfair labor practice charges and election petitions increasing at the highest levels in decades. In the first six months of fiscal year (FY) 2024 (which began Oct. 1, 2023), the Board noted a 7% increase in unfair labor practice charges compared to the same period last year. Union election petitions increased 35%, from 1,199 in the first six months of FY2023 to 1,618 during the same period in FY2024. RM petitions by employers have particularly skyrocketed — accounting for 281 of filed petitions — due to the Board’s new framework for when an employer needs to file an RM petition after receiving a demand for union recognition..
The Department of Labor’s final rule for Occupational Safety and Health Administration (OSHA) inspections raises unionization concerns for employers. The rule aims to clarify (but it instead expands) the rights of employees to authorize third-party representatives to accompany an OSHA compliance safety and health officer during a workplace inspection. As a result, however, the rule seemingly allows a third-party union representative during an organizing campaign to report a safety concern to OSHA and then gain direct access to an employer’s workplace during the inspection that follows. This would give union organizers unprecedented access and broaden unions’ access rights to employer property. The rule is scheduled to take effect on May 31, 2024.
Law360 reported that the College Basketball Players Association filed an unfair labor practice charge against the University of Notre Dame regarding classification of college athletes. University of Notre Dame, 25-CA-340413 (Apr. 18, 2024). The charge alleges Notre Dame violated the National Labor Relations Act “by classifying college athletes as ‘student-athletes.’” The charge follows the Board GC’s 2021 memorandum, Memorandum GC 21-08, in which she stated her position that student-athletes at private universities are “employees” under the Act because they perform services for their colleges and the National Collegiate Athletic Association in return for compensation and are subject to their respective college’s control. The Board has yet to rule on the issue.

Five Compliance Best Practices for … Conducting a Risk Assessment

As an accompaniment to our biweekly series on “What Every Multinational Should Know About” various international trade, enforcement, and compliance topics, we are introducing a second series of quick-hit pieces on compliance best practices. Give us two minutes, and we will give you five suggested compliance best practices that will benefit your international regulatory compliance program.

Conducting an international risk assessment is crucial for identifying and mitigating potential risks associated with conducting business operations in foreign countries and complying with the expansive application of U.S. law. Because compliance is essentially an exercise in identifying, mitigating, and managing risk, the starting point for any international compliance program is to conduct a risk assessment. If your company has not done one within the last two years, then your organization probably should be putting one in motion.

Here are five compliance checks that are important to consider when conducting a risk assessment:

Understand Business Operations: A good starting point is to gain a thorough understanding of the organization’s business operations, including products, services, markets, supply chains, distribution channels, and key stakeholders. You should pay special attention to new risk areas, including newly acquired companies and divisions, expansions into new countries, and new distribution patterns. Identifying the business profile of the organization, and how it raises systemic risks, is the starting point of developing the risk profile of the company.
Conduct Country- and Industry-Specific Risk Factors: Analyze the political, economic, legal, and regulatory landscape of each country where the organization operates or plans to operate. Consider factors such as political stability, corruption levels, regulatory environment, and cultural differences. You should also understand which countries also raise indirect risks, such as for the transshipment of goods to sanctioned countries. You also should evaluate industry-specific risks and trends that may impact your company’s risk profile, such as the history of recent enforcement actions.
Gather Risk-Related Data and Information: You should gather relevant data and information from internal and external sources to inform the risk-assessment process. Relevant examples include internal documentation, industry publications, reports of recent enforcement actions, and areas where government regulators are stressing compliance, such as the recent focus on supply chain factors. Use risk-assessment tools and methodologies to systematically evaluate and prioritize risks, such as risk matrices, risk heat maps, scenario analysis, and probability-impact assessments. (The Foley anticorruption, economic sanctions, and forced labor heat maps are found here.)
Engage Stakeholders: Engage key stakeholders throughout the risk-assessment process to gather insights, perspectives, and feedback. Consult with local employees and business partners to gain feedback on compliance issues that are likely to arise while also seeking their aid in disseminating the eventual compliance dictates, internal controls, and other compliance measures that your organization ends up implementing or updating.
Document Findings and Develop Risk-Mitigation Strategies: Document the findings of the risk assessment, including identified risks, their potential impact and likelihood, and recommended mitigation strategies. Ensure that documentation is clear, concise, and actionable. Use the documented findings to develop risk-mitigation strategies and action plans to address identified risks effectively while prioritizing mitigation efforts based on risk severity, urgency, and feasibility of implementation.

Most importantly, you should recognize that assessing and addressing risk is an ongoing process. You should ensure your organization has established processes for the ongoing monitoring and review of risks to track changes in the risk landscape and evaluate the effectiveness of mitigation measures. Further, at least once every two years, most multinational organizations should be updating their risk assessment periodically to reflect evolving risks and business conditions as well as changing regulations and regulator enforcement priorities.

European Union | Latest Immigration Updates

The adopted revision to the 2011 single-permit directive has been published in the Official Journal of the European Union, and the EU Council has temporarily suspended certain elements of EU law that regulate visa issuance to Ethiopian nationals.

Key Points:

The single-permit directive enters into force on May 21, 2024, and EU member states have until May 21, 2026, to implement the terms of the directive domestically.
- Member states will maintain the ability to decide which and how many third-country workers to admit to their labor market.
For Ethiopian nationals, the standard visa-processing period has been changed to 45 calendar days instead of 15. In addition, EU member states will no longer be able to waive certain requirements when issuing visas to Ethiopian nationals, including evidence that must be submitted to issue multiple-entry visas and visa fees for holders of diplomatic and service passports.

Background: As BAL previously reported, the directive currently in place was designed to attract additional skills and talent to the EU to address shortcomings within the legal migration system, provide an application process for EU countries to issue a single permit and establish common rights for workers from third countries. The revised law shortens the application procedure for a permit to reside for the purpose of work in a member state’s territory and aims to strengthen the rights of third-country workers by allowing a change of employer and a limited period of unemployment. The new agreement is part of the “skills and talent” package, which addresses shortcomings in legal migration policy and aims to attract greater foreign skilled talent.

The decision to tighten visa guidelines for Ethiopia is in response to an assessment by the EU Commission, which found that Ethiopian authorities have not fully cooperated with officials regarding readmission requests and difficulties persist in issuing emergency travel documents. The commission cited the organization of both voluntary and non-voluntary return operations as a determining factor in altering Ethiopia’s visa privileges within the European Union.

BAL Analysis: The single-permit directive is directed at non-EU nationals working in the EU and aims to create an environment where these individuals are treated equally regarding their working conditions, social security and tax benefits, and recognizing their unique qualifications.

Congress Extends Statute of Limitations for Sanctions Violations

What Happened:

On April 24, 2024, President Biden signed into law the Fentanyl Eradication and Narcotics Deterrence (FEND) Off Fentanyl Act, as part of a national security legislative package, which, among other things, amended the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) to extend the statute of limitations for the enforcement of sanctions violations from five years to ten years (the Amendment). The ten-year statute of limitations applies to civil and criminal enforcement for all sanctions programs.

The Bottom Line:

The Amendment changes the lookback period for sanctions compliance from five years to ten years, impacting how sanctions compliance is treated internally at companies with international touchpoints, as well as counterparty diligence in corporate transactions. Companies will need to update their compliance programs to account for the extended period.

The Full Story:

IEEPA authorizes the President of the United States to impose economic sanctions by declaring a national emergency in response to any unusual or extraordinary threat to the national security of the United States that originates outside of the United States. IEEPA authorizes both civil enforcement actions and criminal prosecution against persons found to have violated US sanctions and previously established a five-year statute of limitations on enforcement.

As part of a broader national security package, President Biden signed into law the FEND Off Fentanyl Act on April 24, 2024. The Act requires the President to, among other things, impose sanctions under IEEPA on any person involved in the trafficking of Fentanyl through a forthcoming Fentanyl sanctions regime and amends IEEPA to extend the statute of limitations on enforcement to ten years. Critically, the extended statute of limitations under the Amendment applies not only to the forthcoming Fentanyl sanctions regime, but to almost all sanctions programs administered by the US Department of Treasury’s Office of Foreign Assets Control (OFAC). The Amendment also impacts other programs authorized under IEEPA, including some programs administered by the US Department of Commerce’s Bureau of Industry and Security (BIS), such as the Information and Communications Technology and Services (ICTS) Program, as well as other programs administered by the Department of Justice and Department of the Treasury.

The Amendment impacts compliance obligations for US companies and others seeking to comply with US sanctions. For example, OFAC regulations implementing US sanctions include record-keeping requirements for financial institutions with respect to certain transactions that currently track the previous five-year limitations period under IEEPA and it is likely that OFAC will amend its regulations to increase record-keeping requirements to ten years. Similarly, OFAC guidance on effective sanctions compliance has pegged recommended record retention periods to the five year limitations period. For example, the “safe harbor” for service providers under the prohibition on maritime services for Russian oil under the Russian oil price cap sanctions requires that persons retain records for five years. It is likely that OFAC will update its guidance to reflect the new ten-year limitations period following the Amendment and companies should carefully consider updates to sanctions compliance programs accordingly.

The Amendment does not address retroactive application. Retroactive criminal prosecution (i.e., for conduct currently beyond the prior five year limitations period) raises constitutional concerns. It is currently unclear whether OFAC will seek to bring civil enforcement actions for conduct already beyond the five-year limitations period.

The new ten-year limitations period should also be considered in conducting sanctions diligence on external counterparties. Companies will need to consider the longer lookback period when evaluating potential mergers and acquisitions and when seeking or providing representations and warranties involving sanctions compliance.

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

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

Current FLSA Overtime Regulations: The Basics

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

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

THE WHITE COLLAR EXEMPTION

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

HIGHLY COMPENSATED EMPLOYEES

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

Key Changes to the FLSA Overtime Rules

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

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

THE NEW SALARY THRESHOLDS

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

New FLSA Overtime Rule - The New Salary Thresholds

Why This Rule Matters: Essential Steps for Employers

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

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

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

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

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