final rule Archives - The National Law Forum

Revisions to HSR Form Released

On October 7, 2024, the Federal Trade Commission (FTC), with the concurrence of the U.S. Department of Justice (DOJ), released its long-awaited final rule related to the revision of the Hart-Scott-Rodino (HSR) premerger notification form (the “Final Rule”).

The Final Rule will be effective 90 days after its publication in the Federal Register. The FTC and DOJ state that the revisions are intended to close the perceived gaps in current information provided in the HSR process, such as the disclosure of entities and individuals within the acquiring person; identification of potential labor market effects; identification of acquisitions that create a risk of foreclosure; identification of actions that may involve innovation effects, future market entry, or nascent competitive threats; and disclosure of roll-up or serial acquisition strategies.

The Final Rule dictates the use of two separate forms: one for the acquiring entity and one for the entity to be acquired. Each party will have to designate a “deal team lead” whose files must be searched for 4(c) and 4(d) documents, even if the deal team lead is not an officer or director. In addition, the acquiring entity must provide details not previously requested, including an organization chart, a list of officers and directors, a description of the ownership structure of the entity, and information on the transaction rationale.

While the information requested in the Final Rule is more limited than what was included in the original proposed rule, there are substantial changes that parties should expect to add significant time and cost to the filing process.

What Digital Advertisers and Influencers Need to Know About the FTC Final Rule Banning Fake Consumer Reviews and Testimonials

As previously blogged about here, following notices of proposed rulemaking in 2022 and 2023, on August 22, 2024 the Federal Trade Commission finalized a rule that will impose monetary civil penalties false and misleading consumer reviews and testimonials. Those covered by the Final Rule, including, but not limited to, advertisers, marketers, manufacturers, brands and various intermediaries, and businesses that promote and assist such entities, should consult with an experienced FTC compliance lawyer and begin to prepare for its enforcement, immediately.

What Does the FTC Final Rule Banning Fake Consumer Reviews and Testimonials Cover?

The FTC Final Rule Banning Fake Consumer Reviews and Testimonials formalizes the prohibition of various practices relating to the use of consumer reviews and testimonials and sets forth which practices may be considered unfair or deceptive pursuant to the FTC Act.

In short, the Final Rule is intended to foster fair competition and protect consumers’ purchasing decisions. In general, the Final Rule covers: (i) the purchase, sale or procuring of fake reviews or testimonials (for example and without limitation, a reviewer that does not exist, a reviewer that did not actually use or possess experience with the product or service, or a review that misrepresents actual experience); (ii) providing compensation or other incentives in exchange for reviews that express a particular sentiment; (iii) facilitating “insider” consumer reviews and testimonials that do not contain a clear and conspicuous disclosure of the relationship; (iv) utilizing websites that appear to be independent review websites when, in fact, they are controlled by the business whose products or services are reviewed; (v) suppressing reviews, either by intimidation or by merely publishing certain reviews or ratings (for example and without limitation, only positive reviews or ratings); and (vi) misusing fake indicators of social media influence.

The Final Rule also includes some important definitions. For example, the Final Rule defines “consumer reviews” as reviews published to a website or platform dedicated (in whole or in part) to receiving and displaying consumer evaluations, including, for example, via reviews or ratings.

The Final Rule defines “consumer review hosting” as “providing the technological means by which a website or platform enables consumers to see or hear the consumer reviews that consumers have submitted to the website or platform.” In simple terms, this means that if an employee posts an unsolicited review on a corporate website concerning a product/service that they have experience using, it may not necessarily be considered deceptive as long as the material connection is disclosed.

“Clear and conspicuous” disclosures (such as, for example and without limitation, those pertaining to material relationships between a manager or officer to a brand), must be unavoidable, and easy to notice and understand for ordinary, reasonable consumers. Note, for audiovisual content, disclosures must be presented in “at least the same means as the representations requiring the disclosure.”

The Final Rule follows the FTC’s Updated Endorsement Guidelines (2023). The FTC Endorsement Guides address a much broader range of conduct than the Final Rule, and provide best practice recommendations regarding the use of product endorsements and reviews in advertising.

What are the Requirements of the FTC Final Rule on Reviews and Testimonials?

The Final Rule largely codifies existing FTC policy related to reviews and testimonials and sets forth limitations for a handful of categories of conduct that the FTC will consider deceptive. In part, the Final Rule prevents covered entities and their agents from using fake reviews and deceptive testimonials, suppressing honest negative reviews and paying for positive reviews.

In pertinent part and without limitation:

16 CFR § 465.2: Fake or false consumer reviews, consumer testimonials, or celebrity testimonials

Business and brands are prohibited from creating, buying, selling or disseminating fake or false reviews or testimonials, including, but not limited to, those that expressly or impliedly misrepresent they are by someone that does not exist (for example and without limitation, AI-generated reviews), by someone that does not have experience with the product/service, those that misrepresent experience with a product or service, and negative reviews intended to damage competitors.

Businesses and brands are prohibited from creating, purchasing, procuring or disseminating such reviews (and/or facilitating dissemination) when the business knew or should have known that the reviews or testimonials were not bona fide.

16 CFR § 465.4: Buying positive or negative consumer reviews

Business and brands are prohibited from incentivizing a consumer to write a review when the incentive is conditioned – expressly or implicitly – on the review expressing a particular sentiment (whether positive or negative) about a business or brand, or related products or services. It is not unlawful for a company to offer incentives for consumers to write reviews, however, it is unlawful, for example, to condition the incentive upon, for example, a 5-star review. While the FTC Endorsement Guides separately mandate a clear and conspicuous disclosure when a review is incentivized by monetary payment or another incentive/relationship, a disclosure of the incentive is not a defense when the incentive is conditioned on the review expressing a particular sentiment.

16 CFR § 465.5: Insider consumer reviews and consumer testimonials

Section 465.5 of the Final Rule prohibits businesses and brands from creating, soliciting or posting reviews or testimonials by officers, managers, employees or agents thereof without clearly and conspicuously disclosing their relationship, or “material connection.” There are limited exceptions. First, the prohibition does not apply to unsolicited social media posts by employees or social media posts that result from generalized solicitations (e.g., non-employee specific). Second, the prohibition does not apply to unsolicited employee reviews that merely appear on a business’s website because of its “consumer review hosting” function.

Additionally, reviews solicited from immediate relatives (e.g., spouse, parent, child or sibling), employees or agents of officers, managers, employees or agents of a business or brand require that latter ensure that the immediate relative clearly, conspicuously and transparently disclose the material connection to the business. The foregoing also applies, for example and without limitation, to requests that employees or agents solicit reviews from relatives. Covered “insiders” are required to instruct such reviewers to clearly and conspicuously disclose their relationships to the business or brand and, if they knew or should have known that a related review appears without a disclosure, take remedial steps to address the disclosure.

The Final Rule states that if the business or brand knew or should have known of a material relationship between a testimonialist and the business, it is a violation for the business or brand to disseminate or cause the dissemination of a consumer testimonial from its officer, manager, employee, or agent without a clear and conspicuous disclosure of such relationship.

16 CFR § 465.6: Company-controlled review websites or entities

Companies and brands are prohibited from creating or controlling review websites or platforms that appear independent when they are, in fact, operated by the company itself. For example, companies may not expressly or by implication falsely represent that a website they control provides independent reviews or opinions. Section 456.6 is intended to prevent the creation of illegitimate independent review websites, organizations or entities to review products and services. It does not apply to general consumer reviews on a brand’s website, for example, so long as those reviews comply with applicable legal regulations.

16 CFR § 465.7: Review suppression

Pursuant to Section 465.7 of the Final Rule, businesses and brands may not suppress, manipulated or attempt to suppress or manipulate negative reviews (or otherwise manipulate or attempt to manipulate overall perception) by solely displaying positive feedback, with limited exceptions such as when a review contains confidential or personal information, or is false or fake, and/or wholly unrelated to the products/services offered. The criteria for doing so must be “applied equally to all reviews submitted without regard to sentiment.”

Businesses and brands are also prohibited from suppressing negative reviews or ratings, and misrepresenting (expressly or implicitly) that the selected consumer reviews or ratings represent most or all reviews or ratings. The Final Rule does not prohibit sorting or organizing reviews – per se – however doing so in a manner that makes it more difficult for consumers to view/learn of negative reviews may be considered an unfair or deceptive act or practice.

All reviews must be treated fairly so that consumers are provided with a true an accurate representation of consumer experiences.

Additionally, the Final Rule prohibits the use of “unfounded or groundless legal threat” or other physical threat, intimidation or false accusation to prevent a review from being written or created or to cause the review to be removed.

Section 465.7, in pertinent part, is consistent with various portions of the January 2022 agency guidance entitled Featuring Online Customer Reviews: A Guide for Platforms. The foregoing guidance recommends that businesses and brands: (i) that operate a website or platform that features reviews, have processes in place to ensure those reviews truly reflect the feedback received from legitimate customers about their real experiences; (ii) be transparent about your review-related practices; (ii) do not ask for reviews only from people you think will leave positive ones; (iii) that offer an incentive to consumers for leaving a review, not condition it, explicitly or implicitly, on the review being positive (even without that condition, offering an incentive to write a review may introduce bias or change the weight and credibility that readers give that review); (iv) do not prevent or discourage people from submitting negative reviews; (v) have a reasonable processes in place to verify that reviews are genuine and not fake, deceptive, or otherwise manipulated (be proactive in modifying and upgrading your processes); (vi) do not edit reviews to alter the message (e.g., do not change words to make a negative review sound more positive); (vii) treat positive and negative reviews equally (do not subject negative reviews to greater scrutiny); (viii) publish all genuine reviews and do not exclude negative ones; (ix) do not display reviews in a misleading way (e.g., it could be deceptive to feature the positive ones more prominently or require a click through to view negative reviews); (x) that display reviews when the reviewer has a material connection to the company or brand offering the product or service (e.g., when the reviewer has received compensation or a free product in exchange for their review), clearly and conspicuously disclose such relationships; (xi) clearly and conspicuously disclose how they collect, process and display reviews, and how they determine overall ratings, to the extent necessary to avoid misleading consumers; and (xii) have a reasonable procedure to identify fake or suspicious reviews after publication (if a consumer or business tells a business or brand that a review may be fake, investigation and appropriate action are necessary – that may include taking down suspicious or phony reviews or leaving them up with appropriate labels).

16 CFR § 465.8: Misuse of fake indicators of social media influence

Section 465.7 prohibits selling, distributing, purchasing or procuring “fake indicators of social media influence” (for example and without limitation, likes, saves, shares, subscribers, followers or views generated by a bot or fake account) that are actually known to be or should be known to be fake, and that could potentially be used or are actually used to misrepresent or artificially inflate individual or business importance for a commercial purpose. Thus, liability will not attach to a business or brand that engages an influencer using fake indicators of social media influence if the business or brand neither knew nor should have known thereof.

How is the FTC Final Rule Different from the Proposed Rule?

Notably, the Final Rule does not include a provision from the proposed rule that would have precluded advertisers from using consumer reviews that were created for a different product. Known as “review hijacking,” the FTC was unable to resolve various concerns about the meaning of “substantially different product.” The FTC reserved the right to revisit this issue, going forward via further rulemaking.

What are the Consequences for Violating the FTC Final Rule on Reviews and Testimonials?

The concepts, prohibitions and obligations included in the Final Rule are not entirely new. However, the Final Rule does significantly enhance the FTC’s ability to pursue civil monetary damages in the form of penalties in the amount of up to $51,744, per violation or per day for ongoing violations. The Final Rule also will permit the FTC to seek judicial orders that require violators to compensate consumers for the consequences of their unlawful conduct.

Takeaway:

The Final Rule banning fake consumer reviews and testimonials generally prohibits specific practices that the FTC has determined are deceptive or misleading, including: (i) fake or false consumer reviews, consumer testimonials or celebrity testimonials; (ii) purchasing positive or negative consumer reviews; (iii) insider consumer reviews and consumer testimonials; (iv) company-controlled review websites or entities; (v) review suppression; and (vi) misuse of fake indicators of social media influence. The Final rule will be effective October 21, 2024. Violations of the Final Rule can result in significant financial and reputational consequences. Companies that utilize consumer reviews, consumer testimonials or celebrity endorsements should consult with an experienced eCommerce attorney to discuss proactively implementing responsible written policies and contracts that ensure compliance with the Final Rule and other applicable legal regulations (for example and without limitation, ensure the clear and conspicuous disclosure of material connections), educating employees and agents, reviewing marketing strategies, auditing first and third-party (for example and without limitation, lead generators) promotional materials and activities for non-compliance (for example and without limitation, ensuring that reviews provide an accurate representation of consumer experiences), and developing and implementing appropriate compliance plans and written policies that include required remedial actions.

EEOC Unveils Final Rule Implementing Pregnant Workers Fairness Act PWFA

Go-To Guide:

Effective June 18, employers covered by the Pregnancy Workers Fairness Act (PWFA) are required to offer reasonable workplace accommodations to workers who are pregnant or have a condition related to pregnancy or childbirth.
PWFA applies to covered entities, which include public and private employers with 15 or more employees, unions, employment agencies, and the federal government.
A preliminary injunction was entered on June 17, which “postpones the effective date of the Final Rule’s requirement that covered entities provide accommodation for purely elective abortions of employees that are not necessary to treat a medical condition related to pregnancy” for the states of Louisiana and Mississippi.
Covered employers should review the requirements of the PWFA to ensure that their workplace policies and procedures allow for the requisite accommodations under the Act and follow current challenges to accommodations regarding elective abortions under the law.

The U.S. Equal Employment Opportunity Commission (EEOC) final rule implementing the Pregnant Workers Fairness Act (PWFA) went into effect June 18, 2024, but not without legal challenge.

The final rule, covered in a previous GT Alert, requires employers to offer reasonable workplace accommodations to workers who are pregnant or have a condition related to pregnancy or childbirth. The rule includes an exception for employers if the requested accommodation would cause the business an undue hardship.

However, the requirement of a workplace accommodation for “purely elective abortions” has been enjoined from implementation and enforcement in the states of Louisiana and Mississippi and against four Catholic organizations. On June 17, 2024, Judge David C. Joseph in the U.S. District Court for the Western District of Louisiana ruled that the EEOC overstepped its authority by requiring workplace accommodations for “purely elective abortions.”

The motions for preliminary injunction, filed by the states of Louisiana and Mississippi, as well as four entities affiliated with the Catholic Church, sought injunctive relief to the extent that the PWFA requires employers to accommodate purely elective abortions of employees. The court rejected the EEOC argument “that Congress could reasonably be understood to have granted [it] the authority to interpret the scope of the PWFA in a way that imposes a nationwide mandate on both public and private employers – irrespective of applicable abortion-related state laws enacted in the wake of Dobbs – to provide workplace accommodation for the elective abortions of employees.”

Based on its analysis, the court entered a preliminary injunction which “postpones the effective date of the Final Rule’s requirement that covered entities provide accommodation for the elective abortions of employees that are not necessary to treat a medical condition related to pregnancy” for the states of Louisiana and Mississippi and any agency thereof, any covered entity under the final rule with respect to all employees whose primary duty station is located in Louisiana or Mississippi, and the entities affiliated with the Catholic Church that sought the court’s involvement.¹

What should employers know to ensure compliance with the PWFA, given the limited injunctive relief issued? Below is a summary of the law and considerations for implementing the rule, which is now effective.

Application

The PWFA applies to employees, which include applicants and former employees where relevant based on Title VII of the Civil Rights Act of 1964 (Title VII), as amended by the Pregnancy Discrimination Act of 1978.
The PWFA applies to covered entities, which include public and private employers with 15 or more employees, unions, employment agencies, and the federal government.
The states of Louisiana and Mississippi; employers located in Louisiana and Mississippi and with employees whose primary duty station is located within the states; and the U.S. Conference of Catholic Bishops, the Society of the Roman Catholic Church of the Diocese of Lake Charles, the Society of the Roman Catholic Church of the Diocese of Lafayette, and the Catholic University of America are not required to provide accommodations for the elective abortions of employees that are not necessary to treat a medical condition related to the pregnancy.

What Is Considered a ‘Known Limitation’?

A limitation is “known” to a covered entity if the employee, or the employee’s representative, has communicated the limitation to the covered entity.
The physical or mental condition may be a modest or minor and/or episodic impediment or problem.
An employee affected by pregnancy, childbirth, or related medical conditions that had a need or a problem related to maintaining their health or the health of the pregnancy. “Pregnancy, childbirth, or related medical conditions” includes uncomplicated pregnancies, vaginal deliveries or cesarian sections, miscarriage, postpartum depression, edema, placenta previa, and lactation.
An employee affected by pregnancy, childbirth, or related medical conditions who sought health care related to pregnancy, childbirth, or a related medical condition itself.
There is possible overlap between the PWFA and the Americans with Disabilities Act (ADA) because in these situations, the qualified employee may be entitled to an accommodation under either statute, as the protections of both may apply.

What Is an ‘Undue Hardship’?

An employer or covered entity does not need to provide a reasonable accommodation if it causes an undue hardship, meaning significant difficulty or expense, to the employer.

The PWFA Prohibits the Following Conduct by Covered Employers

Failure to make a reasonable accommodation for the known limitations of an employee or applicant, unless the accommodation would cause an undue hardship;
Requiring an employee to accept an accommodation other than a reasonable accommodation arrived at through the interactive process;
Denying a job or other employment opportunities to a qualified employee or applicant based on the person’s need for a reasonable accommodation;
Requiring an employee to take leave if another reasonable accommodation can be provided that would let the employee keep working;
Punishing or retaliating against an employee or applicant for requesting or using a reasonable accommodation for a known limitation under the PWFA, reporting or opposing unlawful discrimination under the PWFA, or participating in a PWFA proceeding (such as an investigation); and/or
Coercing individuals who are exercising their rights or helping others exercise their rights under the PWFA.

Non-Exhaustive List Of Examples of ‘Reasonable Accommodations’

Additional, longer, or more flexible breaks to drink water, eat, rest, or use the restroom;
Changing food or drink policies to allow for a water bottle or food;
Changing equipment, devices, or workstations, such as providing a stool to sit on, or a way to do work while standing;
Changing a uniform or dress code or providing safety equipment that fits;
Changing a work schedule, such as having shorter hours, part-time work, or a later start time;
Telework;
Temporary reassignment;
Temporary suspension of one or more essential functions of a job;
Leave for health care appointments;
Light duty or help with lifting or other manual labor; or
Leave to recover from childbirth or other medical conditions related to pregnancy or childbirth.

Employer Training

Employers should consider training supervisors on how to respond to requests for accommodation.
Unlike requests for accommodation under the ADA, an accommodation pursuant to the PWFA may include a temporary suspension of essential job functions for qualified individuals (barring undue hardship to the employer).
Employees do not need to use specific words to request an accommodation to begin the interactive process.
Employers may not require that the employee seeking an accommodation be examined by a health care provider selected by the employer.

¹Further efforts to enjoin the implementation of the Rule were thwarted when the U.S. District Court for the District of Arkansas denied a motion for injunctive relief filed by a group of Republican state attorneys general on the grounds that the plaintiffs lacked standing to challenge the rule.

CEQ Finalizes “Phase 2” Revisions to NEPA Implementing Regulations

The Council on Environmental Quality (“CEQ”) is tasked with issuing National Environmental Policy Act (“NEPA”) regulations to guide federal agencies in its implementation. In 2021, CEQ began a two-phase process to revise these regulations. “Phase 1” largely reversed several changes made to the regulations in 2020 under the prior Trump Administration, including key changes relating to defining “purpose and need” and the long-used concepts of direct, indirect, and cumulative effects. The new “Phase 2” revisions are more extensive. Some of the Phase 2 revisions codify in regulation amendments to NEPA made by the Fiscal Responsibility Act of 2023 (“FRA”) and intended to improve the efficiency of the NEPA process, such as establishing page limits for environmental documents and facilitating the use of categorical exclusions (“CEs”). The Phase 2 revisions also restore additional concepts or provisions from the 1978 regulations and case law interpreting those regulations, remove additional changes made in 2020 that CEQ now “considers imprudent,” and, for the first time, specifically require consideration of effects relevant to environmental justice and climate change. We highlight some of these changes below.

The Phase 2 Final Rule will impact a broad range of projects needing federal authorizations or funding. Many of the efficiency measures included in the Final Rule implement changes that were enacted in the FRA. Although these changes could help address some long-standing issues in the NEPA process around delays and litigation, the effect of the proposed changes will be highly dependent on how the individual federal agencies carry out the changes through their own procedures and implementing regulations. Moreover, the Phase 2 Final Rule makes other important changes to the regulations that, rather than streamlining and improving efficiency, could increase burdens and challenges associated with NEPA compliance.

The Phase 2 Final Rule is scheduled to go into effect on July 1, 2024. However, industry groups and others already have signaled their frustration with these revisions, including several key members of Congress, led by Senator Joe Manchin, who have announced that they will seek to overturn the Phase 2 Final Rule using the Congressional Review Act.

Provisions Directed Towards Promoting Efficiency and Streamlining

Page Limits and Timelines. The Final Rule makes many small and some larger changes to promote efficiency and streamline the NEPA process. The Final Rule incorporates the FRA’s page limits of 75 pages for environmental assessments (“EAs”), 150 pages for environmental impact statements (“EISs”), and 300 pages for EISs of “extraordinary complexity.” It includes the FRA’s time limits for completion of NEPA documents, requiring completion of EAs within one year and EISs within two years, although it allows for an agency to extend this deadline, in consultation with any project applicant, to the extent necessary to complete the document. To further promote efficiency, the Final Rule also requires agencies to set deadlines and schedules appropriate to specific actions or types of actions.

Categorical Exclusions. The Final Rule also makes substantial changes to its regulations governing CEs that should facilitate agencies’ adoption of CEs as a tool to streamline NEPA compliance in certain circumstances, as allowed under the FRA. It sets forth a process for agencies to adopt and utilize other agencies’ CEs, as allowed under the FRA without having to amend their regulations. The Final Rule clarifies that agencies can establish CEs individually as well as jointly with other agencies. And it allows agencies to establish CEs through land use plans, decision documents supported by a programmatic EIS or EA, or similar planning or programmatic decisions, without having to go through a separate rulemaking process. According to CEQ, by expanding the means by which agencies can establish CEs, these changes will, among other things, encourage agencies to undertake programmatic and planning reviews, as well as promote and speed the process for establishing CEs.

Programmatic Reviews and Tiering. The Final Rule includes various revisions to codify best practices for the use of programmatic NEPA reviews and tiering, which CEQ acknowledges “are important tools to facilitate more efficient environmental reviews and project approvals.”

Provisions that Could Increase NEPA Compliance Burdens

While the Phase 2 Final Rule emphasizes efficiency, it includes a range of regulatory changes that could have the opposite effect, creating additional burdens and potentially perpetuating opportunities for contentious litigation.

Climate Change, Environmental Justice, and Tribal Resources. Reflected in a wide range of revisions to the regulations, the Phase 2 Final Rule aims to further advance the Biden Administration’s policy focus on climate change, environmental justice, and Tribal resources. Among other provisions, the Final Rule explicitly requires agencies to analyze “disproportionate and adverse human health and environmental effects on communities with environmental justice concerns” and climate change-related effects, including quantification of greenhouse gas emissions where feasible, in their NEPA reviews. Agencies also must review these effects, as well as effects on Tribal rights and resources, in identifying the environmentally preferable alternative or alternatives. Similarly, the Final Rule defines “extraordinary circumstances”—which agencies must consider in determining whether to apply a CE—to include potential substantial disproportionate and adverse effects on communities with environmental justice concerns, potential substantial climate change effects, and potential substantial effects on historic or cultural properties. Moreover, agencies now “should, where relevant and appropriate, incorporate mitigation measures” to address effects “that disproportionately and adversely affect communities with environmental justice concerns.” And the Final Rule directs agencies, where appropriate, to use projections when evaluating climate change-related effects, including relying on models to project a range of possible future outcomes, provided that they disclose relevant assumptions or limitations. While these codifications are new—particularly the regulation directing agencies to consider mitigation for impacts to environmental justice communities—most agencies have been including some environmental justice and greenhouse gas emission impacts in their NEPA reviews based upon federal governmentwide and agency policy and court precedent.

Major Federal Actions. Implementing changes in the FRA and further responding to changes made in the 2020 rule, the Final Rule revises the definition of “major federal action”—the trigger for environmental review under NEPA. The FRA, in addition to specifying that a major federal action requires “substantial Federal control and responsibility,” established several exclusions including for certain types of projects receiving loans, loan guarantees, or other types of federal financial assistance. In an effort to address some of the uncertainty raised by these exclusions, the revised regulations provide that major federal actions generally include “[p]roviding more than a minimal amount of financial assistance, . . . where the agency has the authority to deny in whole or in part the assistance due to environmental effects, has authority to impose conditions on the receipt of the financial assistance to address environmental effects, or otherwise has sufficient control and responsibility over the subsequent use of the financial assistance” or effects of the funded activity.

Alternatives. The Phase 2 Final Rule clarifies that agencies are not required to consider “every conceivable alternative to a proposed action” but rather only “a reasonable range of alternatives that will foster informed decision making.” Additionally, the revised regulations provide that agencies have the discretion, but are not required, to include reasonable alternatives not within the lead agency’s jurisdiction. CEQ continues to anticipate that this will occur relatively infrequently and notes that such alternatives still must be technically and economically feasible and meet the proposed action’s purpose and need. The Final Rule also requires that environmental documents (and not just records of decision) identify one or more environmentally preferable alternatives, which could be the proposed action, the no action alternative, or a reasonable alternative.

Mitigation. Although NEPA has long been understood to be a procedural, rather than substantive, requirement, the Phase 2 Final Rule includes several provisions intended to encourage agencies to mitigate the impacts of proposed actions and to ensure that mitigation measures that agencies rely on in making their environmental determinations are actually carried out. When an agency incorporates and relies upon mitigation measures—whether in its analysis of reasonably foreseeable effects or in a mitigated finding of no significant impact—the revised regulations require the agency to explain the enforceable mitigation requirements or commitments to be undertaken and the authority to enforce them (for example, permit conditions, agreements, or other measures), and to prepare a monitoring and compliance plan.

Development of New Information. While agencies generally historically have not been required to develop data that was not readily available, CEQ “now considers it vital to the NEPA process for agencies to undertake studies and analyses” that provide information “essential to a reasoned choice among alternatives,” provided the overall costs are not unreasonable, and includes provisions to that effect in the Final Rule.

Exhaustion, Judicial Review, and Remedies. The Phase 2 Final Rule removes several changes included in the 2020 rule relating to exhaustion, judicial review, and remedies that were intended to reduce NEPA-related litigation and project delays.

The Phase 2 revisions take effect on July 1, 2024, and apply to any NEPA process that commences after that date, although the Final Rule states that agencies may apply them to ongoing activities and environmental documents that commence prior to that date. In addition to following the CEQ regulations, agencies also have adopted agency-specific NEPA implementing procedures. Agencies must revise these procedures to incorporate changes necessitated by the Phase 2 Final Rule by July 1, 2025.

The New Retirement Security Rule: Updated Fiduciary Definition Under ERISA

On April 23, 2024, the U.S. Department of Labor (the “DOL”) promulgated a final rule, titled the “Retirement Security Rule” (the “Final Rule”), updating the definition of an “investment advice fiduciary” under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). In addition, the DOL issued final amendments to several prohibited transaction class exemptions (“PTEs”) available to investment advice fiduciaries, which together with the Final Rule seek to effectuate the DOL’s goal of requiring honest investment advice from investment advice fiduciaries to retirement investors. The updated fiduciary definition under the Final Rule and the amended PTEs will become effective on September 23, 2024, with a one-year phase-in period for certain conditions of the amended PTEs.

Fiduciary Definition

The framework for determining whether a person is an investment advice fiduciary has historically required that investment advice be provided to a retirement investor on a regular basis and pursuant to a mutual agreement, arrangement, or understanding that such advice will serve as a primary basis for investment decisions.

Under the Final Rule, a person will be an investment advice fiduciary for purposes of ERISA if (1) they make a recommendation of any securities transaction or other investment transaction or any investment strategy to a retirement investor for a fee or other compensation (direct or indirect), and (2) such recommendation arises in either one of the following contexts:

The person either directly or indirectly (e.g., through or together with any affiliate) makes professional investment recommendations to investors on a regular basis as part of their business, and the recommendation is made under circumstances that would indicate to a reasonable investor in like circumstances that the recommendation:
- is based on review of the retirement investor’s particular needs or individual circumstances,
- reflects the application of professional or expert judgment to the retirement investor’s particular needs or individual circumstances, and
- may be relied on by the retirement investor as intended to advance the retirement investor’s best interest; or
the person represents or acknowledges that they are acting as a fiduciary under ERISA with respect to the recommendation.

For purposes of the Final Rule, a “retirement investor” is defined as a plan, plan fiduciary, plan participant or beneficiary, IRA, IRA owner or beneficiary, or IRA fiduciary. “Recommendations” means recommendations as to:

the advisability of acquiring, holding, disposing of, or exchanging securities or other investment property, investment strategy, or how securities or other investment property should be invested following a rollover, transfer, or distribution from a plan or IRA;
the management of securities or other investment property, including, among other things, recommendations on investment policies or strategies, portfolio composition, selection of other persons to provide investment advice or investment management services, selection of investment account arrangements, or voting of proxies appurtenant to securities; or
rollovers, transfers, or distributions of assets from a plan or IRA, including recommendations as to whether to engage in the transaction, the amount, the form and the destination of such a rollover, transfer or distribution.

Significant Changes

The investment advice fiduciary standard in the Final Rule has become narrower than initially anticipated:

The DOL clarified that with respect to a person who becomes an investment advice fiduciary due to their representing or acknowledging that they are acting as a fiduciary under ERISA with respect to a recommendation, fiduciary status would apply only with respect to that recommendation and not with respect to every future interaction with the same retirement investor regardless of the circumstances.
The Final Rule includes a paragraph specifically confirming that sales pitches and investment education can be provided without triggering ERISA fiduciary status. A key component of this consideration is whether a sales pitch is individualized to a retirement investor’s particular needs and circumstances.

Amendment to Exemption for Transactions Involving Investment Advice (PTE 2020-02)

PTE 2020-02 generally permits parties providing fiduciary investment advice to retirement investors to receive reasonable compensation in exchange for their services, which would otherwise be prohibited in the absence of an exemption. The final amendment to PTE 2020-02 broadens the exemption to cover additional transactions and revises certain conditions, including conditions relating to disclosure, recordkeeping, and ineligibility.

The amended PTE 2020-02 applies to covered transactions on or after September 23, 2024; however, there is a one-year phase-in period beginning on September 23, 2024. During this phase-in period, investment professionals may receive reasonable compensation if they comply with the Impartial Conduct Standards and the fiduciary acknowledgement requirement.

Required Disclosure and Fiduciary Acknowledgement

The amended PTE 2020-02 requires investment advisers to provide a written acknowledgement that the institution and the investment professional are providing fiduciary advice and are fiduciaries under ERISA. Furthermore, the amended PTE 2020-02 requires investment advisers to make certain additional disclosures regarding fees, scope of services, and conflicts of interest.

Impartial Conduct Standard

The amended PTE 2020-02 replaces the “best interest standard” for determining impartial conduct with the “Care Obligation” and the “Loyalty Obligation,” which, according to the DOL, are more consistent with the Securities and Exchange Commission’s Regulation Best Interest. Under the Care Obligation, advice must reflect the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, based on the investment objectives, risk tolerance, financial circumstances, and needs of the retirement investor. Under the Loyalty Obligation, the investment professional must not place the financial or other interests of the professional, their affiliate or related entity, or other party ahead of the interests of the retirement investor or subordinate the retirement investor’s interests to those of the professional, their affiliate, or related entity.

Policies and Procedures

Each investment adviser must establish, maintain, and enforce written policies and procedures prudently designed to ensure that the investment adviser and its investment professionals comply with the Impartial Conduct Standards and other exemption conditions. The policies must mitigate conflict of interests.

Specifically, investment advisers may not use quotas, appraisals, bonuses, special awards, differential compensation, or other similar actions in a manner that is intended, or that a reasonable person would conclude are likely, to result in recommendations that do not meet the Care Obligation or Loyalty Obligation. The investment adviser must provide their complete policies and procedures to the DOL within 30 days of a request.

Additionally, the investment adviser must continue to conduct a retrospective review at least annually that is reasonably designed to detect and prevent violations of and achieve compliance with the conditions of this exemption. The investment adviser must maintain records demonstrating compliance with PTE 2020-02 for a period of six years after the covered transaction.

Penalties

The amended PTE 2020-02 broadens the disqualification provisions to include convictions of certain affiliated entities and foreign convictions. Previously, an investment adviser or an investment professional was ineligible only upon a conviction for “crimes arising out of such person’s provision of investment advice” to retirement investors. Under the amended PTE 2020-02, however, a relevant conviction or final judgment that occurs on or after September 23, 2024, with respect to an entity in the same controlled group as an investment adviser would result in such investment adviser’s becoming ineligible to rely on PTE 2020-02 for a 10-year period.

The DOL’s Retirement Security Rule has broad implications for financial institutions, including investment advisers.

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

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

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

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

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

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

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

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

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

DOL Announces New Independent Contractor Rule

On January 9, 2024, the United States Department of Labor (“DOL”) announced a new rule, effective March 11, 2024, that could impact countless businesses that use independent contractors. The new rule establishes a six-factor analysis to determine whether independent contractors are deemed to be “employees” of those businesses, and thus imposes obligations on those businesses relating to those workers including: maintaining detailed records of their compensation and hours worked; paying them regular and overtime wages; and addressing payroll withholdings and payments, such as those mandated by the Federal Insurance Contributions Act (“FICA” for Social Security and Medicare), the Federal Unemployment Tax Act (“FUTA”), and federal income tax laws. Further, workers claiming employee status under this rule may claim entitlement to coverage under the businesses’ group health insurance, 401(k), and other benefits programs.

The DOL’s new rule applies to the federal Fair Labor Standards Act (“FLSA”) which sets forth federally established standards for the protection of workers with respect to minimum wage, overtime pay, recordkeeping, and child labor. In its prefatory statement that accompanied the new rule’s publication in the Federal Register, the DOL noted that because the FLSA applies only to “employees” and not to “independent contractors,” employees misclassified as independent contractors are denied the FLSA’s “basic protections.”

Accordingly, when the new rule goes into effect on March 11, 2024, the DOL will use its new, multi-factor test to determine whether, as a matter of “economic reality,” a worker is truly in business for themself (and is, therefore, an independent contractor), or whether the worker is economically dependent on the employer for work (and is, therefore, an employee).

While the DOL advises that additional factors may be considered under appropriate circumstances, it states that the rule’s six, primary factors are: (1) whether the work performed provides the worker with an opportunity to earn profits or suffer losses depending on the worker’s managerial skill; (2) the relative investments made by the worker and the potential employer and whether those made by the worker are to grow and expand their own business; (3) the degree of permanence of the work relationship between the worker and the potential employer; (4) the nature and degree of control by the potential employer; (5) the extent to which the work performed is an integral part of the potential employer’s business; and (6) whether the worker uses specialized skills and initiative to perform the work.

In its announcement, the DOL emphasized that, unlike its earlier independent contractor test which accorded extra weight to certain factors, the new rule’s six primary factors are to be assessed equally. Nevertheless, the breadth and impreciseness of the factors’ wording, along with the fact that each factor is itself assessed through numerous sub-factors, make the rule’s application very fact-specific. For example, through a Fact Sheet the DOL recently issued for the new rule, it explains that the first factor – opportunity for profit or loss depending on managerial skill – primarily looks at whether a worker can earn profits or suffer losses through their own independent effort and decision making, which will be influenced by the presence of such factors as whether the worker: (i) determines or meaningfully negotiates their compensation; (ii) decides whether to accept or decline work or has power over work scheduling; (iii) advertises their business, or engages in other efforts to expand business or secure more work; and (iv) makes decisions as to hiring their own workers, purchasing materials, or renting space. Similar sub-factors exist with respect to the rule’s other primary factors and are explained in the DOL’s Fact Sheet.

The rule will likely face legal challenges by business groups. Further, according to the online newsletter of the U.S. Senate Health, Education, Labor and Pensions Committee, its ranking member, Senator Bill Cassidy, has indicated that he will seek to repeal the rule. Also, in the coming months, the United States Supreme Court is expected to decide two cases that could significantly weaken the regulations issued by federal agencies like the DOL’s new independent contractor rule, Loper Bright Enterprises v. Raimondo and Relentless Inc. v. U.S. Dept. of Commerce. We will continue to monitor these developments.1

In the meantime, we recommend that businesses engaging or about to engage independent contractors take heed. Incorrect worker classification exposes employers to the FLSA’s significant statutory liabilities, including back pay, liquidated damages, attorneys’ fees to prevailing plaintiffs, and in some case, fines and criminal penalties. Moreover, a finding that an independent contractor has “employee” status under the FLSA may be considered persuasive evidence of employee status under other laws, such as discrimination laws. Additionally, existing state law tests for determining employee versus independent contractor status must also be considered.

1 The DOL’s independent contractor rule is not the only new federal agency rule being challenged. On January 12, 2024, the U.S. House of Representatives voted to repeal the NLRB’s recently announced joint-employer rule, which we discussed in our Client Alert of November 10, 2023.

Eric Moreno contributed to this article.

USDA Finalizes the Strengthening Organic Enforcement Rule

USDA’s Agricultural Marketing Service (AMS) administers the National Organic Program (NOP) as authorized by the Organic Foods Production Act of 1990 (OFPA). The USDA organic regulations, which were published on December 21, 2000, and became effective on October 21, 2002, govern the production, handling, labeling, and sale of organically produced agricultural products. On August 5, 2020, in response to mandates in the Agriculture Improvement Act of 2018, as well as pressure from the industry and recommendations from the National Organic Standards Board (NOSB), USDA published a proposed rule called Strengthening Organic Enforcement (SOE) that is aimed at preventing loss of organic integrity—through unintentional mishandling of organic products and intentional fraud meant to deceive—and strengthening trust in the USDA organic label.
On January 19, 2023, USDA published the SOE final rule. The final rule includes clarifications and additional examples in response to comments received on the SOE proposed rule. Key updates include:
- Requiring certification of more businesses, like brokers and traders, at critical links in organic supply chains;
- Requiring NOP Import Certificates for all organic imports;
- Requiring organic identification on nonretail containers;
- Increasing authority for more rigorous on-site inspections of certified operations;
- Requiring uniform qualification and training standards for organic inspectors and certifying agent personnel;
- Requiring standardized certificates of organic operation;
- Requiring additional and more frequent reporting of data on certified operations;
- Creating authority for more robust recordkeeping, traceability practices, and fraud prevention procedures; and
- Specifying certification requirements for producer groups.
The compliance date for the SOE final rule is March 19, 2024, or 12 months after the effective date of March 19, 2023.

Article By Food and Drug Law Practice Group at Keller and Heckman

For more biotech, food, and drug legal news, click here to visit the National Law Review.

CPSC Finalizes Ban on Certain Children’s Toys and Child Care Articles

On October 27, 2017, the U.S. Consumer Product Safety Commission (“CPSC”) issued a final rule prohibiting children’s toys and child care articles that contain concentrations of more than 0.1 percent of certain phthalates.

What’s Prohibited

The final rule states children’s toys and child care articles containing concentrations of more than 0.1 percent of diisononyl phthalate (“DINP”), diisobutyl phthalate (“DIBP”), di-n-pentyl phthalate (“DPENP”), di-n-hexyl phthalate (“DHEXP”), and dischyclohexyl phthalate (“DCHP”) are prohibited.

Section 108 of the Consumer Product Safety Improvement Act (“CPSIA”) prohibits the manufacture for sale, offer for sale, distribution in commerce, or importation into the U.S. of any children’s toy or child care article that contains these concentrations of certain phthalates. Children’s toys include consumer products designed or intended by the manufacturer for a child 12 years or younger for use by the child when the child plays. A child care article is a consumer product designed or intended by the manufacturer to facilitate sleep or the feeding of children age 3 and younger, or to help such children with sucking or teething.

What Are Phthalates

The most common phthalate, DINP, is added to some plastics to make them flexible and is commonly found in automobile interiors, wire and cable insulation, gloves, tubing, garden hoses, and shoes. DINP is also found in flexible vinyl materials that are used in the production of bedding, garments, outdoor products such as tents and book binders. Non-PVC or vinyl products include inks, adhesives, sealants, paints and lacquers. DINP is also a listed substance known to cause cancer under California’s Proposition 65 and products must provide a warning about exposure.

The CPSC determined that because DIBP, DPENP, DHEXP, and DCHP aren’t widely used, few manufacturers will be impacted and need to reformulate their products. Examples of products containing these phthalates are coating products, fillers, plasters, binding agents, paints, adhesives,

Who’s Affected

The final rule expanded the interim rule concerning DINP to cover all children’s toys, not just those that can be placed in a child’s mouth. Children’s toys that can be placed in a child’s mouth and child care articles containing more than 0.1 percent of DINP have been prohibited since 2009. Manufacturers won’t have to reformulate products in these categories. Only manufacturers of children’s toys that cannot be placed in a child’s mouth will be affected by the final rule.

The final rule applies to both domestic manufacturers and importers and will not be a barrier to international trade. The prohibition involving DINP applies regardless of the origin of the DINP or the phthalate formulation used. Children’s toys and child care articles containing DINP in concentrations greater than 0.1 percent are prohibited even if DINP was not intentionally added.

The final rule becomes effective April 25, 2018 and applies to products manufactured or imported on or after that date.

For more legal analysis go to The National Law Review

Tag: final rule

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