The National Law Forum

Alaska Minimum Wage, Tip Credit, and Overtime Rights Ruling: Gallo’s and Taco Kings

On Dec. 12, 2016 the Alaska Wage and Hour Division announced a settlement with a small chain of restaurants local to Alaska in the amount of $835,000.00.^[1] Considering this is a small locally owned business this a staggering amount. To put this in perspective there are a total of only 9 eating establishments involved, three Gallo’s and six Taco Kings. Gallo’s are traditional sit down restaurants with full service. Taco Kings are small walk up and order off a menu board establishments with self-serve soda fountains and condiments and no wait staff.

In conversations with persons at both Gallo’s and the Alaska Wage and Hour Division it became clear that the overtime issues had been ongoing for several years. The current settlement was related to an audit conducted by the Alaska Wage and Hour Division and covered the period of Nov. 2013 to Dec. 2015.^[2] Prior to the recent settlement, dating back to 2011, Gallo’s/Taco King had settled six previous complaints for a total of $50,000.^[3] It was this systemic abuse of the Alaska overtime law that led to the audit which revealed overtime being owed to 159 employees.^[4]

Alaska law requires workers be paid minimum wage (currently $9.75/hr. and increasing to $9.80/hr. on Jan.1, 2017) with time and a half paid for overtime over 40 hours in a week.^[5] Alaska does not allow for a tip credit^[6] and as such this was a straight overtime case.^[7]

Despite this being an overtime violation case, a settlement of this significance will tend to catch the attention of restaurant workers around the country. Add to that the recent nationwide injunction issued by Judge Mazzant with respect to the Final Rule,^[8] there is likely to be heightened awareness of minimum wage and overtime rights among workers in general. As such it is probably worthwhile for practitioners to remind their clients and perhaps update policies with respect to tipped employees.

Federal wage law as it relates to wait staff allows for a tip credit, but still requires that wait staff earn at least minimum wage when the hourly wage and tips are added up for the hours worked.^[9]

One of the requirements of the tip credit often overlooked is the requirement that the employer inform the employee of the tip credit. According to DOL Wage and Hour Division Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act, employers must inform tipped employees of the following before the tip credit can be applied:

1) The amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour;

2) The additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required cash wage of $2.13 and the current minimum wage of $7.25);

3) That the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;

4) That all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and

5) That the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

Failure to properly inform the tipped employee of the credit entitles the worker to receive both the Federal Minimum Wage of $7.75 and all of the tips received.^[10] Although the notification can be either verbal or written, it is advisable that employers have their employees sign a formal notification that the tip credit allowed under Federal law is being utilized by the employer to ensure minimum wage requirements are being met.

Cases like Gallos/Taco King are becoming more frequent as workers become more educated about their rights. While many employers are taking advantage of employees’ ignorance of employment laws, in particular minimum wage/overtime, many more are making innocent mistakes which could result in significant violations. Now is the perfect time to be proactive to make sure employers who have tipped employees are not hit with significant wage violations for not having informed their employees of the tip credit.

ARTICLE BY Jim Arkell of University of Alaska Fairbanks

_{^[1] Press Release No. 16-45 – State of Alaska Dept. of Labor and Workforce Dev., Heidi Drygas, Commissioner http://labor.alaska.gov/news/2016/news16-45.pdf}

_{^[2] Conversation with Commissioners office of the Alaska Wage and Hour Division on Dec. 14, 2016.}

_{^[3] Id}

_{^[4] Above Note i}

_{^[5] Alaska Statute Sec. 23.10.065.}

_{^[6] Id. According to the DOL 6 other states (California, Minnesota, Montana, Nevada, Oregon and Washington) and Guam also do not allow for a tip credit. https://www.dol.gov/whd/state/tipped.htm#Alaska}

_{^[7] Above Note ii}

_{^[8] Nevada et al. v. U.S. Department of Labor et al., —F.3d—, 2016 WL 6879615 (Civil Action No.4:16-CV-00731) U.S.D.C (E.D. Tex. Nov.22, 2016).}

_{^[9] 29 U.S. Code Sec. 3(m)}

_{^[10] DOL Wage and Hour Division Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act (Revised July 2013)}

Six Reasons Why Wholesale Repeal of Dodd-Frank is Unlikely

In the days following the November elections, U.S. President-elect Donald J. Trump promised that his Financial Services Policy Implementation team would be working to “dismantle” the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). However, a more recent account in the Wall Street Journal reported Mr. Trump’s transition team as tempering his promise in favor of rescinding or scaling back the individual provisions Republicans find most objectionable.

In light of the current political and macro-economic environment, here are six reasons why a wholesale repeal of Dodd-Frank is unlikely to occur:

Congressional Resistance – A wholesale repeal of Dodd-Frank would have to be effectuated through congressional action and would likely face a democratic filibuster. This would require opponents of Dodd-Frank to muster a 60-vote block in the Senate in order to advance the proposal. Legislative horse-trading to achieve specific objectives that are key to the Republican majority may ultimately prove to be more strategically advantageous.
Public Perception – Actions of the new administration which could be perceived as advocating for easing the burden on the financial services industry may alienate the middle-class constituency who were significantly impacted by the great recession and who ultimately propelled Mr. Trump to the Presidency.
Balance of Cost – Following massive investments in infrastructure and processes, the industry may perceive the costs of undoing the compliance programs put in place subsequent to Dodd-Frank as outweighing the benefits to be derived from decreased regulation.
Accepted Expectations – Counterparties have come to accept the safeguards and reporting requirements put in place by Dodd-Frank as constituting baseline expectations in business transactions. A repeal of Dodd-Frank would leave industry participants to reconstruct by contract what may have been previously mandated under law.
International Developments – In the wake of the Brexit vote, international financial organizations may be evaluating the relocation of their operational centers to locations in the U.S. The possibility of significant financial regulatory overhauls and the accompanying specter of an unknown business environment may dissuade consideration of the U.S. by such organizations.
Absence of a Perceptible Problem – Dodd-Frank was passed on July 21, 2010 with the wake of the great recession providing momentum and popular support for its enactment. Conversely, there is no corresponding economic situation presently existing that critics can point to for its repeal. The DJIA is up approximately 90% since July 2010. The real estate market has remained strong and, even with the recent increase by the Fed, interest rates remain low, allowing consumers access to both homeownership and financing on attractive terms.

In addition to the issues identified above, the incoming Presidential administration and congressional delegation may face additional hurdles in advancing comprehensive legislative initiatives to pare back Dodd-Frank. As the post-election environment cools and the country marches towards inauguration day, the financial services industry can only hope that clarity on the direction of the U.S. regulatory environment begins to emerge.

ARTICLE BY Anthony M. Drenzek of Proskauer Rose LLP

NY State Prepared to Increase Salary Level for Certain Overtime Exceptions

Proposed amendments to the New York State Wage Orders significantly increase the salary levels needed for employers to qualify for the executive and administrative exceptions under the New York Labor Law.

Last month, a US district court in Texas enjoined the US Department of Labor’s proposed revisions to regulations regarding exemption status under the Fair Labor Standards Act, which were scheduled to go into effect on December 1, 2016. In light of this injunction, there is no federal legal requirement at this time to increase the weekly salary for individuals to be exempt from overtime to the $913 per week that the new Regulations would have required under federal law. This injunction is being appealed, and employers should be prepared to act quickly in case the district court’s decision is overturned and the injunction lifted.

However, for New York employers, that is only half of the issue.

Employers in New York must also simultaneously comply with the state’s salary basis floor for the executive and administrative exceptions under the New York Labor Law (NYLL). That minimum is presently $675 per week or $35,100 per year. If that amount is not paid, employers cannot claim executive and administrative exception status under the NYLL regardless of the duties the individual performs, and such individuals will be eligible for additional compensation for hours worked over 40 per workweek even if they are exempt under federal law. The New York salary minimum is a mandatory pre-condition to be completely excepted from the state overtime requirements.

Moreover, proposed amendments will very likely increase these salary basis minimums for the executive and administrative exceptions effective December 31, 2016, with scheduled increases in subsequent years. Specifically, the New York State Department of Labor (NYSDOL) has amended the state’s Wage Orders to increase the salary threshold for the executive and administrative exceptions to $825 per week for large employers in New York City. If adopted, these regulations would amend the salary basis threshold in the NYSDOL’s Wage Orders covering the building services industry (12 N.Y.C.R.R. 141), miscellaneous industries and occupations (12 N.Y.C.R.R. 142), nonprofitmaking institutions (12 N.Y.C.R.R. 143), and hospitality industry (12 N.Y.C.R.R. 146). The inclusion of the miscellaneous industries Wage Order will extend these amendments to nearly all employers.

The public comment period on these proposed changes closed on December 3, 2016. If the proposed amendments are finalized by the NYSDOL, they would become effective on December 31, 2016.

Proposed Amendments to Salary Threshold for Executive and Administrative Exceptions

The proposed salary basis amendments contain different salary requirements based on an employer’s size and geographic location within New York State. Specifically, there are different salary requirements for “large employers” in New York City (employers with 11 or more employees), for “small employers” in New York City (employers with 10 or fewer employees), “downstate” employers (employers in Nassau, Suffolk, and Westchester counties), and employers in the “remainder of state” (employers outside of New York City, Nassau, Suffolk, and Westchester counties).

The below chart provides an overview of the proposed changes:

	NYC Large Employers (11 or more employees)	NYC Small Employers (10 or fewer employees)	Employers in Nassau, Suffolk, and Westchester Counties	Remainder of NY State Employers
Current (as of December 31, 2015)	$675.00 per week	$675.00 per week	$675.00 per week	$675.00 per week
On and after December 31, 2016	$825.00 per week	$787.50 per week	$750.00 per week	$727.50 per week
On and after December 31, 2017	$975.00 per week	$900.00 per week	$825.00 per week	$780.00 per week
On and after December 31, 2018	$1,125.00 per week	$1,012.50 per week	$900.00 per week	$832.00 per week
On and after December 31, 2019	–	$1,125.00 per week	$975.00 per week	$885.00 per week
On and after December 31, 2020	–	–	$1,050.00 per week	$937.50 per week
On and after December 31, 2021	–	–	$1,125.00 per week	–

Effective Date

The effective date of the proposed amendments is December 31, 2016. While it is possible that the NYSDOL will withdraw or change the amendments before this date, it is more likely that they will be adopted without alterations and become effective on December 31, 2016.

Recommended Next Steps

In light of the increase in the salary threshold for the executive and administrative exceptions, employers should quickly identify and evaluate positions compensated below the new threshold and decide whether to reclassify employees as eligible for overtime under state and/or federal law, or raise their salaries. Employers should consider the hours worked for these employees to estimate the potential cost of paying overtime.

For those employees who will be reclassified as overtime eligible, employers should prepare talking points for managers and employees about the change, the reason for the change, and how the change will impact their compensation, benefits, and opportunities for advancement, if at all. Employers should also develop training and robust time reporting policies for reclassified workers who will not be accustomed to recording hours worked.

To the extent that reclassified employees previously were receiving bonuses, commissions, or other incentive compensation, employers will need to reevaluate those forms of compensation or carefully consider how to factor them into the regular rate of now-hourly workers. Employers should also be prepared to follow up and audit timekeeping practices for newly reclassified employees to ensure that they are following proper processes and procedures.

ARTICLE BY Samuel S. Shaulson & Christopher A. Parlo of Morgan, Lewis & Bockius LLP

Los Angeles Enacts ‘Ban the Box’ Legislation

Los Angeles is the latest in a growing list of jurisdictions to adopt an ordinance restricting employers from asking a job applicant about his or her criminal history during the application process also known as “Ban the Box”. Under the Ordinance, private employers with at least 10 employees will be barred from inquiring about a job applicant’s criminal history until a conditional offer of employment has been made.

The “Los Angeles Fair Chance Initiative for Hiring (Ban the Box),” signed by Mayor Eric Garcetti on December 9, 2016, goes into effect on January 22, 2017.

Los Angeles has taken a different approach than San Francisco, the other California city to have adopted a “ban the box” ordinance affecting private employers. For example, the San Francisco ordinance, enacted in 2014, restricts questions about applicants’ criminal records on applications for employment and generally prohibits any type of criminal history inquiry until after the initial job interview. (For details, see our article, San Francisco Enacts ‘Ban the Box’ Law.) The Los Angeles ordinance prohibits employers from inquiring about criminal histories until a conditional job offer has been made.

Applicant

An applicant for employment is broadly construed to include any individual who submits an application or other documentation for employment for work performed in the City, whether for full- or part-time work, contracted work, contingent work, work on commission, temporary or seasonal work, or work through an employment agency. It also includes any form of vocational or educational training, with or without pay.

Employer

An employer is defined as any individual, firm, corporation, partnership, labor organization, group of persons, association, or other organization that is located or doing business in the City and employs at least 10 employees.

The Ordinance does not apply to the City of Los Angeles or another local, state, or federal government unit.

Prohibitions

Under the Ordinance, employers are prohibited specifically from inquiring into or seeking a job applicant’s criminal history before a conditional offer has been made. This broadly precludes employers from:

asking any question on a job application about an applicant’s criminal history;
asking about or requiring disclosure of the applicant’s criminal history during a job interview; or
independently searching the internet for criminal conviction information or running a criminal background check before a conditional offer of employment has been made.

Criminal history is defined as information regarding any felony or misdemeanor conviction from any jurisdiction for which the person was placed on probation, fined, imprisoned, or paroled.

Exceptions

The four common-sense exceptions to the prohibitions are where:

an employer is required by law to run a criminal background check on an applicant to obtain information on an applicant’s conviction;
the job sought requires the possession or use of a gun;
a person who has been convicted of a crime is prohibited by law from holding the position sought; and
an employer is prohibited by law from hiring an applicant who has been convicted of a crime.

Fair Chance Process

If, after a conditional offer of employment has been made, an employer enquires into an applicant’s criminal history and determines the information warrants an adverse action, it must follow a “Fair Chance Process.”

Prior to taking any adverse action against an applicant, the employer must:

perform a “written assessment” that links the specific aspects of the applicant’s criminal history with the risks inherent in the duties of the position sought. In performing the assessment, an employer must “at a minimum,” consider the factors identified by the Equal Employment Opportunity Commission (e.g., conduct an individualized assessment) and follow any rules and regulations that may be issued by the Designated Administrative Agency (“DAA”) responsible for enforcement;
provide the applicant with written notification of the proposed action, a copy of the written assessment, and any other information or documentation supporting the employer’s proposed adverse action;
wait at least five business days after the applicant is informed of the proposed adverse action before taking any adverse action or filling the employment position; and
if the applicant provides the employer with any information or documentation pursuant to the Fair Chance Process, the employer must consider that information and perform a “written reassessment” of the proposed adverse action. If the employer still elects to take the adverse action after such reassessment, it must notify the applicant of the decision and provide the applicant with a copy of the written reassessment.

Employers using a consumer reporting agency to conduct their criminal background checks, should proceed with the Fair Chance Process concurrently with the pre-adverse and adverse action requirements of both federal and state Fair Credit Reporting Act laws.

Recordkeeping, Notice

Employers must retain documents related to applicants’ employment applications and any written assessment and reassessment performed for three years.

The Ordinance’s notice and posting requirements provide that employers must state in all job advertisements and solicitations for employment that they will consider for employment qualified applicants with criminal histories “in a manner consistent with the requirements of this [Ordinance].”

To notify applicants of the Ordinance, an employer must post a notice about the law in a conspicuous place at every workplace, job site, or other City location under the employer’s control and visited by applicants. In addition, a copy of the notice must be sent to the appropriate labor unions.

Retaliation

The Ordinance makes it unlawful for an employer to take any adverse employment action against any employee for complaining to the City about the employer’s compliance or anticipated compliance with the Ordinance, for opposing any practice made unlawful by the Ordinance, for participating in proceedings related to this Ordinance, or for seeking to enforce or assert his or her rights under the Ordinance.

Civil and Administrative Enforcement

The law allows an individual to bring a civil action for violation of the Ordinance. However, as a prerequisite to pursuing a civil action against an employer, the individual first must report an administrative complaint to the DAA (Department of Public Works, Bureau of Contract Administration) within one year of the alleged violation.

Beginning July 1, 2017, the DAA may fine employers up to $500 for the first violation, up to $1,000 for the second, and up to $2,000 for the third and subsequent violations of the law. However, fines for violations of the record-retention and notice and posting requirements are capped at $500 for each violation. Prior to July 1, 2017, the DAA will not issue any monetary penalties. Instead, it will issue written warnings to employers that violate the Ordinance.

A civil lawsuit may be brought against the employer, but only after the alleged violation has been reported to the designated administrative agency and the administrative enforcement process has been completed or a hearing officer’s decision has been rendered, whichever is later. The DAA still needs to establish rules governing the administrative process for investigation and enforcement of alleged violations.

All covered Los Angeles employers should communicate and train their managers who are involved in the hiring process about the Los Angeles Fair Chance Initiative for Hiring (Ban the Box) ordinance and take steps to ensure compliance with its restrictions

ARTICLE BY Jamerson C. Allen, Susan M. Corcoran, Richard Greenberg &Alexandra Gilinsky of Jackson Lewis P.C.

January 25-27: 24th Annual Marketing Partner Forum – Client Collaboration & the New Rules of Engagement

In January 2017, Marketing Partner Forum returns to Terranea Resort in Rancho Palos Verdes, CA for a three day summit on law firm marketing and business development set against the breathtaking Southern California shoreline. Marketing Partner Forum will welcome law firm marketing partners, rainmakers, practice group heads, business development leaders and esteemed corporate counsel for a dynamic and vibrant conference designed for the industry’s most experienced professionals.

Call to register: 1-800-308-1700

Or click here to email and we will contact you.

For more information, click here.

Why You Should Attend

Marketing Partner Forum is designed for client development partners, rainmakers, and the senior-most legal marketing and business development professionals across the legal industry. Our content reflects the experience and sophistication of our international audience in terms of rigor, ambition and scope. Attendees can expect to hear from venerable thought leaders both within and outside of the legal industry. Enjoy ample networking opportunities and the stunning scenery, golf course, spa and hiking trails at one of California’s most picturesque resorts. Take advantage of our brand new Marketing Partner Conference Track consisting of several compelling sessions designed specifically for the law firm partnership. Interact directly with senior clients and network for new business. Explore the brand new Marketing Partner Forum Technology Fair. Bring your family to our Thursday night reception and Friday Bloody Mary Brunch. Depart the event with practical takeaways to share with peers and firm leadership.

Law Firm Business Development: How to Stop Procrastinating

Many of my clients procrastinate doing the hard work of business development. Time, fear, not knowing where to start or something else seems to tie them in knots and prevent action. As a law firm business development consultant and coach, part of my job is to help my coaching clients understand the underlying reason for their business development procrastination so we can attack the problem together and move forward.

When working with procrastination issues, I often use something called the Zeigarnik effect to help people get started. You can use this tool to overcome procrastination in a variety of settings. At its core, the method can be reduced to a simple phrase: “Take the first step.”

In his recent book 59 Seconds: Think a Little, Change a Lot, Richard Wiseman tells the story of a young Russian psychology graduate student named Bluma Zeigarnik, who was seated at a café in Vienna in the 1920s observing the behavior of waiters. She noticed that the waiters had the ability to remember details of multiple food orders without writing themdown. They retained this information until each check was paid. When queried after the check was paid, they struggled to remember items on the order.

Zeigarnik’s study led her to conclude that starting a task creates a sort of psychic need or anxiety to complete what was started. If you begin and are then interrupted, the mind creates a way for you to remember what is necessary and pesters you until you’ve completed it.

The theory is often applied to students. Those who suspend their studies briefly and undertake alternative activities (studying other subjects, playing foosball, etc.) tend to remember material better than do those who don’t take a break.

Psychologist Jeremy Dean posits that procrastination is most crippling when we are faced with a large task and don’t feel we have all the information to start. Lack of business development training hampers lawyers because they don’t know where to begin and desperately don’t want to fail. What the Zeigarnik effect teaches, as Dr. Dean points out, is that one way to beat procrastination is simply by starting whatever you’ve been avoiding. Just start somewhere. Don’t attempt the hardest part first. Pick something trivial and easy, such as making a list or meeting with a coach or making a phone call. Once you’ve made a start, however trivial, you’ll want to finish to allay the anxiety you feel around not having completed the task.

We use the Zeigarnik effect as a tool in our workshops by requiring participants to write down the names of people with whom they know they should be in touch. Try it right now. Write down a list of people you really ought to be keeping in touch with but haven’t reached out to in the past six months. Keep it on your desk and then go back to the rest of your day. Perhaps making the list will create the anxious mind you need to stay on task.

ARTICLE BY Craig Brown of LawVision Group LLC

Happy New Year Begins with Legitimate, Transparent and Trustworthy Media

It used to be that news traveled fast, but these days, thanks to technology and social networking, it’s more accurate to say that news travels at record speeds. A news story can literally go viral in seconds. Unfortunately, sometimes these stories are entirely false – and it took a highly contentious presidential election for much of America to realize the distressing and detrimental prevalence of fake news.

Sometimes fake news stories can be detected from a mile away, but sometimes they fool even the most perceptive of readers. As NPR notes here, “…the proliferation of fake news isn’t just the responsibility of the platforms used to spread it. Those who consume news also need to find ways of determining if what they’re reading is true.” What’s the primary indicator? An authentic news story originates from a reputable and substantiated news outlet.

As a marketing and/or legal professional, you must do your homework when a media opportunity arises. Similarly to recognizing bogus news stories, you need to use your best judgment to recognize when interview and byline opportunities are not worthwhile or authentic. Interviewing and writing require valuable time and effort, so you want to ensure that every endeavor will be time and effort well spent with a news organization that is authentic, trusted and relevant in your industry. Otherwise, results could be lackluster and even detrimental. As New Year’s resolutions and goals are being set, what better occasion than now to refresh our understanding of the fundamental indicators of quality, reliable and suitable media opportunities?

The next time you are presented with a media opportunity, spend a few moments conducting some simple due diligence. When an opportunity arises, both for my clients and myself, I examine the following to weigh its value:

Website: Reputable and established news organizations run websites that are professional in esthetic and content. They have recognizable domains. Their sites are navigable, attractive and well-organized. They feature up-to-date news items. Ultimately, you need to ask yourself whether you want your name, commentary or original thought leadership to appear on that organization’s page. If the answer is no, then it’s definitely better to pass and hold out for the next opportunity.
Media Kit: Media kits are truly a treasure trove of information. They provide details such as a publication’s history, circulation, page views, editorial calendar and – perhaps most importantly – the audience. Who and how many will be exposed to your efforts? If the audience is not ideal for your message, or if numbers appear low, then you should set your sights on a different and more valuable opportunity.
Editor or Journalist Background: You can tell a lot about a media professional just by examining his or her professional history and repertoire of work. The beauty of media is that everything is documented. Where did he or she come from? Does the interviewer have established credentials with respected publications? What is his or her writing style – snarky and negative, or sound and informative? What other types of sources do they tend to quote in articles? Reporters are trained to find the story, so if you open yourself up to an interview, you need to make sure that it’s a “story” with no negative repercussions for you, your practice or your firm. Don’t be afraid to ask questions about the angle or direction your interviewer plans to take for his or her piece.
Cost: My clients often ask us about pay-to-play media opportunities. Generally speaking, my agency advises against pay-to-play. While advertising most definitely has its place, I strongly encourage and believe in conventional editorial opportunities that are gained through traditional PR methods.
Social Media Feeds: Who and what are the organizations/journalists following on social media? As the old adage goes, you are the company you keep. Even digitally! Reputable outlets and media professionals subscribe to other professional feeds.

For 2017, I challenge you to embrace this resolution: Support, read, share and contribute nothing but quality, enriching and authentic news. You, your clients and your colleagues will all reap the benefits. Your time is just that: yours. Make sure it’s spent reading and investing in nothing but the best.

ARTICLE BY Bethany S. Early of Jaffe

DOJ Releases its 2016 False Claims Act Recovery Statistics

On Wednesday, the Department of Justice (DOJ) released its annual False Claims Act (FCA) recovery statistics, which revealed that Fiscal Year 2016 has been another lucrative year for FCA enforcement. Based on these statistics, DOJ recovered more than $4.7 billion in civil FCA settlements this fiscal year — the third highest annual recovery since the Act was established. Since 2009 alone, the government has recovered $31.3 billion in FCA settlements and judgments. This is a truly staggering statistic. It shows that the government’s reliance on the FCA to combat fraud will continue for the foreseeable future.

The healthcare and financial industries represent the largest portions of this year’s FCA recoveries. In the healthcare industry alone, DOJ recovered a total of $2.5 billion based on federal enforcements. DOJ also touted its instrumental role in assisting states recovering funds overpaid under state Medicaid programs. From the financial industry, the government collected another $1.7 billion, largely as a result of enforcement actions arising from alleged false claims in connection with federally insured residential mortgages.

The number of new FCA matters through both qui tam and non-qui tam actions has increased since last year. Interestingly, however, the statistics indicate that the share of settlements and judgments for relators declined—the percentage of the total recoveries from qui tam suits decreased from 80.7% in 2015 to 61% in 2016. Most significantly, the percentage of recoveries for cases where the government declined to intervene decreased from 31% to 2.2% since last year. Although the cause for this decline is uncertain, one could argue that this indicates that DOJ views the assistance of relators as less valuable in recent years.

Notwithstanding the specific observations related to the industries and types of actions resulting in recoveries this fiscal year, the statistics demonstrate that the FCA remains a powerful tool for the government’s fraud deterrence efforts.

ARTICLE BY Heather L. Petrovich of Sheppard, Mullin, Richter & Hampton LLP

Navigating Connected Cars in 2017: Data Protection

It’s a fact: today’s marketplace has given connected cars the green light. As an OEM or supplier accelerating to create products to meet industry demand, what challenges can you anticipate in 2017? Here we describe where we believe your attention should be focused during the upcoming year…

Data Protection

The manufacturing industry is now one of the most hacked industries. It has been said that the modern day car is a computer on wheels. That is not quite right. The modern-day car is a network of several computers on wheels. Cars today can have 50 or more electrical control units (ECUs) – each of which is analogous to a separate computer – networked together. There will be an estimated 250 million connected cars on roads around the world by 2020. These cars will have 200 or more sensors collecting information about us, our cars and our driving habits.

With significant advances in smart phone car-connectivity and onboard infotainment systems, our cars are collecting more and more information about our daily lives and personal interactions. As a result, privacy and security of connected cars has evolved and quickly risen over the last year to a top priority of carmakers and suppliers. Here are our top 4 tips for addressing these privacy and security issues and concerns in 2017:

Practice “security by design.” This is a concept recently espoused by federal regulators, namely, the National Highway Traffic Safety Administration and the Federal Trade Commission, as well as industry self-regulatory organizations. With security by design, a company addresses data security controls “day 1” while products, components and devices are still on the drawing board. Data security practices evolve over time, and the days of building it first and then layering security on top are now over. Risk assessments addressing potential threats and attack targets should be dealt with during the design process. Security design reviews and product testing should be conducted throughout the development process. Secure computing, software development and networking practices should address the security of connections into, from and inside the vehicle.
Practice “privacy by design.” While security deals with the safeguards and measures implemented to protect the data from unauthorized access or use, privacy focuses on the right and desire of individuals to keep information about themselves confidential. During the design process, companies should understand and identify what personal information will be collected by a component or device, what notice should be provided to or consent obtained from consumers before collecting that personal information, how should the personal information be used, are those intended uses legal, with whom will the personal information be shared, and is that sharing appropriate and legal. With this information identified, the company can reconcile privacy requirements with security safeguards during the design and development process.
Establish an appropriate data security governance model. Executives and senior management can no longer blindly delegate data security to the security engineering team. Regulators, courts and juries are demanding that senior management become involved in and accountable for data security. While the precise governance model will depend on the nature and size of the organization, the company should actively consider what level of executive oversight is appropriate, and then document those conclusions in a data security governance policy. This will serve the dual purposes of enhancing data security of vehicles and component parts, while also bolstering the company’s defenses in the event of a security incident or investigation.
Address the entire supply chain. Whether it is the finished vehicle or a component part, most companies relevant to the data security ecosystem will rely on suppliers that play a role in data security. Hardware, software, development tools, assembly, integration and testing may all be provided by one or more suppliers. Companies impacted by this scenario should conduct appropriate due diligence and risk assessments with respect to its suppliers, both at the commencement, as well as periodically throughout, the relationship. Contractual provisions should also be utilized to address data security requirements for the relevant suppliers.

ARTICLE BY Chanley T. Howell & Pavan K. Agarwal of Foley & Lardner LLP

Time for a Change in Law Firm Leadership: A Preview of Re-Envisioning the Law Firm

Too many lawyers. More demanding Clients. Globalization Industry Consolidation. These are all factors redefining the legal industry. Re-Envisioning the Law Firm: How to Lead Change and Thrive in the Future (Re-Envisioning) a report developed by the Managing Partner Forum (MPF), Jaffe, and The Remsen Group released on December 8^th offers insight into how law firms can do exactly that.

John Remsen, President and CEO of the Managing Partner Forum says, “The pace of change is unprecedented for the legal industry, and the pace will only accelerate into the future. Strong leadership and a solid game plan are required if your firm seeks to thrive and prosper in the years ahead.” Understanding that many law firms need to make big changes, and with the goal of offering insight to law firms looking to make those changes, the authors of Re-Envisioning analyzed data from two big surveys of Managing Partners to come up with recommendations.

How the data was collected and who participated in the surveys?

The first survey used in the Re-Envisioning report was the MPF Leadership & Governance Survey from April 2016 which asked over 145 managing partners anonymous online questions. The questions covered law firm leadership and governance, including whether or not the Managing Partner had a job description, how he or she would describe the governance model of the firm, and whether he or she were currently grooming a successor.^[i]

The second source of data was live MPF Audience Polling Results. This survey was conducted in real time with the 80 plus Managing Partners who attended the MPF Leadership Conference in May of 2016. Using audience polling technology, participants were able to answer questions instantaneously and confidentiality on a variety of subjects, including “Compared to five years ago, what is the likelihood that your best lawyers may leave the firm?” and “Is your firm providing marketing and business development training for its junior partners and associates?” The data from the surveys, combined with interviews with innovative thought leaders and influential Managing Partners are also incorporated into the reports recommendations.^[ii]

Why are the changes that have been impacting BigLaw now impacting MidLaw and SmallLaw?

The MPF Report goes into more detail, but just like the other industries the legal profession needs to work smarter, faces global competition and needs to respond to the demands of an evolving workforce. The factors that hit BigLaw over the head with a hammer a few years back are now industry-wide. Specifically:

Globalization – Technology is making the world smaller each day. Now even the smallest business law clients have international concerns.

Too Many Lawyers – Although the number of law school graduates has been dropping, technology is making law practice more efficient and older lawyers are putting off retirement. The U.S. currently has 1.3 million lawyers!

Smarter, Faster, Better – Clients want better service, more customized solutions and better value for their investment.

New Market Entrants – Technology!!!! Think LegalZoom, AVVO, Rocket Lawyer. More routine legal work is becoming commoditized.

Industry Consolidation – The Consolidation Curve -ask an MBA. Fragmented and siloed industries consolidate as they mature. Just like other industries, technology and economies of scale are breaking down the traditional legal market which encouraged highly regionalized and /or non collaborative legal practices. Law firm mergers and lateral movement is at an all-time high.

Workforce Changes – Baby Boomers hanging on. Gen x and Y and Millennials with differing career goals and work styles.

The recommendations in the report incorporate three main themes:

The law firm must be run like a business (not more like a business, but like a business.)
The Managing Partner must take ownership of leading the effort, and
Firm owners must take responsibility for embracing, engaging, and implementing the necessary changes for operating like a business.

These themes are spread across seven areas detailed in the report; including:

Leadership & Governance,
Strategic Planning,
Marketing and Business Development,
Problematic Partners, Succession Planning,
Recruiting,
Retention,
and Technology.

In upcoming segments we will discuss above seven areas of concern and the survey’s recommendations designed to help small and midsize law firm move into the future.

The idea of running a law firm like a business translates into re-evaluating the leadership structure of law firms. One of the first recommendations made in the report is to change the Managing Partner into a CEO in name and function, empowering him or her with the power to lead the organization without necessarily achieving consensus. The report observes, “While governing by democracy might theoretically sound appealing, especially because it spreads the blame should a strategy not succeed as planned, choosing to consensus build over decision-making delays and waters down change.” Consolidating leadership with a Managing Partner who functions more as a CEO is a step that will allow law firms to make changes in other areas much faster.

The survey also suggests strategies for working with “problematic partners,” defining the problem as partners who under perform or who exhibit bad behavior that reflects poorly on the firm–anger management issues, poor representation of the firm, rudeness and arrogance. Problematic partners can be an incredibly difficult issue to confront, especially when the issue is under performance, but the report offers suggestions and strategies for tackling these thorny issues.

Above all, the survey insists law firms must confront them. Louise Wells, Managing Partner of Morris, Manning & Mann, says, “The culture of your firm can be influenced by what it’s willing or not willing to tolerate. If you’re willing to put up with chronic under performance, you most certainly will get it, and that’s not good for a firm’s long-term success or its morale. Dealing with underperforming partners is incredibly difficult, yet so important, for a managing partner to address.”

That is just the beginning of some of the dynamic thinking presented in Re-Envisioning the Law Firm. In the coming weeks a NLR series will preview additional insights offered in the survey from other areas of law firm leadership.

ARTICLE BY Jennifer Schaller & Eilene Spear of The National Law Review / The National Law Forum LLC

_{[i] The breakdown of the number of lawyers per firm as well as the job title of survey respondents of the first survey are illustrated below:}

_{[ii] You can see a breakdown of the number of lawyers at the respondent’s firm and the number of years in the position below:}

MPF survey

The National Law Forum

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