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The National Law Forum - Page 528 of 753 - Legal Updates. Legislative Analysis. Litigation News.

Second Circuit Finds that Entry-Level Audit Associates at Accounting Firm are Exempt from Federal Overtime Requirements

Sheppard Mullin Law Firm

In Pippins v. KPMG LLP, No. 13-889 (2d Cir. July 22, 2014), the Second Circuit Court of Appeals unanimously held that entry-level audit associates (“Plaintiffs”) at KPMG LLP qualify for the Fair Labor Standards Act’s (“FLSA”) “learned professionals” overtime exemption.  The Second Circuit explained that, while the closely-supervised employees were “the most junior members” of the KPMG accountancy team and did not “make high-level decisions,” their work still required sufficient knowledge and judgment to qualify for the exemption.

The FLSA exempts employers from paying overtime to workers whose “primary duty” is “the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.”  Such workers may qualify for the FLSA’s “learned professional” exemption provided that their work is: (i) “predominantly intellectual in character, and requires the consistent exercise of discretion and judgment”; (ii) in a “field of science or learning,” such as accounting; and (iii) of a type where “specialized academic training is a standard prerequisite for entrance into the profession.”

While the parties in Pippins agreed that accounting qualifies as a field of “science or learning” under the FLSA, the Second Circuit’s decision provides guidance for employers seeking to determine whether an employee’s position may meet the other two necessary elements for the learned professional overtime exemption to apply.

The “Discretion and Judgment” Prong

Noting the lack of guidance in the FLSA’s regulations expounding on the “discretion and judgment” prong, the Court held that, in the learned professionals context, employees need not “exercise management authority,” particularly where they work for firms that provide professional services to other businesses, such as KPMG.  Rather, “what matters is whether [employees] exercise intellectual judgment within the domain of their particular expertise.”  As applied to the field of accounting, the Court explained that accounting requires the consistent application of a “professional skepticism” throughout the process of collecting and analyzing data in order to ensure that audits expose potential financial irregularities or accounting improprieties.

The Plaintiffs maintained that they merely exercised simple “common sense,” made only “obvious” observations, followed strict templates and guidelines, and exclusively conducted routine work that was reviewed by supervisors before being assimilated into final audit reports.

However, the Court largely characterized Plaintiffs’ contentions as “confus[ing] being an entry-level member of a profession with not being a professional at all.”  Indeed, the Court observed that the existence of guidelines and supervision is characteristic of professional firms and organizations and is simply intended to provide training and ensure quality work.  The fact that junior professionals are subject to close supervision and must adhere to guidelines “does not relegate [them] to the role or status of non-professional staff.”  The Court further explained that employees can “exercise professional judgment when their discretion in performing core duties is constrained by formal guidelines or when ultimate judgment is deferred to higher authorities.”

With respect to Plaintiffs, the Court found that their use of templates, the specific guidelines they were required to follow and the supervision of their work, did not deprive them of the need to exercise professional skepticism throughout the auditing process.  In the Court’s view, the Plaintiffs were still required to exercise their specialized knowledge of accounting in order to determine when to deviate from such guidelines, or when to bring questions to superiors. “It is a hallmark of informed professional judgment,” the Second Circuit explained, “to understand when a problem can be dealt with by the professional herself, and when the issue needs to be brought to the attention of a senior colleague with greater experience, wisdom, or authority.”

The “Specialized Academic Training” Prong

With respect to the “specialized academic training” prong of the learned professional exemption, the Court held that “the requirement will usually be satisfied by a few years of relevant, specialized training,” and that “a bachelor’s degree in a germane field [often] suffices.”   By contrast, the Second Circuit observed that generic, non-specialized educational requirements, such as a requirement that an employee possess a general bachelor’s degree in “any field,” are insufficient to establish the prerequisite.  Finally, the Court explained that to determine whether the exemption applies, the educational prerequisites for entry into the particular profession must be customary.  Because the audit associates were generally required to either be eligible or nearly eligible to become licensed Certified Public Accountants (“CPAs”) and the “vast majority” of them possessed accounting degrees and could take the CPA exam, the Court held that the Plaintiffs work required specialized educational instruction.

Plaintiffs contended, however, that they did not meet the specialized academic training requirement because their job duties didn’t actually call on them to employ the knowledge they acquired in the course of their studies.  The Court acknowledged the potential merit of this argument in the case of  a well-educated professional who is never expected to draw on her education in practice.  However, the Court quickly dispatched the argument as it pertained to Plaintiffs, finding that the “average classics or biochemistry major” would not be able to adequately perform or fully understand the auditors’ work functions.

Conclusion

The Pippins decision offers greater clarity to employers in  applying the “learned professional” exemption.  The decision establishes that, even where low-level employees are closely supervised, regularly perform routine tasks, and follow established templates and guidelines, their work can still demand enough professional judgment to qualify them as learned professionals.

ARTICLE BY

Kevin J. Smith
Jonathan Sokolowski
Of:
Sheppard, Mullin, Richter & Hampton LLP

Five Key Takeaways From ICANN 50 in London

Katten Muchin Law Firm

The 50th Meeting of the Internet Corporation for Assigned Names and Numbers (ICANN) took place in London from June 22–26. This marked the first time that an ICANN meeting has been held in London, and also resulted in the largest attendance record for an ICANN meeting, with more than 3,300 individuals registered in attendance. Despite what could be characterized as organized chaos on the ground during the meeting, the following five topics and takeaways began to emerge for brand owners and new generic top-level domain (gTLD) applicants—topics which have only continued to blossom and garner further attention in month following the formal conclusion of the meeting.

1. Geographic Terms Trump Trademarks, According to the Argentina Proposal

In essence, the Argentina proposal seeks to block at all levels of the domain name system, “terms with national, cultural, geographic and religious significance,”; including “regions of countries, regions of continents, sub-regions of countries, rivers [and] mountains, among others …”; subject to registration through relevant national approval. The proposal adopts a highly aggressive posture toward inevitable conflicts between natural, cultural, geographic and religious terms on the one hand and trademarks on the other hand, no doubt in response to ongoing disputes within ICANN over the .AMAZON and .PATAGONIA new gTLD applications.

Contrary to the principle of freedom of use of geographic names, allowing private companies to register geographic names as part of gTLDs [sic] strings creates a high risk for these names to be captured by companies that want to use them to reinforce their brand strategy or profit from the meaning of these names, limiting the possibility of utilizing them in the public interest of the affected communities.

See GAC Meeting: Briefing to ICANN Community – Protection of Geographic Names in gTLDs (June 25, 2014).

Although the national, cultural, geographic and religious terms contemplated are clearly distinct from geographical indications, such as BORDEAUX, FETA or DARJEELING, the two have been conflated and the Argentina proposal has raised similar ire from nations vehemently opposing the .WINE and .VIN new gTLD applications within the Governmental Advisory Committee (GAC). Accordingly, based on serious concerns within the GAC that the Argentina proposal is not rooted in international legal norms, that it hinges upon impractical and ad hoc terminology lists, and that it fails to grasp the purpose or intent of exclusivity pursuant to national trademark legislation, the GAC agreed to take this discussion out from behind closed doors and into a more public forum, via a GAC project team.

Accordingly, it is incumbent upon all stakeholders to question and ultimately oppose the Argentina proposal by weighing in on project team deliberations leading up to ICANN 51 in Los Angeles in October. Indeed, ever-expanding blocks will certainly hamper registry growth and harm contracted parties. Most importantly, myriad companies, and even third-party legitimate users, may ultimately find their famous brands and desired strings wholly excluded from the domain name system.

2. Conflicts Addressed Between Trademark Sunrise Protection and the Domain Name Collision Mitigation Framework

To date, ICANN’s domain name collision mitigation framework has failed to explicitly account for mandatory rights protection mechanisms, such as trademark sunrise and claims periods. Thus, many famous brands experienced frustration leading up to the London meeting, particularly because certain registry operators felt disinclined to allocate names corresponding with famous trademarks during sunrise periods, and instead held them as reserved names on collision block lists—a practice technically permitted within the name collision mitigation framework and Registry Agreement.

In the closing moments of the London meeting, ICANN shocked both the trademark and registry communities when it announced that ICANN would not require collision block list names to be allocated during sunrise periods, and if collision block list names were ever released for registration down the road, then only a 90-day claims period would apply, rather than any sunrise period. Both brand owners and registry operators disagreed with this announcement. Specifically, sunrise allocation stands as the clear preference for brand owners, given the choice between sunrise protection and mere claims notifications. In addition, registry and registrar systems would require substantial and costly retooling in order to ensure adequate claims notices are delivered to registrants beyond original claims periods.

Accordingly, in the wake of ICANN 50, the Registry Stakeholder Group (RySG), Intellectual Property Constituency (IPC) and Business Constituency (BC) all coalesced around a compromise counter proposal, based on the novel set of circumstances created by name collisions and mitigation measures. The compromise proposal prescribed a 30-day period for collision block list names to serve as the functional equivalent to the trademark sunrise period. In addition, the compromise proposal removed the additional 90-day claims period for collision block list names. See Application of Rights Protection Mechanism to Name Collision Block Lists(July 17, 2014). The New gTLD Program Committee (NGPC) within the ICANN Board of Directors stands poised to approve the domain name collision mitigation framework accounting for the compromise counter proposal.

3. The Circumvention of Rights Protection Mechanisms Has Reached a Boiling Point

ICANN leadership has increasingly emphasized its need for specific details in response to complaints from commercial stakeholders regarding the circumvention of intellectual property rights protection mechanisms in new gTLDs. In response, the Business Constituency and the International Trademark Association (INTA) continue to gather specific evidence, screen grabs and industry news coverage expanding upon the ways in which certain registry operators and registrars have skirted the letter and spirit of new gTLD rights protection mechanisms. Some overarching categories of abuse examined to date include inter alia:

  • preregistration offers or allocation of domain names prior to trademark sunrise and devoid claims notifications;
  • extortionate premium names programs or sunrise registration pricing covering famous trademarks;
  • incorrect claims notices integrated with advertisements; and
  • bulk premium name warehousing with registry affiliates.

Indeed, industry news coverage has already flagged a number of these practices in the public arena. See e.g., Domain Incite, GoDaddy Risking Oscars Wrath With .BUZZ Premium Domains (March 7, 2014); Domain Incite, ICANN Smacks New gTLDs For Pre-Sunrise Auctions (June 18, 2014). The goal for commercial stakeholders and INTA will be to educate ICANN on the abusive practices brand owners are encountering in the marketplace, and also demand remedial action, despite the laisse faire approach to pricing taken by ICANN in the past, and also in dealings with mere applicants who have not yet executed a Registry Agreement.

4. Improvements  for a Second Application Round Are Already Under Formation and Consideration

While in London, the Generic Names Supporting Organization (GNSO) Council unanimously passed a motion that: created a discussion group to exchange experiences gained in the 2012 new gTLD application round and identify topics for further study and policy development; solicited subject matter input from the ICANN Board of Directors; and requested a timetable from ICANN staff for the next application round, as well as a status report on pending studies evaluating the 2012 new gTLD application round. Concurrently, the New TLD Applicant Group (NTAG) held a public session in London dedicated to new gTLD program lessons and potential improvements. Commentators generally agreed on the necessity for “a defined and predictable process across the board that works for all applicant categories.”; More pointedly, intellectual property representatives advocated:

  • regulations governing premium names programs and trademark sunrise periods;
  • completely redrafted objection procedures, with the exception of the legal rights objections;
  • affirmations requiring that all domain names be subject to trademark sunrise periods; and
  • protected marks lists, similar to Donuts’ DPML model but less expensive, across all new gTLDs.

Brand owners, prospective applicants in the second round, as well as prospective objectors, are all well-advised to participate in this ongoing discussion, which will no doubt contribute to share guidelines for future new gTLD delegations.

5. ICANN Accountability Has Taken Center Stage in the Internet Assigned Numbers Authority (IANA) Transition

Community discussions to date concerning the IANA transition have concerned the process to transition IANA stewardship, and now increasingly, enhancing accountability to the community. The accountability concerned addresses the absence of the historical contractual relationship between ICANN and the US Department of Commerce (DOC)—more specifically, the theoretical possibility that the DOC could terminate its IANA contract with ICANN to renegotiate terms or engage some other qualified entity. As it stands, accountability generally already exists within ICANN in a multifaceted way, including inter alia:

  • overarching accountability and transparency commitments in the bylaws;
  • well-documented relationships with contracted parties;
  • periodic structural and effectiveness reviews mandated by the Affirmation of Commitments;
  • bylaws-mandated accountability mechanisms, namely the Ombudsman, Reconsideration Requests, and Independent Review Panels;
  • operational information on finances, metrics and performance;
  • rigorous selection processes for ICANN Board members;
  • publication of board resolutions, minutes, and statements of interest; and
  • United States rule of law as a Californian not-for-profit corporation.

In addition to exchanging ideas about improving upon this existing accountability framework, the community in London debated philosophical considerations behind accountability itself. From the debate, one message has been made loud and clear, as recently reaffirmed by U.S. National Telecommunications and Information Administration (NTIA) Assistant Secretary Lawrence E. Strickling, the “important accountability issue will and should be addressed before any transition takes place.”; See U.S. NTIA, Keynote Address By Assistant Secretary Strickling At the American Enterprise Institute (July 22, 2014). In other words, to place the matter in perspective, the IANA transition presents a unique opportunity with unprecedented pressure on ICANN to ensure its accountability framework and mechanisms work for the community—that they are cost effective, expeditious and efficient, while according due process to parties negatively affected by the actions or inactions made by ICANN.

ARTICLE BY

Brian J. Winterfeldt
Of:
Katten Muchin Rosenman LLP

Will Governor Christie Extend the Moratorium on Non-Residential Development Fees?

Giordano Halleran Ciesla Logo

A new bill (A1907) that would extend the statewide moratorium on the collection of non-residential development fees (“NRDFs”) recently passed both the New Jersey State Assembly and Senate. It now awaits Governor Christie’s signature. If signed into law, the bill would reinstate the moratorium on the collection of NRDFs that expired July 1, 2013, extending it to December 31, 2014. Developers who paid NRDFs during that period would be eligible to seek a refund, which must be granted so long as the NRDF has not already been expended for affordable housing.

NRDFs were initially established in New Jersey by P.L. 2008, c. 46 and codified in the Municipal Land Use Law. For any non-residential development, the required NRDF is 2.5% of the equalized assessed value of land and proposed improvements. The NRDF is collected at the municipal level and paid into a state fund for the development of affordable housing.

The initial moratorium on the collection of NRDFs was contained in P.L. 2009, c. 90 and ended July 1, 2010. The second moratorium was found in P.L. 2011, c. 122, which extended the moratorium to July 1, 2013. As of July 1, 2013, municipalities were again required to impose a n NRDF on new non-residential development. No NRDFs may be assessed against projects that received site plan approval prior to July 1, 2013, provided that a construction permit is issued by July 1, 2015.

If signed into law, the re-imposition of the moratorium would be an important albeit relatively short lived, benefit to non-residential developers.

ARTICLE BY

Michael A. Bruno
Steven P. Gouin
Of:
Giordano, Halleran & Ciesla, P.C

Texas Supreme Court Clarifies Royalty Calculations For Enhanced Oil Recovery

steptoe-johnsonlogo

In French v. Occidental Permian, Ltd., the Texas Supreme Court clarified royalty calculations for enhanced oil recovery.  The Court:

  1. Rejected a royalty owners’ claim that royalties on casinghead gas should be determined as if the injected carbon dioxide (CO2) was not present
  2. Held that, under the applicable leases and Unitization Agreement, the costs of removing CO2 from the gas were post-production expenses that royalty owners must share with the working interest owner

In the opinion, the Court emphasized the importance of efficient production of oil and gas and the prevention of waste.

Background

The Plaintiffs-Appellants, Marcia Fuller French and others (“French”), were lessors on two different oil and gas leases.  Both lease royalty provisions provided that the casinghead gas royalty was net of post-production expenses, but not production expenses.  The Defendant-Appellee, Occidental Permian Ltd. (“Oxy”) owned a working interest.  The parties had entered into a Unitization Agreement to allow secondary recovery operations.

Oxy began injecting wells on these leases with CO2 in 2001 in order boost oil production when waterflooding became less effective.  As a result, the wells produced natural gas that was about 85% CO2.  Although Oxy could reinject the entire casinghead gas stream, Oxy had the gas treated off site to remove the CO2.   It sold the resulting gas and had the extracted CO2 sent back to the well to be reinjected.  Oxy paid royalties on the gas after it was treated and deducted the treatment costs from French’s royalties.

French sued arguing that, except for the removal of contaminants and the extraction of NGL, the costs of processing the casinghead gas (including transportation costs) were production costs that should be borne solely by Oxy.  Conversely, Oxy argued the CO2 removal was necessary to render the gas stream marketable.  At trial, the Court agreed with French and awarded her $10,074,262.33 in underpaid royalties and entered a declaratory judgment defining Oxy’s ongoing royalty obligations.  The court of appeals reversed with a focus on the damages calculations, but did not reach a decision on whether the cost of separating the CO2 from the casinghead gas was a production expense.

Supreme Court’s Decision

The Court examined the parties’ agreements noting that French consented to the injection of extraneous substances into the oil reservoir and gave Oxy the right and discretion to decide whether to reinject or process the casinghead gas.  The Court further pointed out the Agreement provided that the royalty owners agreed to forego royalties on any unitized substances used in the recovery process.  The Court found that French benefited from that decision and therefore must share in the cost of the CO2 removal.  The question then became whether the CO2 processing was a production or post-production cost.

French argued that the CO2 separation was akin to the removal of water from oil, which Oxy treated as a production cost.  The Court, however, found that oil and water are “immiscible” and separation of the two is a relatively simple process, unlike CO2 and gas separation, which requires special technology.  Water separation is necessary for reinjection into the reservoir and to make the oil marketable.  Conversely, CO2 separation is not necessary for continued production of oil.  The Court then noted that Oxy was not required to reinject the casinghead gas.  Therefore, based on the parties’ agreements, “French, having given Oxy the right and discretion to decide whether to reinject or process the casinghead gas, and having benefited from that decision, must share in the cost of the CO2removal.”  Id. at 7.

Conclusion

The Court indirectly emphasized efficient production of oil and gas and prevention of waste.  The gas processing was economically beneficial to both French and Oxy.  The CO2 separation increased the value of the stream to both Oxy and French by allowing sale of the extracted NGLs and allowing reinjection of more than 10% of the gas produced directly back into the field.  Because French received the benefit of Oxy’s decision, it had to share in the cost.

This opinion is an important reminder to carefully negotiate and agree to terms in all agreements.  It is a further reminder to proceed in an efficient and economic manner.

ARTICLE BY:

Christina A. Denmark
Of:
Steptoe & Johnson PLLC

Firewall on the Hill: The Cybersecurity Information Sharing Act

Morgan Lewis logo

U.S. Treasury Secretary Jack Lew is urging Congress to pass legislation to bolster the country’s cyber defenses. The proposed bill—the Cybersecurity Information Sharing Act of 2014 (CISA)—may unleash a brute-force attack in the cyber war, but opposition based on privacy and civil liberties concerns could stop the bill dead in its tracks.

The CISA would enable companies to

  • share information with one another, including an antitrust exemption for the exchange or disclosure of a “cyber threat indicator,” which is broadly defined and includes information that indicates any attribute of a cybersecurity threat;
  • share information with the federal government, including the absence of any waiver of privilege or trade-secret protection and the retained ownership of the disclosed information;
  • launch countermeasures and monitor information systems under broad sets of circumstances, potentially expanding the information to be shared; and
  • monitor and share the information under an umbrella of protection from liability relating to the permitted activities, including a good-faith defense (absent gross negligence or willful misconduct) for activities not authorized by the CISA.

The CISA includes some protections for individuals. Namely, the U.S. Attorney General would develop governing guidelines to limit the law’s effect on privacy and civil liberties. Moreover, companies would be required to remove information that is known to be personal information (and not directly related to a cybersecurity threat) before sharing a cyber threat indicator.

In sum, companies could decide to share a wealth of information with one another and with the federal government if the CISA is passed, when sharing personal information depends on the reach of any future guidelines. If an extensive information-sharing program materializes, and there is at least a perception that sensitive personal information is being shared, companies could feel pressure from customers and advocacy groups to disclose their CISA activities and policies in their privacy statements. Companies should stay informed about developments in cybersecurity legislation, but the potential fallout regarding privacy could substantially weaken or postpone any new system. For every cybersecurity legislative effort, there will be bold countermeasures.

ARTICLE BY

Doneld G. Shelkey
A. Benjamin Klaber
OF:
Morgan, Lewis & Bockius LLP

Office for Civil Rights (OCR) to Begin Phase 2 of HIPAA Audit Program

Mcdermott Will Emery Law Firm

The U.S. Department of Health and Human Services’ Office for Civil Rights (OCR) will soon begin a second phase of audits (Phase 2 Audits) of compliance with Health Insurance Portability and Accountability Act of 1996 (HIPAA) privacy, security and breach notification standards (HIPAA Standards) as required by the Health Information Technology for Economic and Clinical Health (HITECH) Act. Unlike the pilot audits during 2011 and 2012 (Phase 1 Audits), which focused on covered entities, OCR will conduct Phase 2 Audits of both covered entities and business associates.  The Phase 2 Audit Program will focus on areas of greater risk to the security of protected health information (PHI) and pervasive noncompliance based on OCR’s Phase I Audit findings and observations, rather than a comprehensive review of all of the HIPAA Standards.  The Phase 2 Audits are also intended to identify best practices and uncover risks and vulnerabilities that OCR has not identified through other enforcement activities.  OCR will use the Phase 2 Audit findings to identify technical assistance that it should develop for covered entities and business associates.  In circumstances where an audit reveals a serious compliance concern, OCR may initiate a compliance review of the audited organization that could lead to civil money penalties.

The following sections summarize OCR’s Phase 1 Audit findings, describe the Phase 2 Audit program and identify steps that covered entities and business associates should take to prepare for the Phase 2 Audits.

Phase 1 Audit Findings

OCR audited 115 covered entities under the Phase 1 Audit program, with the following aggregate results:

  • There were no findings or observations for only 11% of the covered entities audited;
  • Despite representing just more than half of the audited entities (53%), health care providers were responsible for 65% of the total findings and observations;
  • The smallest covered entities were found to struggle with compliance under all three of the HIPAA Standards;
  • Greater than 60% of the findings or observations were Security Standard violations, and 58 of 59 audited health care provider covered entities had at least one Security Standard finding or observation even though the Security Standards represented only 28% of the total audit items;
  • Greater than 39% of the findings and observations related to the Privacy Standards were attributed to a lack of awareness of the applicable Privacy Standard requirement; and
  • Only 10% of the findings and observations were attributable to a lack of compliance with the Breach Notification Standards

The Phase 2 Audit Program

Selection of Phase 2 Audit Recipients

Unlike the Phase 1 Audit Program, which focused on covered entities, OCR will conduct Phase 2 Audits of both covered entities and business associates.  OCR has randomly selected a pool of 550–800 covered entities through the National Provider Identifier database and America’s Health Insurance Plans’ databases of health plans and health care clearinghouses.  OCR will issue a mandatory pre-audit screening survey to the pool of covered entities this summer.  The survey will address organization size measures, location, services and contact information.  Based on the responses, the agency will select approximately 350 covered entities, including 232 health care providers, 109 health plans and 9 health care clearinghouses, for Phase 2 Audits.  OCR intends to select a wide range of covered entities and will conduct the audits between October 2014 and June 2015.

OCR will notify and send data requests to the 350 selected covered entities this fall.  The data requests will ask the covered entities to identify and provide contact information for their business associates.  OCR will select the business associates that will participate in the Phase 2 Audits from this pool.

Audit Process

OCR will audit approximately 150 of the 350 selected covered entities and 50 of the selected business associates for compliance with the Security Standards, 100 covered entities for compliance with the Privacy Standards and 100 covered entities for compliance with the Breach Notification Standards.  OCR will initiate the Phase 2 Audits of covered entities by sending the data requests this fall and then initiate the Phase 2 Audits of business associates in 2015.

Covered entities and business associates will have two weeks to respond to OCR’s audit request.  The data requests will specify the content, file names and other documentation requirements, and the auditors may contact the covered entities and business associates for clarifications or additional documentation.  OCR will only consider current documentation that is submitted on time.  Failure to respond to a request could lead to a referral to the applicable OCR Regional Office for a compliance review.

Unlike the Phase 1 Audits, OCR will conduct the Phase 2 Audits as desk reviews with an updated audit protocol and not on-site at the audited organization.  OCR will make the Phase 2 Audit protocol available on its website so that entities may use it for internal compliance assessments.

The Phase 2 Audits will target HIPAA Standards that were sources of high numbers of non-compliance in the Phase 1 Audits, including:  risk analysis and risk management; content and timeliness of breach notifications; notice of privacy practices; individual access; Privacy Standards’ reasonable safeguards requirement; training to policies and procedures; device and media controls; and transmission security.  OCR also projects that Phase 2 Audits in 2016 will focus on the Security Standards’ encryption and decryption requirements, facility access control, breach reports and complaints, and other areas identified by earlier Phase 2 Audits.  Phase 2 Audits of business associates will focus on risk analysis and risk management and breach reporting to covered entities.

OCR will present the organization with a draft audit report to allow management to comment before it is finalized.  OCR will then take into account management’s response and issue a final report.

What Should You Do to Prepare for the Phase 2 Audits?

Covered entities and business associates should take the following steps to ensure that they are prepared for a potential Phase 2 Audit:

  • Confirm that the organization has recently completed a comprehensive assessment of potential security risks and vulnerabilities to the organization (the Risk Assessment);
  • Confirm that all action items identified in the Risk Assessment have been completed or are on a reasonable timeline to completion;
  • Ensure that the organization has a complete inventory of business associates for purposes of the Phase 2 Audit data requests;
  • If the organization has not implemented any of the Security Standards’ addressable implementation standards for any of its information systems, confirm that the organization has documented (i) why any such addressable implementation standard was not reasonable and appropriate and (ii) all alternative security measures that were implemented;
  • Ensure that the organization has implemented a breach notification policy that accurately reflects the content and deadline requirements for breach notification under the Breach Notification Standards;
  • Health care provider and health plan covered entities should ensure that they have a compliant Notice of Privacy Practices and not only a website privacy notice;
  • Ensure that the organization has reasonable and appropriate safeguards in place for PHI that exists in any form, including paper and verbal PHI;
  • Confirm that workforce members have received training on the HIPAA Standards that are necessary or appropriate for a workforce member to perform his/her job duties;
  • Confirm that the organization maintains an inventory of information system assets, including mobile devices (even in a bring your own device environment);
  • Confirm that all systems and software that transmit electronic PHI employ encryption technology or that the organization has a documented the risk analysis supporting the decision not to employ encryption;
  • Confirm that the organization has adopted a facility security plan for each physical location that stores or otherwise has access to PHI, in addition to a security policy that requires a physical security plan; and
  • Review the organization’s HIPAA security policies to identify any actions that have not been completed as required (e.g., physical security plans, disaster recovery plan, emergency access procedures, etc.)
ARTICLE BY

Patrick Callaghan
Daniel F. Gottlieb
Edward G. Zacharias
Of:
McDermott Will & Emery

New Mexico Issues a Notice of Proposed Rulemaking to Revise its State Rural Universal Service Fund

Lewis Roca Rothgerber

This past Wednesday, the New Mexico Public Regulation Commission (NMPRC)approved a Notice of Proposed Rulemaking (NOPR) to revise New Mexico’s State Rural Universal Service Fund following numerous workshops and filings by NMPRC staff, the New Mexico Attorney General’s Office, and both wireline and wireless industry participants in Case No. 12-00380-UT. The NOPR will revise 17.11.10 New Mexico Administrative Code (NMAC). The NOPR will be published for comment, with the goal of providing a final rule by October 1, 2014 that will limit the growth of the  State Rural Universal Service Fund (SRUSF), expand telecommunication service to unserved and underserved areas of the state, earmark a portion of the fund for the build out of broadband service, and ensure better accountability for the use of state funds under the program.

The proposed rule was approved 5-0, with two amendments, by the Commission. The NOPR is expected to be filed in Case No. 12-00380-UT on Monday, July 28, 2014. Let’s briefly summarize several key provisions of the proposed NOPR, subject to comments being filed and final approval by the Commission.

First, because many wireline companies have not increased their residential rates in a rate proceeding before the Commission for over 15 years, the benchmark rate for residential customers will increase to $18.09. A company that chooses  not to raise its benchmark would have the difference subtracted from what it would normally receive from the SRUSF.  Second, business rates will be adjusted over a three year period. Third, the formula for reimbursement from the fund will be adjusted to use 2012 voice minutes. Minutes have decreased since the SRUSF statute and rules were established. The decrease has occurred because more people are using wireless phones and other services. This will result in a reduction in payouts from the fund, which is funded by all telephone customers (both wireline and wireless). The end result will be a reduction of about $9 million annually from the current $24 million fund. Because of the size of impact on the payments to the rural local exchange carriers, this would be phased in over several years. Fourth, from the $9 million savings in annual payments, $5 million will be set aside to fund the build out of broadband capable infrastructure as part of the SRUSF. This $5 million broadband fund will be available to both wireline and wireless providers on a project-by-project basis.”. The $5 million must be used for infrastructure, and companies will be required to fund 25 percent of each approved project. 50 percent of the SRUSF project money would be awarded upfront, and the remaining would be provided after progress reports are filed and reviewed by the Commission. Lastly, if a company can demonstrate need, they may come before the Commission for additional funding.

Two additional changes to the proposed NOPR were made by the Commission at the Open Meeting on July 23. First, the Commission approved an annual cap of a 3 percent surcharge on customers phone bills to fund the SRUSF. If expenditures exceed the 3 percent, then the amount of money from the fund will be prorated among recipients. SOLIX, a private company under contract with the Commission, manages the fund for New Mexico. Second, companies will be required to provide detailed information on how they have spent both federal and state universal service funds since the initial rule became effective in 2006. The official comment period and other due dates will be published in an order on Monday, with the goal to have the docket closed by October 15, 2014.

 

Inflexible Leave Policies under the ADA since Hwang

Jackson Lewis Law firm

Since 2009, the EEOC has sued numerous employers who have terminated employeespursuant to an inflexible leave policy, a policy that provides a defined amount of leave and results in an employee’s termination once the employee exhausts that leave.  The EEOC argues that such policies are unlawful because they do not allow for additional leave to be provided as a reasonable accommodation.

And then along came Hwang.  Hwang had used all of the six months of leave under her employer’s inflexible leave policy. When her request for additional leave was denied, she sued, arguing that her employer needed to provide additional leave as a reasonable accommodation. The Tenth Circuit held that the very policy decried as blatantly unlawful by the EEOC was fair, lawful and actually protects employees with disabilities.  Hwang v. Kansas State University (10th Cir. May 29, 2014). “After all,” the court said, “reasonable accommodations … are all about enabling employees to work, not to not work.” (Emphasis added). See our Hwang post here.

What has happened since Hwang? One month after Hwang, on June 30, 2014, according to an EEOC press release, Princeton Health Care System settled an inflexible leave policy lawsuit brought by the EEOC by paying $1.35 million. The System also agreed, among other things, not to adopt an inflexible leave policy, i.e., that type of policy found lawful in Hwang.  PCHS had provided its employees up to 12 weeks of leave, the maximum amount provided by the FMLA, according to the EEOC.  The EEOC’s press release also notes that employers have paid more than $34 million to resolve lawsuits the EEOC has brought concerning leave and attendance policies.

More recently, on July 10, 2014, the EEOC sued Dialysis Clinic, Inc. for terminating a nurse who had exhausted her employer’s inflexible leave policy (four months of leave). EEOC v. Dialysis Clinic, Inc. (E.D.CA). At the time of termination, according to the EEOC press release, the employee had been “cleared by her doctor to return to work without restrictions in less than two months.”

The apparent conflict between Hwang and the EEOC’s view that inflexible leave policies are indefensible exacerbates the challenge facing employers in search of the answer to the most vexing ADA question–how much job-protected leave must an employer provide under the ADA?  More than three years have passed since the EEOC held a public hearing on leave as a reasonable accommodation under the ADA and suggested it might issue guidance on the topic. We posted previously that waiting for that guidance is like waiting for Beckett’s Godot, where those waiting come to the realization at the end of each day that he is not coming today, he might come tomorrow.  Employers continue to wait. In the words of Beckett’s Estragon, “such is life.”

Article By:

Michael J. Soltis
Of:
Jackson Lewis P.C.

 

FDA Denies Citizen Petition’s Request to Ban Marketing of Non-Absorbable Surgical Mesh Products for Transvaginal Repair of Pelvic Organ Prolapse

Covington BUrling Law Firm

 

On July 14, 2014, FDA publicly posted its response denying Public Citizen’s August 2011 citizen petition concerning the marketing of non-absorbable surgical mesh products for transvaginal repair of pelvic organ prolapse (POP).  In its response, FDA took the position that a ban or recall of POP devices is not warranted at this time.

As background, in August 2011, Public Citizen filed a citizen petition asserting that POP devices “offer no clinically significant benefits in comparison to surgical repairs for POP performed without placement of surgical mesh” and “have high rates of serious complications.”  Public Citizen requested that the agency take the following actions: (1) ban the marketing of all available non-absorbable surgical mesh products for transvaginal repair of POP; (2) order all manufacturers to recall these products; and (3) classify all new non-absorbable surgical mesh products for transvaginal repair of POP as class III devices and approve the products only under a premarket approval application (PMA).

In its response, dated May 1, 2014, FDA denied the citizen petition.  While the agency rejected Public Citizen’s call for a ban or recall of POP devices, FDA noted that it shares some of the concerns outlined in the citizen petition and is taking actions to address these concerns.  In addition, the agency also determined that “a citizen petition is not the appropriate mechanism for requesting a reclassification of a device.”

FDA explained that in September 2011, the agency convened an advisory committee meeting of the Obstetrics and Gynecology Devices Panel to discuss the safety and efficacy of transvaginal surgical mesh products used for repair of POP.  The Panel determined that “a favorable benefit-risk profile” for these devices “had not been well-established” and that the devices should be reclassified from class II to class III.  The Panel also recommended that manufacturers conduct postmarket studies of currently marketed surgical mesh products for transvaginal repair of POP.  As of May 2014, FDA had issued 126 postmarket surveillance orders to 33 manufacturers of these devices.

FDA explained that it has evaluated information from the Panel’s recommendations and the published scientific literature and has tentatively determined that the device should be reclassified as a class III device.  On May 1, 2014, FDA published a proposed order in the Federal Register to reclassify surgical mesh for transvaginal repair of POP from class II to class III.  On the same day, FDA published another proposed order in the Federal Register to require the filing of a PMA following the reclassification of the device to class III.  Thus, although FDA did not grant Public Citizen’s third request, the agency “initiated the process that could ultimately result” in reclassification of the device and the requirement to submit a PMA for these devices.

Article By:

Colleen Kelly
Of:
Covington & Burling LLP

Donning & Doffing (Wage Disputes): Old Is New Again

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Our Letter of the Law series is focused on current employment law developments, anddonning and doffing wage disputes are anything but “new” to the courts.  The U.S. Supreme Court and Congress were dealing with donning and doffing work clothing and equipment in the 1940s.  (Perhaps that is obvious given that nobody really says “donning” or “doffing” in recent years other than in this context.)

Donning and Doffing

But donning and doffing, and when employees must be paid for getting dressed for work, continues as an important and tricky wage/hour law issue.  That and the 7th Circuit U.S. Court of Appeals’ “novel approach” to judicial curiosity in Mitchell v. JCG Industries, Inc. merits inclusion as this week’s letter D.  The court in Mitchellrecently weighed in on the proper compensation for workers who are required to don and doff safety protective gear at work.  Union workers in a poultry processing plant brought the suit, alleging violations of state and federal wage laws for the employer’s failure to pay wages for time spent donning and doffing protective work gear.  Workers were required to put on jackets, aprons, gloves, hairnets, and other items at the start of every shift.  In addition, they had to remove and put back on the gear at the start and end of lunch breaks.  The principal issue was whether the employer had to compensate workers for the time spent changing in and out of gear.

Relying on Section 203(o) of the federal Fair Labor Standards Act, the court concluded that donning and doffing time is excluded from compensable time.  In its opinion, the court noted that it took very little time to dress in the gear – and indeed noted that the court staff had done so.  Additionally, the court noted that it would be overly burdensome to require employers to track such time for every employee.

Donning and doffing remains a tricky issue, a perfect example of what lawyers call “fact specific” cases.  Compare DeKeyser v. Thyssenkrupp Waupaca, Inc., 735 F.3d 568 (7th Cir. 2013) (holding that summary judgment was improper to the employer in the case involving foundry employees who were required to shower and change after their shifts).  Employers who require safety and other equipment or clothing must, decades after the law was first passed, continue to watch cases like Mitchell that might affect their decision making on what donning and doffing time must be paid.

Article By:

William A. Nolan
Of:
Barnes & Thornburg LLP