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BIOSECURE Act: Anticipated Movement, Key Provisions, and Likely Impact

Last night, the House of Representatives passed the BIOSECURE Act (BIOSECURE or the Act) by a bipartisan vote of 306 to 81.

The BIOSECURE Act prohibits federal agencies from procuring or obtaining any biotechnology equipment or service produced or provided by a biotechnology company of concern. Subject to some exceptions, it also prohibits federal agencies from contracting with a company that uses equipment or services produced or provided by a biotechnology company of concern. Further, the Act prohibits recipients of a loan or grant from a federal agency from using federal funds to purchase equipment or services from a biotechnology company of concern.

The Senate version of BIOSECURE, sponsored by Sens. Gary Peters (D-MI) and Bill Hagerty (R-TN), was voted out of the Senate Committee on Homeland Security and Governmental affairs with bipartisan support in March 2024. Given its passage in the House last night, the BIOSECURE Act is likely to be signed into law by the end of the year. The House version of BIOSECURE is likely to be the version that becomes law. President Biden is unlikely to veto the Act given its bipartisan support, his previous executive actions to support domestic biotechnology development, and his Administration’s approach towards competition with China.

The Act defines “biotechnology company of concern” as any entity that:

is subject to the jurisdiction, direction, control, or operates on behalf of the government of a foreign adversary (defined as China, Cuba, Iran, North Korea, and Russia);
is involved in the manufacturing, distribution, provision, or procurement of a biotechnology equipment or service; and
poses a risk to U.S. national security based on:
- engaging in joint research with, being supported by, or being affiliated with a foreign adversary’s military, internal security forces, or intelligence agencies;
- providing multiomic data obtained via biotechnology equipment or services to the government of a foreign adversary; or
- obtaining human multiomic data via the biotechnology equipment or services without express and informed consent.

Somewhat unusually, the Act names specific Chinese companies as automatically qualifying as “biotechnology companies of concern”:

BGI (formerly known as the Beijing Genomics Institute);
MGI;
Complete Genomics;
WuXi AppTec; and
WuXi Biologics.

Both categories include any subsidiary, parent, affiliate, or successor entities of biotechnology companies of concern.

The Act also has very broad definitions of “biotechnology equipment or service.” The definition of equipment encompasses any machine, device, or subcomponent, including software that is “designed for use in the research, development, production, or analysis of biological materials.” The definition of services is similarly broad.

The BIOSECURE Act also requires the Office of Management and Budget (OMB) to publish a list of additional biotechnology companies of concern. The list is prepared by the Secretary of Defense in coordination with the Secretaries of the Departments of Health and Human Services, Justice, Commerce, Homeland Security, and State, as well as the Director of National Intelligence and National Cyber Director. This list of companies must be published by OMB within one year of BIOSECURE’s enactment and reviewed annually by OMB in consultation with the other Departments.

Guidance and Regulatory Authorities

OMB is also tasked with developing guidance and has 120 days from enactment of the statute to do so for the named companies. For the list of biotechnology companies of concern, OMB’s guidance must be established within 180 days after the development of the list.

Beyond OMB, the Act requires the Federal Acquisition Regulatory Council to revise the Federal Acquisition Regulation (FAR) to incorporate its prohibitions. The FAR regulations must be issued within one year of when OMB establishes its guidance.

For named companies the Act’s prohibitions are effective 60 days after the issuance of the FAR regulations. For companies placed on the biotechnology company of concern list, the effective date for the Act’s prohibitions is 80 days after the issuance of FAR regulations.

Impact on Existing Business Relationships

In response to stakeholder concerns about disrupting existing commercial relationships and triggering delays in drug development, the House version of the BIOSECURE Act provides a five-year unwinding period for contracts and agreements entered into before the Act’s effective dates. Contracts entered into after the Act’s effective dates do not qualify for the five year unwinding period.

Process for Designating Companies

BIOSECURE specifies the process for designating a biotechnology company of concern. Critically, the Act does not require OMB to notify a company prior to the Department of Defense making the designation. Rather, a company will receive notice that it is being designated and placed on the biotechnology company of concern list. Moreover, the criteria for listing will only be provided “to the extent consistent with national security and law enforcement interests.” Thus, companies may face a circumstance where they are not provided the evidence supporting their designation.

Once a company receives the notice, it will have 90 days to submit information and arguments opposing the listing. The Act does not require a hearing or any formal administrative process. If practicable, the notice may also include steps the company could take to avoid being listed, but it is not required.

Safe Harbor, Waivers and Exceptions

The Act only has one safe harbor for biotechnology equipment or services that were formerly but no longer provided or produced by a biotechnology company of concern. This safe harbor seems intended to allow a biotechnology company of concern to sell their ownership of a product or service to another company without prohibitions applying to the new owner.

Agency heads may waive the Act’s prohibitions on a case-by-case basis, but only with the approval of OMB acting “in coordination with the Secretary of Defense.” Waivers must be reported to Congress within 30 days of being granted. The waiver may last for up to a year with an additional “one time” extension of 180 days allowed if an agency head determines it is “in the national security interests of the United States.” The 180-day extension must be approved by OMB and the agency head must notify and submit a justification to Congress within 10 days of the waiver being granted.

The Act has only two exceptions. First, its prohibitions do not apply to intelligence activities. Second, the prohibitions do not apply to health care services provided to federal employees, members of the armed services, and government contractors who are stationed in a foreign country or on official foreign travel.

Impact and Considerations for Clients

1. Increased Risk of Partnerships with Chinese Companies and Researchers:

Pharmaceutical and biotechnology companies that receive federal funding or contract with federal agencies should be prepared to wind down business ties to biotechnology companies in China. Impacted companies need to begin evaluating the risk to their supply chains, manufacturing capacity, and R&D pipelines in the event a business partner is listed.

Universities in the United States and other research institutes that receive federal funding will also need to undertake a similar assessment of their research partners and collaborators based in China.

2. Loss of CDMO capacity:

Wuxi App Tec is a large, global provider of contract development and manufacturing (CDMO) services to the life sciences industry. According to the New York Times “[b]y one estimate Wuxi has been involved in developing one-fourth of the drugs used in the United States.” BIOSECURE would effectively ban Wuxi from conducting business in the United States, and if passed, risks causing delays, shortages, and cost increases as companies seek to transition to other CDMOs. It will likely take years for competitors to replace the lost CDMO capacity.

3. Fate of Wuxi U.S. Facilities:

Wuxi has a large presence in the United States. It operates 12 facilities and employs almost 2,000 people. Normally, Wuxi would be expected to sell its U.S.-based facilities. However, based on Tiktok’s experience, it is unclear if the Government of China will permit Wuxi to sell its facilities as opposed to dismantling and/or relocating facilities outside of the United States.

4. OMB’s Management of Biotechnology Companies of Concern List

OMB does not typically manage processes like the one envisioned by BIOSECURE. How OMB interprets the broad criteria for listing companies will be critical. Which Departments, beyond the Department of Defense, will have the greatest influence on OMB’s decision making and how open OMB is to evidence from companies seeking to avoid listing will also need to be watched closely. Until OMB starts preparing its guidance and the FAR regulations are proposed, it is hard to anticipate the rate at which new companies will be added to the list. How the process established by BIOSECURE will interact with or leverage existing entity lists will be another development to closely monitor.

5. Retaliation by China

BIOSECURE’s passage is likely to trigger a response from the Government of China. Responses could range from imposing its own export controls to using the country’s sweeping national security laws to harass United States businesses and their employees. Companies doing business in China, particularly those in the pharmaceutical or biotech industries need to be prepared.

White House Publishes Revisions to Federal Agency Race and Ethnicity Reporting Categories

On March 28, 2024, the White House unveiled revisions to the federal statistical standards for race and ethnicity data collection for federal agencies, adding a new category and requiring a combined race and ethnicity question that allows respondents to select multiple categories with which they identify.

Quick Hits

The White House published an updated SPD 15 with revisions to the race and ethnicity data collection standards for federal agencies.
The revisions change the race and ethnicity inquiry by making it one question and encouraging respondents to identify under multiple categories.
Federal agencies have eighteen months to submit an agency action plan for compliance and must bring all of their data collections and programs into compliance within five years.
The race and ethnicity categories are widely used across federal agencies and serve as a model for employers for their own data collection and required diversity reporting.

The White House’s Office of Management and Budget (OMB) published updates to its Statistical Policy Directive No. 15: Standards for Maintaining, Collecting, and Presenting Federal Data on Race and Ethnicity (SPD 15) with major revisions, the first since 1997. The revisions took immediate effect and were formally published in the Federal Register on March 29, 2024.

OMB stated that the revisions—which come after a two-year review process that included input from more than 20,000 comments, ninety-four listening sessions, three virtual town halls, and a Tribal consultation—are “intended to result in more accurate and useful race and ethnicity data across the federal government.”

Background

In 2022, OMB convened the Federal Interagency Technical Working Group on Race and Ethnicity Standard (Working Group) to review the race and ethnicity standards in the 1997 SPD 15 with the goal of “improving the quality and usefulness of Federal race and ethnicity data.” The race and ethnicity standards are used by federal contractors and subcontractors for affirmative action programs (AAPs) and by employers for federal EEO-1 reporting and U.S. Equal Employment Opportunity Commission (EEOC) surveys. Many employers further use the race and ethnicity categories for their own recordkeeping purposes, and federal agencies use the categories for various surveys and federal forms.

In January 2023, OMB published the Working Group’s proposals, observing that the 1997 SPD 15 standards might no longer accurately reflect the growing diversity across the United States and evolving understandings of racial and ethnic identities. During the pendency of the review process, several justices of the Supreme Court of the United States criticized the imprecision of the 1997 race and ethnicity categories throughout the Court’s 237-page opinion in the June 2023 Students for Fair Admissions, Inc. v. Harvard College (SFFA decision) case, in which the Court struck down certain race-conscious admissions policies in higher education.

Revisions to SPD 15

The updated standards closely follow the Working Group’s final recommendations and revise SPD 15 to require that data collection:

combine the race and ethnicity inquiry into one question that allows respondents to select multiple categories with which they identify,
add “Middle Eastern or North African” (MENA) as a “minimum reporting category” that is “separate and distinct from the White’ category,” and
“require the collection of more detailed data as a default.”

Under the 1997 standards, respondents were required to first select an ethnicity (i.e., “Hispanic or Latino” or “Not Hispanic or Latino”), and second, select a race category (i.e., “American Indian or Alaskan Native,” “Asian,” “Black or African American,” “Native Hawaiian or Other Pacific Islander,” or “White”).

The revised race and ethnicity categories for minimum reporting are:

“American Indian or Alaska Native”
“Asian”
“Black or African American”
“Hispanic or Latino”
“Middle Eastern or North African”
“Native Hawaiian or Pacific Islander”
“White”

The updated SPD 15 further revises some terminology and definitions used and provides agencies with guidance on the collection and presentation of race and ethnicity data pursuant to SPD 15. Additionally, the update instructs federal agencies to begin updating their surveys and forms immediately and to complete and submit an AAP, which will be made publicly available, to comply with the updated SPD 15 within eighteen months. Federal agencies will have five years to bring all data collections and programs into compliance.

OMB noted that “the revised SPD 15 maintains the long-standing position that the race and/or ethnicity categories are not to be used as determinants of eligibility for participation in any Federal program.”

Looking Ahead

The new race and ethnicity categories have implications for employers as they use these categories for federal reporting compliance and their own recordkeeping purposes, including potentially influencing their own diversity, equity, and inclusion (DEI) initiatives. Covered federal contractors and subcontractors must also use the categories in meeting their affirmative action obligations.

Still, the updated SPD 15 adds only one new minimum category. OMB recognized the tension with attempting to “facilitate individual identity to the greatest extent possible while still enabling the creation of consistent and comparable data.” One of the issues OMB identified as needing further research is “[h]ow to encourage respondents to select multiple race and/or ethnicity categories when appropriate by enhancing question design and inclusive language.” The agency is also establishing an Interagency Committee on Race and Ethnicity Statistical Standards that will conduct further research and regular reviews of the categories every ten years, though OMB may decide to review SPD 15 again at any time.

Employers may want to take note of the revisions to SPD 15 as these changes will directly impact many employers’ compliance and recordkeeping obligations. They may also want to be on the lookout for additional guidance from federal agencies, such as the Office of Federal Contract Compliance Programs (OFCCP) and the EEOC, on when and how to implement the standards. Relevant agencies will have to take action before employers will be required to implement the new standards. In the meantime, employers may want to consider whether to use the government’s new or existing categories when shaping their DEI initiatives, as racial and ethnic identities and terminology continue to evolve.

New Year, (Potentially) New Rules?

SOMETIMES, THE ONLY CONSTANT IS CHANGE. THIS NEW YEAR IS NO DIFFERENT.

In 2023, we saw several developments in labor and employment law, including federal and state court decisions, regulations, and administrative agency guidance decided, enacted, or issued. This article will summarize five proposed rules and guidance issued by the Department of Labor (“DOL”), the National Labor Relations Board (“NLRB”), the United States Equal Employment Opportunity Commission (“EEOC”), and the Occupational Safety and Health Administration (“OSHA”), which will or may be enacted in 2024.

DOL’s Proposed Rule to Update the Minimum Salary Threshold for Overtime Exemptions

In 2023, the DOL announced a Notice of Proposed Rulemaking (“NPRM”) recommending significant changes to overtime and minimum wage exemptions. Key changes include:

Raising the minimum salary threshold: increasing the minimum weekly salary for exempt executive, administrative, and professional employees from $684 to $1,059, impacting millions of workers;
Higher Highly Compensated Employee (HCE) compensation threshold: increasing the total annual compensation requirement for the highly compensated employee exemption from $107,432 to $143,988; and
Automatic updates: automatically updating earning thresholds every three years.

These proposed changes aim to expand overtime protections for more employees and update salaries to reflect current earnings data. The public comment period closed in November 2023, so brace yourselves for a final rule in the near future. For more information: https://www.federalregister.gov/documents/2023/09/08/2023-19032/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and

DOL’s Proposed Rule on Independent Contractor Classification under the Fair Labor Standards Act

The long-awaited new independent contractor rule under the Fair Labor Standards Act (“FLSA”) may soon be on the horizon. The DOL proposed a new rule in 2022 on how to determine who is an employee or independent contractor under the FLSA. The new rule will replace the 2021 rule, which gives greater weight to two factors (nature and degree of control over work and opportunity for profit or loss), with a multifactor approach that does not elevate any one factor. The DOL intends this new rule to reduce the misclassification of employees as independent contractors and provide greater clarity to employers who engage (or wish to engage) with individuals who are in business for themselves.

The DOL is currently finalizing its independent contractor rule. It submitted a draft final rule to the Office of Management and Budget (OMB) for review in late 2023. While an exact date remains unknown, the final rule is likely to be announced in 2024. More information about the rule can be found here: https://www.federalregister.gov/documents/2022/10/13/2022-21454/employee-or-independent-contractor-classification-under-the-fair-labor-standards-act

NLRB’s Joint-Employer Standard

The NLRB has revamped its joint-employer standard under the National Labor Relations Act (“NLRA”). The NLRB replaced the 2020 standard for determining joint-employer status under the NLRA with a new rule that will likely lead to more joint-employer findings. Under the new standard, two or more entities may be considered joint employers of a group of employees if each entity: (1) has an employment relationship with the employees and (2) has the authority to control one or more of the employees’ essential terms and conditions of employment. The NLRB has defined “essential terms and conditions of employment” as:

Wages, benefits, and other compensation;
Hours of work and scheduling;
The assignment of duties to be performed;
The supervision of the performance of duties;
Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
The tenure of employment, including hiring and discharge; and
Working conditions related to the safety and health of employees.

The new rule further clarifies that joint-employer status can be based on indirect control or reserved control that has never been exercised. This is a major departure from the 2020 rule, which required that joint employers have “substantial direct and immediate control” over essential terms and conditions of employment.

The new standard will take effect on February 26, 2024, and will not apply to cases filed before the effective date. For more information on the final rule: https://www.federalregister.gov/documents/2023/10/27/2023-23573/standard-for-determining-joint-employer-status

EEOC’s Proposed Enforcement Guidance on Harassment

A fresh year brings fresh guidance! On October 2023, the EEOC published a notice of Proposed Enforcement Guidance on Harassment in the Workplace. The EEOC has not updated its enforcement guidance on workplace harassment since 1999. The updated proposed guidance explains the legal standards for harassment and employer liability applicable to claims of harassment. If finalized, the guidance will supersede several older documents:

Compliance ManualSection 615: Harassment (1987);
Policy Guidance on Current Issues of Sexual Harassment(1990);
Policy Guidance on Employer Liability under Title VII for Sexual Favoritism (1990);
Enforcement Guidance on Harris v. Forklift Sys., Inc. (1994); and
Enforcement Guidance on Vicarious Employer Liability for Unlawful Harassment by Supervisors(1999).

The EEOC accepted public comments through November 2023. After reviewing the public comments, the EEOC will decide whether to finalize the enforcement guidance. While not law itself, the enforcement guidance, if finalized, can be cited in court. For more information about the proposed guidance: https://www.eeoc.gov/proposed-enforcement-guidance-harassment-workplace

OSHA’s Proposed Rule to Amend Its Representatives of Employers and Employees Regulation

Be prepared to see changes in OSHA on-site inspections. Specifically, OSHA may reshape its Representatives of Employers and Employees regulation. In August 2023, OSHA published an NPRM titled “Worker Walkaround Representative Designation Process.” The NPRM proposes to allow employees to authorize an employee or a non-employee third party as their representative to accompany an OSHA Compliance Safety and Health Officer (“CSHO”) during a workplace inspection, provided the CSHO determines the third party is reasonably necessary to conduct the inspection. This change aims to increase employee participation during walkaround inspections. OSHA accepted public comments through November 2023. A final rule will likely be published in 2024.

For more information about the proposed rule to amend the Representatives of Employers and Employees regulation: https://www.federalregister.gov/documents/2023/08/30/2023-18695/worker-walkaround-representative-designation-process

Preparing for 2024

While 2023 proved to be a dynamic year for Labor and Employment law, 2024 could be either transformative or stagnant. Some of the proposed regulations mentioned above could turn into final rules, causing significant changes in employment law. On the other hand, given that 2024 is an election year, some of these proposed regulations could lose priority and wither on the vine. Either way, employers should stay informed of these ever-changing issues.

by: Emily G. Massey of Ward and Smith, P.A.

For more news on 2024 Labor and Employment Laws, visit the NLR Labor & Employment section.

CERCLA PFAS Designation Major Step Forward

On January 10, 2022, the EPA submitted a plan for a PFAS Superfund designation to the White House Office of Management and Budget (OMB) when it indicated an intent to designate two legacy PFAS – PFOA and PFOS – as “hazardous substances” under the Comprehensive Environmental Response, Compensation & Liability Act (CERCLA, also known as the Superfund law). The EPA previously stated its intent to make the proposed designation by March 2022 when it introduced its PFAS Roadmap in October 2021. Under the Roadmap, the EPA planned to issue its proposed CERCLA designation in the spring of 2022. On Friday, a CERCLA PFAS designation took a significant step forward when the OMB approved the EPA’s plan for PFOA and PFOS designation. This step opens the door for the EPA to put forth its proposed designation of PFOA and PFOS under CERCLA and engage in the required public comment period.

Any PFAS designation will have enormous financial impacts on companies with any sort of legacy or current PFOA and PFOS pollution concerns. Corporations, insurers, investment firms, and private equity alike must pay attention to this change in law when considering risk issues.

Opposition to CERCLA Designation

Since the EPA’s submission of its intent to designate PFOA and PFOS as hazardous substance to the OMB, the EPA has been met with industry pushback on the proposal. Three industries met with the OMB earlier in 2022 to explain the enormity of regulatory and cleanup costs that the industries would face with a CERCLA designation of PFOA and PFOS – water utilities, waste management companies, and the International Liquid Terminals Association. These industries in particular are concerned about bearing the burden of enormous cleanup costs for pollution that third parties are responsible for. Industries are urging the OMB and EPA to consider other ways to achieve regulatory and remediation goals aside from a CERCLA designation.

During an April 5, 2022 meeting of the Environmental Council of the States (ECOS), several states also expressed concerns regarding the impact that a CERCLA designation for PFAS types would have in their states and on their constituent companies. The state environmental leaders discussed with EPA representatives how the EPA would view companies in their states that fall into categories such as waste management and water utilities, who are already facing uphill battles in disposing of waste or sludge that contains PFAS.

Realizing that the EPA is likely set on its path to designate at least two PFAS as “hazardous substances”, though, industries are asking the EPA to consider PFAS CERCLA exemptions for certain industries, which would exempt certain industry types from liability under CERCLA. Industries are also pushing the EPA, OMB and the U.S. Chamber of Commerce to conduct a robust risk analysis to fully vet the impact that the designation will have on companies financially. The EPA is statutorily required to conduct a risk analysis as part of its CERCLA designation process, so it is likely that the EPA’s delay in issuing a proposed hazardous substance designation until it feels that adequate time has passed for its designation to survive the likely legal challenges that will likely follow the designation.

CERCLA PFAS Designation: Impact On Businesses

Once a substance is classified as a “hazardous substance” under CERCLA, the EPA can force parties that it deems to be polluters to either cleanup the polluted site or reimburse the EPA for the full remediation of the contaminated site. Without a PFAS Superfund designation, the EPA can merely attribute blame to parties that it feels contributed to the pollution, but it has no authority to force the parties to remediate or pay costs. The designation also triggers considerable reporting requirements for companies. Currently, those reporting requirements with respect to PFAS do not exist, but they would apply to industries well beyond just PFAS manufacturers.

The downstream effects of a PFOA and PFOS designation would be massive. Companies that utilized PFOA and PFOS in their industrial or manufacturing processes and sent the PFOA/PFOS waste to landfills or otherwise discharged the chemicals into the environment will be at immediate risk for enforcement action by the EPA given the EPA’s stated intent to hold all PFAS polluters of any kind accountable. Waste management companies should be especially concerned given the large swaths of land that are utilized for landfills and the likely PFAS pollution that can be found in most landfills due to the chemicals’ prevalence in consumer goods. These site owners may be the first targeted when the PFOA/PFOS designation is made, which will lead to lawsuits filed against any company that sent waste to the landfills for contribution to the cost of cleanup that the waste management company or its insured will bear.

Also of concern to companies are the re-opener possibilities that a CERCLA designation would result in. Sites that are or were previously designated as Superfund sites will be subject to additional review for PFOA/PFOS concerns. Sites found to have PFOA/PFOS pollution can be re-opened by the EPA for investigation and remediation cost attribution to parties that the EPA finds to be responsible parties for the pollution. Whether through direct enforcement action, re-opener remediation actions, or lawsuits for contribution, the costs for site cleanup could amount to tens of millions of dollars, of course depending on the scope of pollution.

Conclusion

Now more than ever, the EPA is clearly on a path to regulate PFAS contamination in the country’s water, land and air. The EPA has also for the first time publicly stated when they expect such regulations to be enacted. These regulations will require states to act, as well (and some states may still enact stronger regulations than the EPA). Both the federal and the state level regulations will impact businesses and industries of many kinds, even if their contribution to drinking water contamination issues may seem on the surface to be de minimus. In states that already have PFAS drinking water standards enacted, businesses and property owners have already seen local environmental agencies scrutinize possible sources of PFAS pollution much more closely than ever before, which has resulted in unexpected costs. Beyond drinking water, though, the EPA PFAS plan shows the EPA’s desire to take regulatory action well beyond just drinking water, and companies absolutely must begin preparing now for regulatory actions that will have significant financial impacts down the road.

Article By John Gardella of CMBG3 Law

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