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Looking into Our (Slightly Hazy) Crystal Ball: What Will the Mississippi Cannabis Market Look Like?

When you do what we do, you get a lot of calls and a lot of questions. Many of the calls and questions are not fruitful. Quite honestly, some of the calls are from folks whose interest in and experience with cannabis is, we suspect, on a purely personal and leisurely level. In the words of Hyman Roth, this is the business we’ve chosen.

But one legitimate question we’re often asked is what we think the cannabis market will look like in Mississippi. And, more specifically, whether Mississippi’s new medical cannabis regime will be similar to the one in Oklahoma.

It’s a loaded question, and one we suspect many questioners don’t fully appreciate. On the one hand, Oklahoma’s medical cannabis program has been compared to the Wild West. At last count, there were more medical cannabis dispensaries than liquor stores or supermarkets in the state. Many have concluded that this is a bad thing and/or that the program is a failure. Others have deemed the program a triumph of capitalism, a survival-of-the-fittest trial where only the “best” will survive.

As is often the case, we think the answer is probably somewhere in the middle.

On the one hand, the obvious and primary similarity between the programs is the absence of an expressed cap on the number of licenses available. While most states limit the number of licenses available, neither Oklahoma nor Mississippi does so. Many believe this feature will lead to Mississippi following the lead of Oklahoma in terms of the proliferation of dispensaries throughout the Magnolia State.

On the other hand, there are a number of differences between the two states and their statutes that indicate to us that Mississippi’s regime will differ in several important ways – ways we are seeing play out now. First, while the license fee for a dispensary in Oklahoma is $2,500, the fee in Mississippi is $25,000, 10 times the amount. And that amount is owed annually and is in addition to the initial $15,000 application fee. As a practical matter, and for better or worse, this feature alone should significantly cull the number of dispensaries because it provides a substantial barrier to entry into the industry.

Second, there may be significantly fewer locations available to open a dispensary in Mississippi than one would expect due to several geographic-limiting features of the law. Initially, localities have until May 3 to opt out of the medical cannabis regime, and several cities have already done so. Also, dispensaries cannot be located within 1,000 feet of any church, school, or daycare facility. For those unfamiliar with Mississippi, it may be tough to find anywhere in the state that isn’t within 1,000 feet of a church. Even more, the law forbids one dispensary from being within 1,500 feet from another dispensary, and dispensaries are only permissible in commercially zoned areas.

Third, the cannabis industry examining the Mississippi market will have the benefit of having lived through the Oklahoma experience. This is likely to minimize the “goldrush” mentality seen in Oklahoma’s early days. Instead, look for larger players to let the dust settle and come in looking to acquire operators who proved successful breaking out of the initial melee.

Conclusion

It seems possible that, at least in the early years, the Mississippi medical cannabis regime may more closely resemble Oklahoma than a state like Florida with strict limitations on the number of licenses. But our prediction is that certain aspects of Mississippi law and culture will lead to less of a free-for-all at the outset, hopefully leading to a more efficient and more orderly transition to a rational cannabis market in Mississippi.

Article By Whitt Steineker and Slates C. Veazey of Bradley Arant Boult Cummings LLP

For more cannabis legal news, click here to visit the National Law Review.

5 Questions You Should Be Asking About Succession Planning for Your Family Office

Succession planning for family offices is often a difficult process. It is emotional. It takes longer than it should. But succession planning that is deliberate, collaborative, and strategic can offer so much opportunity.

Katten recently hosted a conversation with Jane Flanagan, Director of Family Office Consulting at Northern Trust, who discussed a survey conducted with former family office CEOs to capture their experience with succession and succession planning. The results were illuminating, and the survey participants spoke loud and clear about two major points: 1.) they wished they had begun the process sooner, and 2.) they wished they’d known what questions to ask along the way.

We’ve pulled together a series of basic questions about succession planning to help you consider your own approach.

Why should I create a succession plan?

Like it or not, a succession will take place eventually. The last thing you or your family office want is the chaos, acrimony, and setbacks an unexpected succession can cause.

Putting a plan in place can give your current leadership peace of mind, ensure buy-in and collaboration throughout the family, and prepare potential internal successors or identify key attributes for external candidates.

When should I start?

Now! It’s never too early to begin planning, and there are some easy steps you can take right away to set you on the right path.

If you aren’t sure where to begin or what a planning process looks like, you’re in good company. According to Northern Trust’s recent survey, 64 percent of family office CEOs expect a succession event in the next three to five years.

What is included in a succession planning process?

The planning process will differ from family to family, but Northern Trust created a checklist to help you think through your own approach.

Taking on the entire process at once can be daunting. To build momentum (and buy-in), consider starting small by documenting the responsibilities of the current leadership.

Once you have a good sense of the current role’s responsibilities, think about the knowledge and relationships critical to the role’s success.

These should be top considerations throughout the succession planning process.

Where should I begin?

First, consider putting an emergency succession plan in place as soon as possible while you develop a long-term succession plan.

You want to give this process the time, attention, and consideration it deserves. An emergency plan will help immensely if an unexpected succession is needed, so focus first on getting that in place before you set out on a long-term planning process.

How do I find the right successor?

This is why the planning process is so important. These decisions can have a big impact, so you want to have a plan in place well before you need it.

Consider what works and what could be improved about the current role. Are there creative approaches or changes to consider? (Such as shifting to a CIO/CEO hybrid role, refocusing the role’s priorities, or even expanding into a multi-family office.)

Northern Trust’s survey participants were evenly split on their choices to hire an external successor or grow a successor from within. There are pros and cons to each approach, but so many of the factors to consider will be specific to your situation.

Article By Adam M. Damerow, Abby Feinman, and Saul E. Rudo of Katten

For more family law legal news, click here to visit the National Law Review.

Abortion-Related Travel Benefits Post-Dobbs

Immediately following the Supreme Court decision in Dobbs v. Jackson returning the power to regulate abortion to the states, a number of large employers announced that they would offer out-of-state travel benefits for employees living in states where abortion-related medical care is unavailable. Employers considering offering abortion-related travel benefits have several key considerations to keep in mind. The law currently allows health plans to provide reimbursement for travel primarily for and essential to medical care. Although this area of the law is evolving, employers with self-funded medical plans may amend their existing medical plans to provide abortion-related travel benefits while those with fully insured medical plans may face more obstacles in providing such benefits.

In Dobbs v. Jackson, an abortion clinic challenged a Mississippi law that would ban abortion after 15 weeks of pregnancy, with limited exceptions. In establishing the constitutional right to abortion in Roe v. Wade, the Supreme Court restricted states in their ability to limit or ban abortions before viability of the fetus, or 24 weeks from the time of conception. In upholding the Mississippi law, the Supreme Court overturned Roe and held that the protection or regulation of abortion is a decision for each state.

Alabama, Arkansas, Kentucky, Missouri, Oklahoma and South Dakota have already banned or made abortion illegal pursuant to trigger laws which went into effect as of the Supreme Court decision on June 24, 2022. Also, a number of additional states are expected to soon have similar legislation in effect, either by virtue of expected legislative action or trigger laws with slightly delayed effective dates. In response, a number of employers have announced that they will reimburse all or a portion of abortion-related travel expenses for employees in states where abortions are banned or otherwise not available.

Under Section 213(d) of the Internal Revenue Code, the definition of “medical care” includes transportation that is both “primarily for and essential to” the medical care sought by an individual. These types of travel benefits have historically been utilized in connection with certain specialized medical treatments, such as organ transplants. However, Section 213(d) is not limited to particular types of procedures, and thus forms the framework for providing abortion-related travel benefits through existing medical plans.

Although Code Section 213(d) applies to both self-insured and insured medical plans, the substantive coverage provisions of insured medical plans will generally be governed by the state insurance code of the state in which the insurance policy is issued. Coverage for abortion services or any related travel benefits may not be permitted under the insurance code of the state in which the policy is issued, or an insurer may not offer a travel benefit for such services even if permitted to do so. Self-insured plans, by contrast, provide employers more flexibility in plan design, including control, consistent with existing federal requirements, over the types and levels of benefits covered under the plan. As noted above, existing plans may already cover travel-related benefits for certain types of medical procedures.

Employers with high-deductible health plans tied to health savings accounts (HSAs) will need to consider the impact of adding abortion-related travel benefits to such plans. Travel-related benefits of any type would not appear to be eligible for first dollar coverage, and thus may be of minimal benefit to participants enrolled in high-deductible health plans.

Employers with fully insured medical plans that do not cover abortion-related travel benefits may be able to offer a medical travel reimbursement program through an integrated health reimbursement arrangement (HRA). An integrated HRA is an employer-funded group health plan from which employees enrolled in the employer’s traditional group medical insurance plan are reimbursed for qualifying expenses not paid by the traditional plan.

Another potential option for employers with fully insured medical plans may be to offer a stipend entirely outside of any established group health plan. Such reimbursement programs may result in taxable compensation for employees who receive such reimbursements. Also, employers would need to be sensitive to privacy and confidentiality considerations of such a policy, which should generally be minimized if offered in accordance with the existing protections of HIPAA through a medical plan and under which claims are processed by an insurer or third-party administrator rather than by the employer itself.

Additionally, some state laws may attempt to criminalize or otherwise sanction so-called aiding and abetting actions related to the procurement of abortion services in another state. This is an untested area of the law, and it is unclear whether any actions brought under such statutes would be legally viable. In this regard, Justice Kavanaugh stated as follows in his concurring opinion in Dobbs: “For example, may a State bar a resident of that State from traveling to another State to obtain an abortion? In my view, the answer is no based on the constitutional right to interstate travel.” (Kavanaugh Concurring Opinion, page 10.) This is an area that will require continual monitoring by employers who offer abortion-related travel benefits.

Article By Thomas G. Hancuch, Philip L. Mowery, and Amal Rafiq of Vedder Price

For more labor and employment legal news, click here to visit the National Law Review.

Preparing Corporate Messaging in the Wake of Dobbs

The United States Supreme Court (“SCOTUS”), in Dobbs v. Jackson Women’s Health Organization, has held that there is no constitutional right to abortion, overruling Roe v. Wade and Casey v. Planned Parenthood.

Employers, who increasingly are finding themselves on the front lines of many societal issues, will need to decide quickly whether and how they might address the Dobbs decision, as public reaction has been and is likely to remain strong. Board members, employees, and shareholders may advocate for corporations to take a visible stand on the issue of abortion and reproductive rights. And employees may want to speak up themselves (possibly via employer social media accounts).

It is important to remember that company communication decisions and actions regarding the Dobbs ruling, as well as other political and social issues, can have practical and legal implications.

The first question is whether your company will comment on Dobbs. If you decide to comment, there are many factors to consider. Your message is an important starting point. Who is your intended audience? Will your employees consider it an opportunity to join in the conversation? What will you say? Even if your message is internal, keep in mind that it may not stay that way, given the nature of social media. And before you think, “I’ll just stay out of it,” remember that some will view silence or neutrality as a statement in and of itself. If you choose not to speak, are you prepared to deal with any potential reaction from customers, employees, or shareholders?

Internally, employees may have questions about health benefits or other terms and conditions of employment because of Dobbs. It will be important to arm all key stakeholders, including leadership, corporate communications, and human resources, with tools to consistently manage these communications and responses.

Whether it’s internal or external communications, expect feedback! How that feedback is handled is as important as the initial communication (or lack thereof).

Certain industries, like healthcare and insurance, may also feel compelled to make an affirmative statement if the Dobbs decision has a direct impact on services and/or products. In those cases, the need to consider all implications is even more pressing.

In thinking through these decisions, employers should also consider who may need to approve any messaging. The board of directors, senior executives, legal, and marketing and communications teams are among the key stakeholders who may need to be consulted. And don’t forget that your public-facing employees may bear the brunt of your response. Are they prepared?

Employers should also keep in mind various laws that may govern their reaction, including those they might otherwise not consider. For example, the National Labor Relations Act protects employees’ rights to collectively discuss terms and conditions of employment at work and off duty – and that applies to employers with and without a unionized workforce. The current Biden-appointed General Counsel of the National Labor Relations Board has taken an expanded view of topics that are connected to the workplace. Moreover, some states, including California and New York, have enacted off-duty conduct laws that prohibit employers from disciplining employees for lawful conduct outside of work, which may include political advocacy. There may also be anti-discrimination laws and potential civil and criminal liability associated with your statements, depending on their wording.

Reactions to the Dobbs decision may vary. Some reaction may be comparable to what we’ve seen with respect to other recent political and/or social justice movements, such as Black Lives Matter and #MeToo; others may react differently, or not at all. In these rapidly changing times, companies — particularly publicly traded and consumer-facing ones — need to be make informed decisions. Clear, consistent messaging is key to establishing confident and consistent responses to potential concerns by employees and other stakeholders.

Article By M. Carter DeLorme, Frank C. Morris, JR, Susan Gross Sholinsky, Jennifer Barna, and Erin E. Schaefer of Epstein Becker & Green, P.C.

For more civil rights legal news, click here to visit the National Law Review.

The Way to Protect Your Business? What You Need to Know About Trade Secrets

What do Coca-Cola’s secret formula, McDonalds’ special sauce, and Google’s search algorithm have in common? Each is a protected trade secret. In other words, they are proprietary information vital to these companies’ survival and are among their most valuable corporate secrets.

A trade secret can be anything of value to your company that is unique and not known to persons outside the company. For example, a trade secret can be a recipe, process, formula, strategy, technique, or device that your competitors do not know, do not have, and cannot use.

Trade secret law can be less risky in some respects than other forms of intellectual property like patents, copyrights, and trademarks. The application process for a patent requires that a company disclose the secret itself. With that comes an inherent risk—should the application be denied, the secret is no longer a secret. While the protection afforded by trade secret law may be considered fragile, meaning constant vigilance is required to maintain secrecy, the secret remains a secret; while a patent, even after issuance, carries some risk of post-grant invalidation. By contrast, a trade secret owner may ultimately enjoy greater certainty by maintaining protection, potentially forever. However, a trade secret is entitled to protection only for as long as it is kept a secret. If the information is lawfully disclosed to the public, it is no longer confidential and loses its trade secret protection forever.

Governing Law: Both federal and state law recognize the time and money invested to gain competitive advantages like trade secrets and protect those advantages. Federal Law: Under the controlling federal legislation passed by Congress in 2016, the Defend Trade Secrets Act (“DTSA”) defines a trade secret as something used in a company’s business that (a) is not known or readily accessible by competitors, (b) has commercial value or that provides a competitive advantage in the marketplace, and (c) the owner of the information protects from disclosure through reasonable efforts to maintain its secrecy. Prior to the DTSA’s enactment in 2016, no federal statute promulgated a federal trade secret private right of action.

In addition to the DTSA’s rules regarding trade secrets, additional federal rules apply. The Economic Espionage Act of 1996 makes the theft of trade secrets a federal crime. The Act prohibits the theft of a trade secret by a person intending or knowing that the offense will injure a trade secret owner. The Act also makes it a federal crime to receive, buy, or possess trade secret information knowing it to have been stolen. The Act allows the government to punish thefts of trade secrets by imprisonment up to 15 years and/or fines up to $5 million, depending on whether the defendant is an individual or a corporation. A private party can still sue for trade secret theft even if the federal government files a criminal case under the Economic Espionage Act.

New York State Law: Prior to federal law, most states had some form of trade secret law that varied state to state. The Uniform Trade Secrets Act (“UTSA”) was published in 1979 and amended in 1985 to provide a uniform trade secret law. Many states, including Pennsylvania in 2004 and New Jersey in 2012, adopted the UTSA. Notably, New York did not adopt the UTSA and does not have its own state trade secret statute, and thus relies on the common law.

Under New York common law, “misappropriation” refers to the acquisition of a trade secret by someone who knows that the trade secret was acquired by improper means—theft, bribery, misrepresentation, breach, or inducement of a breach of duty to maintain secrecy. The New York statute of limitations requires that any action for misappropriation be filed three years from the date the misappropriation is discovered. Further, New York law requires that the use of the trade secret be continuous in the operation of a business, rather than one-time use.

Cartier v. Tiffany: Cartier recently filed suit against its luxury rival Tiffany & Co. in New York state court. Cartier v. Tiffany & Co., et al.,650925/2022 (N.Y. Sup.). Richemont-owned Cartier sets out claims against LVMH’s Tiffany & Co. for various contractual and tort claims and trade secret misappropriation against both defendants [Who is the other defendant?]. Cartier seeks preliminary and permanent injunctive relief to require defendants to refrain from using the allegedly misappropriated information and return it to Cartier, as well as a judgment for any “compensatory damages that may be caused by [Tiffany’s] wrongful conduct.”

The complaint states that Tiffany & Co. lured former Cartier employee Megan Marino away from her role as its Assistant Manager for Jewelry Merchandising to learn more about Cartier’s “High Jewelry” collection, where pieces typically cost $50,000 to $10 million.

Cartier claims Marino was bound by non-disclosure and non-solicitation agreements she had signed as part of her role at Cartier and that she breached those agreements by using Cartier’s confidential business information to benefit Tiffany. This information includes Cartier’s “very sensitive and valuable” internal company documents that Marino forwarded to her personal email. Specifically, Marino “referenced a [Cartier] Excel spreadsheet” that “detailed Cartier’s confidential, High Jewelry assortment information.” Based on that spreadsheet, Cartier alleges, Marino “created a new Excel document, derived entirely from Cartier’s confidential information,” including “the total number of High Jewelry pieces at various Cartier locations in the U.S.” Cartier maintains this information is “only accessible by a limited number of Cartier employees [and] not known outside of Cartier” and “allow[s] a sophisticated competitor to replicate key strategies and, with relative ease, to reverse engineer how Cartier allocates, merchandises, and prices its High Jewelry stock.” Cartier claims the proprietary and confidential nature of this information amounts to a trade secret-protected asset.

Cartier further claims Tiffany has a history of poaching employees and maintains a “disturbing culture of misappropriating competitive information.” Given the alleged pattern, Cartier asserts that Tiffany now possesses “a substantial amount of [its] confidential and trade secret information that it obtained from Marino and other former Cartier employees” as a result of their “unlawful taking of Cartier’s valuable confidential information and trade secrets.”

Even if Cartier successfully establishes that it maintains trade secret information that Tiffany misappropriated, the case is hardly straightforward. Establishing damages in cases like this is particularly challenging, as it is difficult to assign a dollar value to trade secret information that will compensate the plaintiff for the economic loss caused by the defendant’s misappropriation. As a result, courts generally have quite a bit of discretion in fashioning damages awards.

Article By David H. Siegel of Norris McLaughlin P.A.

For more intellectual property legal news, click here to visit the National Law Review.

Inflation Woes: Four Key Ways for Companies to Address Inflation in the Supply Chain

The U.S. economy is grappling with the highest inflation in decades, with extensive inflation in the supply chain affecting companies worldwide. Supply chain disruptions undoubtedly have contributed to rising inflation, as extensive delays and skyrocketing costs continue to plague the industry.

In March 2022, the consumer-price index (or CPI) — a measure of the prices consumers pay for products — rose at an annual rate of 8.5%, which is the highest increase in 47 years.¹ Meanwhile, the producer-price index (or PPI) — a measure of inflation meant to gauge the impact on suppliers — similarly rose significantly at an annual rate of 11.2%.² Finally, the employer cost index (or ECI) demonstrates that, from March 2021 to March 2022, total compensation rose 4.5%, wages and salaries rose 4.7%, and benefit costs rose 4.1%.³

Because inflation increases the prices of goods or services, negotiations about who bears that risk in business partner relationships and the consequences of that risk allocation will have significantly greater financial impacts than we have seen in recent memory. As a result, ensuring your business teams are well versed on the impacts of and means of mitigating inflation in new contracts has a direct impact on your bottom line.

In this article, we provide ways for companies in the supply chain to address high inflation and alleviate associated pressures, including (1) how to revisit and use existing agreement provisions to address inflation risk, (2) approaches to negotiating new agreements and amendments to existing agreements, (3) approaches to limit inflationary exposure, and (4) strategies for cost reduction.

Figure 1:

Percent Change in CPI March 2021 versus March 2022

Bureau of Labor Statistics, U.S. Department of Labor, Consumer Price Index – March 2022, issued April 12, 2022

Four Key Ways to Mitigate the Effects of Increasing Inflation in the Supply Chain

1. Revisit and Use Provisions in Existing Agreements

Companies faced with rising costs must review their supply agreements to determine if they already contain mechanisms the company can use to address inflation. On the buy side, companies should look in their agreements for terms relating to fixed prices. On the sell side, companies should investigate ways to pass increased costs on to customers. Most supply contracts contain a variety of provisions that may assist in combatting inflationary pressures.

(a) Pricing Provisions

From a seller’s perspective, a contract may include index-based price escalation provisions, which tie contract prices to one or more indices. The underlying indices may be (i) broad economic indices such as the PPI or “market basket” indices tied to all items and all urban consumers, (ii) targeted indices such as ECI for a specific location, or (iii) tied to the cost of a specific commodity used in the underlying product. Contracts will sometimes incorporate several commodity indices based on the percentage those commodities are used in the product that is the subject of the agreement, in order to accurately reflect the costs associated with producing the good.

Allocations under these pricing provisions vary depending on negotiation power. They could put all of the risk on one party, share the risk equally, or share the risk according to particular percentages. The latter two options represent ways to avoid a “win/lose” approach.

Sellers will want to see whether their agreements allow for periodic negotiations for updated prices and take advantage of those opportunities. A buyer, meanwhile, may look for provisions that allow it the flexibility to limit the quantities ordered, enabling it to reduce costs as necessary or to seek a more cost efficient alternative. A buyer also will want to determine if the contract prohibits the seller from changing prices.

Regardless of the existing provisions, the real impact of inflation is likely to trigger commercial discussions to address rising costs; this is true both for hard goods supply agreements and indirect services agreements with longer terms such as outsourcing and managed services relationships.

(b) Force Majeure as a Mechanism to Adjust Price?

Outside of pricing provisions such as the above, however, a party may look to other contract provisions, such as force majeure, to see if its performance under the contract could be excused; increased costs alone are not enough to constitute a force majeure event. In order for a force majeure to arguably apply, the increase in costs must be caused by an event that itself is a qualifying force majeure event under the terms of the applicable contract (which may include events like a labor strike or pandemic).

Force majeure provisions are intended to excuse performance under a contract but not to act as a pricing adjustment mechanism. However, force majeure and its extra-contractual cousin, commercial impracticability, can be used as tools to bring the parties to the negotiating table where events beyond either party’s reasonable control are impacting the ability to produce and deliver products.

2. Negotiate Amendments to Existing Agreements

To the extent sellers have fixed-price contracts with their customers, sellers should consider negotiating with such customers to adjust these contracts in order to keep the prices they charge their customers in line with their input costs. When entering these discussions, companies that wish to implement a price adjustment, or eliminate fixed pricing entirely, should consider meaningful ways to incentivize their customers to agree to such changes. Would the customer be willing to agree to a price adjustment in order extend the agreement or adjust the quantity? Any items that maintain the relationship between the parties while also allocating cost increases in an equitable way should be considered.

Conversely, buyers faced with price-increase requests should carefully consider their options:

First, a customer receiving a price-adjustment request should confirm the request is actually tied to inflation and not just an attempt by a supplier to increase its bottom line. Seek detailed calculations supporting the price adjustments, and require suppliers to demonstrate how much their costs have increased above expectations.
Second, customers should consider what items they would like to request in return for accepting a given price-adjustment request, such as whether they would like to adjust their quantity or timing of delivery.
Third, a customer faced with a price increase request should consider whether the request should include the opportunity for the customer to obtain pricedowns in the future, in the event there are changes in the pricing environment.

3. Pricing Tied to Indexing and Other Ways to Limit Future Inflationary Exposure when Drafting New Agreements

When drafting new agreements, companies should consider how best to mitigate the effects of inflation.

For nearly 40 years, we have enjoyed relatively low and steady levels of inflation, which explains why existing agreements may not adequately address the allocation of significant and unexpected economic change.

Many of those at the upper echelons of leadership today have never dealt with a high inflationary environment. To put it in perspective, the CEO of Walmart, the No. 1 company on the Fortune 500 list for 2021, was 19 years old when inflation was last a newsworthy topic.

In the future, however, we expect far fewer agreements to have long-term fixed prices, as sellers negotiating agreements will want to incorporate a variety of strategies that allow for pricing flexibility and avoid longstanding, fixed prices. One such strategy is tying prices to an index. As discussed above, this could be a general index such as the CPI or PPI or be much more specific depending on the item sold. There are numerous indices for various products and commodities that parties may use to reflect accurately the costs of producing the goods that are the subject of their agreement. Parties may consider incorporating a mechanism for revisiting these provisions, especially in the event that inflation slows. Caps on inflation risk also may be incorporated as a backstop.

If not tying prices to an index, selling parties will want to shorten the term of their agreements or require the parties to renegotiate prices at set points throughout the duration of their agreements. Alternatively, parties may consider price increases of a certain percentage that are automatically implemented periodically. The seller may even want to leave the pricing open and establish pricing at the time the order is placed.

On the other hand, customers will want to incorporate provisions that cause the supplier to bear the inflationary risk. Principally, this means locking in prices for as long of a period as the seller will agree to and ensuring prices are fixed upon the issuance of purchase orders.

If and when sellers push back on extended fixed-pricing provisions, there are a variety of methods parties may use to meet in the middle:

Pricing arrangements that are tied to one or more indices may be capped to a certain percentage, ensuring the customer will know its upward exposure.
Include thresholds of index movement such that the price remains static unless and until the percentage threshold is exceeded.
Allocate increased cost exposure so a certain percentage range of index movement is allocated to one party and then the next percentage range is allocated to the other party. Parties then may share any exposure above those ranges.
Additionally, index-based pricing can be clarified to include both upward and downward movement, ensuring that customers, while risking inflationary costs, may also receive the benefits of deflationary environments.

4. Think Strategically to Reduce Costs

Aside from considering purely contractual methods to combat inflation, companies should think strategically about ways to reduce costs more efficiently.

Streamlining. In order to pursue this strategy, companies need to determine which areas are driving increased spending and consider ways those areas may be managed differently. For example, companies may consider whether there are different inputs that can be used to lower costs or processes that may be streamlined. Companies can review their inventory management, labor inputs, and other areas to determine where cost cutting may be an option without sacrificing product or service quality. This streamlining might include ending product lines with lower levels of profitability.
Technology & Innovation. In addition, with labor constituting such a high percentage of the cost increases companies are experiencing, a company may want to double down on technology and innovation that reduces headcount. Or, as prices rise, a company may pursue other pricing models. For example, a heavy equipment manufacturer may opt for a pay-per-use model in lieu of the traditional sale model.
Diversification of the Supply Chain. Another method companies may use is diversifying their supply chains, ensuring they provide the flexibility and sustainability needed to weather turbulent periods. Though adding links to supply chains will not lower costs in the near term, it can help ensure a business continues to function smoothly even in the event of price shocks, material shortages, or other disruptions.

The stressors driving inflation are unlikely to be relieved any time soon. Companies should use every resource available to leverage their current contracts and negotiate new terms to address inflation’s serious repercussions on their bottom line.

FOOTNOTES

¹ How High Is Inflation and What Causes It? What to Know, Wall Street Journal (April 12, 2022).

² Supplier Prices Rose Sharply in March, Keeping Upward Pressure on U.S. Inflation, Wall Street Journal (April 13, 2022).

³ Employment Cost Index – March 2022, U.S. Department of Labor, Bureau of Labor Statistics (April 29, 2022).

Article By Vanessa L. Miller, Kathleen E. Wegrzyn, Leah R. Imbrogno, James R. Kalyvas, and Austin R. Kissinger of Foley & Lardner LLP

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Monkeypox—Do Employers Need to Worry?

Several cases of monkeypox have now been found in the United States. We do not yet know whether employers will need to worry about monkeypox in the context of their workforces and workplace, but it may be wise to be informed.

Monkeypox is a viral illness that has symptoms including body aches, headaches, fatigue, and, notably, a bumpy skin rash. It is primarily found in Africa, most particularly in the Democratic Republic of the Congo. Monkeypox has an incubation period that generally lasts 7-14 days but can be as long as 5-21 days. It has now recently been found in the United States, according to the U.S. Centers for Disease Control and Prevention (CDC). The first case reported was in Massachusetts in a man who had been to Canada. The second was in New York City by another individual who had a virus similar to monkeypox. And the third was a “presumptive case” involving a Broward County, Florida, man who had traveled internationally, the CDC said.

Unlike what we have been through with COVID-19, wearing a mask will likely not be an issue with monkeypox. It is spread through infected animals, prolonged person-to-person contact, direct contact with lesion materials, or indirect contact through contaminated items, such as contaminated clothing. Avoiding these will help avoid the possibility of infection. Since frequent handwashing continues to be a good hygiene practice, continuing to make this an easy and frequent practice for employees is generally a good health practice, according to health officials.

Monkeypox has also recently been found in Australia, Belgium, Canada, France, Germany, Italy, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom. According to public health officials, the risk of exposure remains low although there are expected to be more cases in the United States. Health officials believe the smallpox vaccination will offer some amount of protection from monkeypox.

Employers that have employees who are soon to travel internationally, either for personal or business reasons, may want to consider educating them on the symptoms, how the virus is transmitted, and the fact that they may wish to consult with their own healthcare practitioners about the smallpox vaccination. There is no indication that travel should be avoided or prohibited.

Article By Katherine Dudley Helms of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

For more labor and employment legal news, click here to visit the National Law Review.

Small Businesses Don’t Recognize Risk of Cyberattack Despite Repeated Warnings

CNBC surveys over 2,000 small businesses each quarter to get their thoughts on the overall business environment and their small business’ health. According to the latest CNBC/SurveyMonkey Small Business Survey, despite repeated warnings by the Cybersecurity and Infrastructure Security Agency and the FBI that U.S.- based businesses are at an increased risk of a cyber-attack following Russia’s invasion of Ukraine, small business owners do not believe that it is an actual risk that will affect them, and they are not prepared for an attack. The latest survey shows that only five percent of small business owners reported cybersecurity to be the biggest risk to their company.

What is unfortunate, but not surprising, is the fact that this is the same percentage of small business owners who recognized a cyber attack as the biggest risk a year ago. There has been no change in the perception among business owners, even though there are repeated, dire warnings from the government. Also unfortunate is the statistic that only 33 percent of business owners with one to four employees are concerned about a cyber attack this year. In contrast, 61 percent of business owners with more than 50 employees have the same concern.

According to CNBC, “this general lack of concern among small business owners diverges from the sentiment among the general public….In SurveyMonkey’s polling, 55% of people in the U.S. say they would be less likely to continue to do business with brands who are victims of a cyber attack.” CNBC’s conclusion is that there is a disconnect between business owners’ appreciation of how much customers care about data security and that “[s]mall businesses that fail to take the cyber threat seriously risk losing customers, or much more, if a real threat emerges.” Statistics show that threat actors are targeting small to medium-sized businesses to stay under the law enforcement radar. With such a large target on their backs, business owners may wish to make cybersecurity a priority. It’s important to keep customers.

Article By Linn F. Freedman of Robinson & Cole LLP

For more cybersecurity legal news, click here to visit the National Law Review.

If You Can’t Stand the Heat, Don’t Build the Kitchen: Construction Company Settles Allegations of Small Business Subcontracting Fraud for $2.8 Million

For knowingly hiring a company that was not a service-disabled, veteran-owned small business to fulfill a set aside contract, a construction contractor settled allegations of small business subcontracting fraud for $2.8 million. A corporate whistleblower, Fox Unlimited Enterprises, brought this misconduct to light. We previously reported on the record-setting small business fraud settlement with TriMark USA LLC, to which this settlement is related. For reporting government contracts fraud, the whistleblower will receive $630,925 of the settlement.

According to the allegations, the general contractor and construction company Hensel Phelps was awarded a General Services Administration (GSA) contract to build the Armed Forces Retirement Home’s New Commons/Health Care Building in Washington, D.C. Part of the contract entailed sharing the work with small businesses, including service-disabled, veteran-owned small businesses (SDVOSB). The construction contractor negotiated all aspects of the contract with an unidentified subcontractor and then hired an SDVOSB, which, according to the settlement agreement, Hensel Phelps knew was “merely a passthrough” for the larger subcontractor, thus creating the appearance of an SDVOSB performing the work on the contract to meet the set-aside requirements. The supposedly SDVOSB subcontractor was hired to provide food service equipment for the Armed Forces Retirement Home building.

“Set aside” contracts are government contracts intended to provide opportunities to SDVOSB, women-owned small businesses, and other economically disadvantaged companies to do work they might not otherwise access. Large businesses performing work on government contracts are often required to subcontract part of their work to these types of small businesses. “Taking advantage of contracts intended for companies owned and operated by service-disabled veterans demonstrates a shocking disregard for fair competition and integrity in government contracting,” said the United States Attorney for the Eastern District of Washington, as well as a shocking disregard for proper stewardship of taxpayer funds.

Whistleblowers can help fight fraud and protect taxpayers by reporting government contracts fraud. A whistleblower can report government contracts fraud under the False Claims Act and become a relator in a qui tam lawsuit, from which they may be entitled to a share of the funds the government recovers from fraudsters.

Article By Eva Gunasekera and Renée Brooker at Tycko & Zavareei LLP

For more whistleblower legal news, click here to visit the National Law Review.

EEOC and the DOJ Issue Guidance for Employers Using AI Tools to Assess Job Applicants and Employees

Employers are more frequently relying on the use of Artificial Intelligence (“AI”) tools to automate employment decision-making, such as software that can review resumes and “chatbots” that interview and screen job applicants. We have previously blogged about the legal risks attendant to the use of such technologies, including here and here.

On May 12, 2022, the Equal Employment Opportunity Commission (“EEOC”) issued long-awaited guidance on the use of such AI tools (the “Guidance”), examining how employers can seek to prevent AI-related disability discrimination. More specifically, the Guidance identifies a number of ways in which employment-related use of AI can, even unintentionally, violate the Americans with Disabilities Act (“ADA”), including if:

(i) “[t]he employer does not provide a ‘reasonable accommodation’ that is necessary for a job applicant or employee to be rated fairly and accurately by” the AI;
(ii) “[t]he employer relies on an algorithmic decision-making tool that intentionally or unintentionally ‘screens out’ an individual with a disability, even though that individual is able to do the job with a reasonable accommodation”; or
(iii) “[t]he employer adopts an [AI] tool for use with its job applicants or employees that violates the ADA’s restrictions on disability-related inquiries and medical examinations.”

The Guidance further states that “[i]n many cases” employers are liable under the ADA for use of AI even if the tools are designed and administered by a separate vendor, noting that “employers may be held responsible for the actions of their agents . . . if the employer has given them authority to act on [its] behalf.”

The Guidance also identifies various best practices for employers, including:

Announcing generally that employees and applicants subject to an AI tool may request reasonable accommodations and providing instructions as to how to ask for accommodations.
Providing information about the AI tool, how it works, and what it is used for to the employees and applicants subjected to it. For example, an employer that uses keystroke-monitoring software may choose to disclose this software as part of new employees’ onboarding and explain that it is intended to measure employee productivity.
If the software was developed by a third party, asking the vendor whether: (i) the AI software was developed to accommodate people with disabilities, and if so, how; (ii) there are alternative formats available for disabled individuals; and (iii) the AI software asks questions likely to elicit medical or disability-related information.
If an employer is developing its own software, engaging experts to analyze the algorithm for potential biases at different steps of the development process, such as a psychologist if the tool is intended to test cognitive traits.
Only using AI tools that measure, directly, traits that are actually necessary for performing the job’s duties.
Additionally, it is always a best practice to train staff, especially supervisors and managers, how to recognize requests for reasonable accommodations and to respond promptly and effectively to those requests. If the AI tool is used by a third party on the employer’s behalf, that third party’s staff should also be trained to recognize requests for reasonable accommodation and forward them promptly to the employer.

Finally, also on May 12^th, the U.S. Department of Justice (“DOJ”) released its own guidance on AI tools’ potential for inadvertent disability discrimination in the employment context. The DOJ guidance is largely in accord with the EEOC Guidance.

Employers utilizing AI tools should carefully audit them to ensure that this technology is not creating discriminatory outcomes. Likewise, employers must remain closely apprised of any new developments from the EEOC and local, state, and federal legislatures and agencies as the trend toward regulation continues.

Article By Joseph C O’Keefe and Edward C. Young of Proskauer Rose LLP

For more labor and employment legal news, click here to visit the National Law Review.

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