Tag: Regulatory

Bridge to Prosperity: New Bridge Between U.S. and Canada Approved

Varnum LLP

Michigan farmers are among legions of organizations expressing gratitude now that a new bridge between the U.S. and Canada has been approved by the Obama Administration, setting the stage for a sharp increase in trade between Michigan and Canada.

The presidential permit awarded by the State Department April 12 clears the way for construction to begin in Michigan on the New International Trade Crossing Bridge.  The new span  will “serve the national interest,” the State Department said in granting the permit.

Michigan is Canada’s largest trade partner, with trade in 2011 exceeding $70 billion. That’s nearly 11.7 percent of the total U.S. trade with Canada. More than 8,000 trucks currently cross the Detroit-Windsor border daily.

Called “Michigan’s Bridge to the Future,”  the New International Trade Crossing Bridge will be built near the existing Ambassador Bridge that links Detroit with Windsor. Michigan voters in November overwhelmingly rejected a ballot proposal spearheaded by Ambassador Bridge owner Matty Moroun to require voter approval for any bridge built between the U.S. and Canada.

Under a deal struck last year between Michigan Gov. Rick Snyder and Canadian Prime Minister Stephen Harper,  Canada will pay for the bridge, with construction costs repaid by Canada through tolls.  Snyder said in a statement the crossing will create jobs and get Michigan-made products to market quicker.”

From the standpoint of Michigan agriculture, this additional transportation capacity is vital to streamline and expand our access to markets in Canada,” Michigan Farm Bureau Legislative Counsel Matt Smego said in prepared remarks.

Construction has already started on the Canadian side. Michigan Gov. Snyder said he hopes for groundbreaking on the Detroit side within the next two to three years. Construction is expected to take seven years.

The city of Windsor, meanwhile,  on May 28 asked Michigan officials for more information regarding the Michigan Department of Transportation’s recommendation to open the existing Ambassador Bridge to trucks carrying hazardous materials for the first time in its 83-year history. The recommendation excludes the transportation of explosives.

Article By:

of

EEOC Files Two Genetic Information Nondiscrimination Act Lawsuits in Two Weeks

barnes

The EEOC recently filed its first-ever lawsuit alleging a violation of the Genetic Information Nondiscrimination Act (GINA) – and subsequently filed its second GINA lawsuit one week later.

The first lawsuit settled, with a fabrics distributor paying $50,000 and agreeing to take other specified actions (i.e. posting an anti-discrimination notice, among other things) after the EEOC alleged a violation of GINA and the Americans with Disabilities Act (ADA). Specifically, with respect to GINA, the EEOC charged that the distributor violated the Act when it asked the woman for her family medical history in a post-offer medical examination, including questions relating to the existence of heart disease, hypertension, cancer, tuberculosis, diabetes, arthritis, and “mental disorders” in her family.

The second lawsuit remains pending and was filed against a nursing and rehabilitation center. The EEOC similarly charged that the center violated GINA when it requested family medical history in a post-offer, pre-employment medical examination. The second lawsuit also alleges violations of the ADA and Title VII of the Civil Rights Act.

dna (1)

According to the EEOC, GINA “makes it illegal to discriminate against employees or applicants because of genetic information, which includes family medical history; and also restricts employers from requesting, requiring or purchasing such information.”

As noted in both press releases, one of the six national priorities identified by the EEOC’s Strategic Enforcement Plan is for the agency to address emerging and developing issues in equal employment law, which includes genetic discrimination. As this recent EEOC action signals a focus on GINA issues, employers are encouraged to ensure their policies related to employee medical information and examination comply with the Act.

2013 Medicare Trustees’ Report

DrinkerBiddle

On Friday, the Medicare Trustees released their annual report, which projects the solvency of the Medicare program.  According to the Trustees, the Medicare Part A program will remain solvent until 2026 — two years later than the trustees projected last year.  (Additional information on the 2012 Medicare Trustees’ Report is available here.)

The report presents a non-partisan snapshot of the state of the Medicare program, but also contains a wealth of interesting information about the overall Medicare program, such as:

  • In 2012, Medicare covered 50.7 million people – 42.1 million of whom were age 65 or older and 8.5 million of whom have disabilities.
  • In 2012 Medicare spent $574.2 billion and received $536.9 billion.  Since 2008, Medicare has been spending more than it is taking in, but is able to meet its financial obligations because it is using funds available in the trust fund (estimated to be $287.6 billion).
  • The Medicare Trustees project that Medicare will become insolvent in 2026, at which time Medicare will be spending more than it is receiving in revenues.  Interestingly, the Trustees project the Medicare program will continue to run a deficit until 2014, and between 2015 and 2014 the program will run a surplus, after which it will return to a deficit.
  • Most Medicare beneficiaries (about 73 percent) are enrolled in “traditional Medicare” – in other words, the sign up for Medicare Part A and B.  More than one quarter (27 percent) of Medicare beneficiaries are enrolled in Medicare Advantage (MA) – a private plans that deliver Medicare benefits.  In 2012, the Trustees estimated that 25 percent of beneficiaries were enrolled in MA.  This is interesting in part because there was concern that the Affordable Care Act’s (ACA) changes to the Medicare Advantage (MA) payment rates would result decreased enrollment in MA plans.  Today’s Trustees’ report suggests that concern is not being realized (at least in the short term).
  • Most Medicare beneficiaries are also enrolled in Medicare Part B, which primarily pays for services provided by physicians and other health care professionals.  Currently most beneficiaries pay $104.90 per month for their Part B premium.  Each year the Centers for Medicare & Medicaid Services (CMS) calculates the amount of the Part B premium.  However, the Trustees project that the Part B premium will not increase next year.

It is also important to note that in making their projections, the Medicare Trustees have to assume current law.  Thus, if Congress were to make further changes – like addressing the impending SGR cuts (more information available here – then that would have an impact on the Trustees’ projections.

More information on the Medicare Trustees, including past reports, is available here.

 of

What’s New Out There? A Trade and Business Regulatory Update

Sheppard Mullin 2012Proposed DoD Rule: Detection and Avoidance of Counterfeit Electronic Parts (DFARS Case 2012-D-005)

On May 16, 2013, the Department of Defense (“DoD”) issued a proposed rule that would amend the Defense Federal Acquisition Regulation Supplement (“DFARS”) relating to the detection and avoidance of counterfeit parts, in partial implementation of the National Defense Authorization Act (“NDAA”) for Fiscal Year (“FY”) 2012 (Pub. L. 112-81) and the NDAA for FY 2013 (Pub. L. 112-239). 78 Fed. Reg. 28780 (May 16, 2013). The proposed rule would impose new obligations for detecting and protecting against the inclusion of counterfeit parts in their products. Public comments in response to the proposed amendment are due by July 15, 2013.

The proposed rule, titled Detection and Avoidance of Counterfeit Electronic Parts (DFARS Case 2012-D-005), partially implements Section 818 of the NDAA for FY 2012 requiring the issuance of regulations addressing the responsibility of contractors (a) to detect and avoid the use or inclusion of counterfeit – or suspect counterfeit – electronic parts, (b) to use trusted suppliers, and (c) to report counterfeit and suspect counterfeit electronic parts. Pub. L. 112-81,§ 818(c). Section 818(c) also requires DoD to revise the DFARS to make unallowable the costs of re-work or other actions necessary to deal with the use or suspected use of counterfeit electronic parts. Id. The new rule also proposes the following in order to implement the requirements defined in Section 818.

  • Definitions: Adds definitions to DFARS 202.101 for the terms “counterfeit part,” “electronic part,” “legally authorized source,” and “suspect counterfeit part.”
  • Cost Principles and Procedures: Adds DFARS section 231.205-71, which would apply to contractors covered by the Cost Accounting Standards (“CAS”) who supply electronic parts, and would make unallowable the costs of counterfeit or suspect counterfeit electronic parts and the costs of rework or corrective action that may be required to remedy the use or inclusion of such parts. This section provides a narrow exception where (1) the contractor has an operational system to detect and avoid counterfeit parts that has been reviewed and approved by DoD pursuant to DFARS 244.303; (2) the counterfeit or suspect counterfeit electronic parts are government furnished property defined in FAR 45.101; and (3) the covered contractor provides timely notice to the Government.
  • Avoidance and Detection System: Requires contractors to establish and maintain an acceptable counterfeit avoidance detection system that addresses, at a minimum, the following areas: training personnel; inspection and testing; processes to abolish counterfeit parts proliferation; traceability of parts to suppliers; use and qualification of trusted suppliers; reporting and quarantining counterfeit and suspect counterfeit parts; systems to detect and avoid counterfeit electronic parts; and the flow down of avoidance and detection requirements to subcontractors.

Potential Impacts on Contractors and Subcontractors

Although the rule is designed constructively to combat the problem of counterfeit parts in the military supply chain, it imposes additional obligations and related liabilities on contractors and subcontractors alike.

  • The proposed rule shifts the burden of protecting against counterfeit electronic parts to contractors, thus increasing contractor costs and potential contractor liability in this area.
  • Under the proposed rule, contractors would need to take steps to establish avoidance and detection systems in order to monitor for and protect against potential counterfeit electronic parts, also increasing the financial and temporal impact on contractors.
  • Avoidance and detection system requirements will need to be flowed down to subcontractors, increasing subcontractors’ responsibility – and thus liability – for counterfeit parts.
  • The proposed rule would also make unallowable the costs incurred to remove and replace counterfeit parts, which could have a significant financial impact on contractors – even under cost type contracts.
  • As it currently stands, the narrow exception regarding the allowability of such costs applies only where the contractor meets all three requirements of the exception, which likely would be a rare occurrence.

Interim SBA Rule: Expansion of WOSB Program, RIN 3245-AG55

On May 7, 2013, the Small Business Administration (“SBA”) issued an interim final rule implementing Section 1697 of the NDAA for FY 2013, removing the statutory dollar amount for contracts set aside for Women-Owned Small Business (“WOSB”) under the Women-Owned Small Business Program. 78 Fed. Reg. 26504 (May 7, 2013). Comments are due by June 6, 2013.

The new rule would amend SBA 127.503 to permit Contracting Officers (“COs”) to set aside contracts for WOSBs and Economically Disadvantaged WOSBs (“EDWOSBs”) at any dollar amount if there is a reasonable expectation of competition among WOSBs as follows: (1) in industries where WOSBs are underrepresented, the CO may set aside the procurement where two or more EDWOSBs will submit offers for the contract and the CO finds that the contract will be awarded at a fair and reasonable price; or (2) in industries where WOSBs are substantially underrepresented, the CO may set aside the procurement if two or more WOSBs will submit offers for the contract, and the CO finds that the contract will be awarded at a fair and reasonable price.

The new rule would amend SBA 127.503 to permit Contracting Officers (“COs”) to set aside contracts for WOSBs and Economically Disadvantaged WOSBs (“EDWOSBs”) at any dollar amount if there is a reasonable expectation of competition among WOSBs as follows: (1) in industries where WOSBs are underrepresented, the CO may set aside the procurement where two or more EDWOSBs will submit offers for the contract and the CO finds that the contract will be awarded at a fair and reasonable price; or (2) in industries where WOSBs are substantially underrepresented, the CO may set aside the procurement if two or more WOSBs will submit offers for the contract, and the CO finds that the contract will be awarded at a fair and reasonable price.

Article By:

 of

Total Settles Foreign Corrupt Practices Act (FCPA) Bribery Claims for $398M

Katten Muchin

On May 29, French oil and gas company, Total SA, agreed to pay $398 million to settle US civil and criminal allegations that it paid bribes to win oil and gas contracts in Iran in violation of the Foreign Corrupt Practices Act (FCPA). Notably, the criminal penalty is the fourth-largest under the FCPA and the case marks the first coordinated action by French and US law enforcement agencies in a major foreign bribery case.

In a scheme that allegedly began nearly 20 years ago in 1995 and continued until 2004, Total allegedly paid approximately $60 million in bribes to induce an intermediary, designated by an Iranian government official, to help the company win contracts with National Iranian Oil Co. The contracts gave Total the right to develop three oil and gas fields and included a portion of South Parys, the world’s largest gas field. Total allegedly characterized the bribes as “business development expenses” in its books and records.

The DOJ filed a three-count criminal investigation charging Total with FCPA conspiracy and internal controls and books-and-records violations. Total agreed to resolve the FCPA charges by paying a $245.2 million criminal penalty, which was at the bottom of the $235.2 to $470.4 million range of fines available under the US Sentencing Guidelines. The company also settled a related civil case with the US Securities and Exchange Commission for $153 million in disgorgement of its profits in the scheme. The criminal case will be dismissed after three years if Total complies with the deferred prosecution agreement, which requires Total to (i) retain a corporate compliance monitor, who will conduct annual reviews; (ii) cooperate with authorities and (iii) implement an enhanced compliance program designed to prevent and detect FCPA violations. The compliance program requires, among other things, that Total’s Board of Directors and senior management “provide, strong, explicit and visible support and commitment” to the company’s anti-corruption policy and that they appoint a senior executive to oversee the program and report directly to an independent authority, such as internal audit, the Board or a committee thereof. Total’s problems, however, are not over. French prosecutors have recommended that the company and its chief executive officer be brought to trial on violations of French law, including France’s foreign bribery law.

U.S. v. Total SA, 13-cr-239 (E.D. VA. May 29, 2013).

Article By:

 of

United States Citizenship and Immigration Services (USCIS) Issues Final EB-5 Policy Memo

GT Law

On May 30, 2013, USCIS finally issued the much anticipated Final EB-5 Adjudications Policy Memorandum.  The Final EB-5 Adjudications Policy Memorandum makes significant changes to and provides clarifications for the EB-5 Program.  Here are some of the highlights:

  • Less Regional Center Amendments: The new memo states that USCIS does not require formal amendments to regional center designation when an RC changes its industries of focus, its geographic boundaries, its business plans, or its economic methodologies.  Previously, the I-924 listed “acceptable amendments” to include some of these. The memo clarifies the non-mandatory nature of these business changes.
  • An RC’s Geographic Area is Determined by Reasonableness:  For the first time, USCIS outlined that determinations on the geographic area of a regional center are based on the RC’s ability to establish by a preponderance of the evidence that the proposed economic activity will promote growth in the proposed area. This means that the RC must show that the proposed area contributes significantly to the supply chain and labor pool of the proposed projects.
  • Defines Hypothetical, Actual and Exemplar Projects: The memo states that if a project complies with the requirements of a Matter of Ho business plan, it is an “actual project.” If the project does not comply with Matter of Ho, it is “hypothetical.”  Additionally, an actual project requires more detail than a hypothetical. Finally, the memo defines an “exemplar” as an actual I-526 petition for a project that USCIS will review for EB-5 compliance, including all transactional documents (such as the offering materials).  This is important because if USCIS approves an “actual project,” USCIS will give deference to the later filed I-526s.  Hypothetical projects are not accorded deference at the I-526 stage.
  • We decided that already! Deference to Prior Decisions: Deference to already adjudicated matters is one of the most significant changes contained within the memo. For example, if USCIS approves an I-924’s Matter of Ho compliant business plan, it will give deference to this at the later I-526 stage.  I-924 approval notices should state whether a project has been approved as an exemplar or actual project, thereby being accorded deference in future adjudications.
  • Approved the Use of Escrow Accounts: USCIS explicitly approved investor’s use of escrow accounts as long as release of funds is immediate and irrevocable upon approval of the Form I-526 and acquisition of an immigrant visa or approval of Form 1-485 (adjustment of status).
  • Bridge financing Permitted If You Just Can’t Wait: If a developer uses bridge financing prior to receipt of the EB-5 capital, this will not affect the job creation calculation whether or not said financing was contemplated before the EB5 financing.  However, it is always a best practice to have contemporaneous evidence of the intent to use EB-5 capital.
  • USCIS Defers to State Adjudications of TEAs: USCIS will review state determinations of TEAs to see whether they used reasonable methodologies, but will otherwise defer to state determinations.
  • Eventual Acquisition of an Asset Does Not Count as “At Risk” Investment: If the investor is individually guaranteed the right to eventual ownership or use of a particular asset in consideration of the capital contribution, then the expected present value of the guaranteed ownership or use does not count toward total amount of the investor’s capital contribution in determining the amount of money truly at risk.
  • Restructure or Reorganization Means (probably) a Total Remodel or Significant Addition: Plans to convert a restaurant into a nightclub or add crop production to a livestock operation would constitute restructuring. This seems to mean USCIS wants a complete remodeling or significant addition to the existing business. “Reasonable time” to Create Jobs at I-829 is Not a Free Pass: Investors need not have created all the jobs at the I-829 stage, but need to be in “substantial compliance” and show that they will create jobs “within a reasonable time.”  This is not an open-ended allowance, but does provide some flexibility. After this time, jobs will not be considered unless there is a force majeure. 
  • Material changes at I-829 stage? Don’t Fret: An individual investor can proceed with their Form I-829 petition to remove conditions even if within the time between I-526 approval and submission of the Form I-829 a material change occurred to the business plan.  As long as the investor can show that they satisfy the conditions for removal of conditions, USCIS may still issue an approval.

Federal Contractors: The Federal Acquisition Regulation (FAR) E-Verify Clause Revisited – Critical Steps a Contractor Can Take To Foster E-Verify Compliance

Sheppard Mullin 2012

“Yes, we use E-Verify.” “Of course, our company is in compliance, we did an I-9 audit a few years ago – isn’t that the same as E-Verify?” “I know this is not an issue, because I remember being told we addressed all I-9 and E-Verify issues.” “No, the General Counsel’s office doesn’t handle immigration issues.”

You get the picture. Many companies simply do not take immigration compliance seriously. This failing usually does not come from a disinterest in compliance, but rather from a threshold failure to understand the intricacies involved in immigration issues or the potential exposure that could result from noncompliance. Only when faced with government investigations, public scrutiny, or other negative impacts on the business do the right people in the right places start to pay attention. When they learn that federal contractors can be suspended or debarred for failing to adhere to immigration and E-Verify related issues that attention is heightened.

It has been almost three years since the Federal Acquisition Regulation (FAR) E-Verify clause (FAR 52.222-54) for federal contractors went into effect in September of 2009. E-Verify is a free, internet-based system that electronically verifies the work eligibility of new employees by comparing the Form I-9 related information employees submit with the records of theSocial Security Administration (SSA) and the Department of Homeland Security (DHS). Close to 450,000 employers are now enrolled in E-Verify. While the Government does not charge contractors to use the program, companies should be cognizant of the operational costs associated with E-Verify, including costs connected to training, monitoring, and verifying compliance with the System. In the case of federal contractors, E-Verify must be used to verify all new employees as well as existing employees assigned to a contract. However, there is also an option available to verify an entire existing workforce upon receipt of a qualifying federal contract.

Not every federal contract, however, will be subject to the FAR E-Verify requirements. FAR 52.222-54 exempts federal contracts that include only commercially available off-the-shelf (COTS) items (or minor modifications to a COTS item) and related services; contracts of less than the simplified acquisition threshold (currently $150,000); contracts that have a duration of less than 120 days; and contracts where all work is performed outside the United States. As defined in FAR 2.101, a COTS item is: (i) a commercial item, (ii) that is sold in substantial quantities in the commercial marketplace, and (iii) that is offered to the Government without modification as the product is available in the commercial marketplace. There are other employee-related exemptions that federal contractors should be familiar with, including employees hired before November 7, 1986, employees with specific security clearances, and employees that have previously been processed through E-Verify by the federal contractor.

Compliance is Non-Negotiable

To date, the Government has been fairly lackadaisical in its review of compliance in the E-Verify arena. Accordingly, it is not surprising that E-Verify compliance may not fall very high on a federal contractor’s list of legal concerns. However, with a comprehensive immigration reform package, that includes a mandatory E-Verify provision and new laws percolating in the States, contractors should reconsider their priorities. Increased enforcement is likely and a proactive review of current E-Verify related processes, including sub-contractor flow down, and other policies is recommended.

In fact, U.S. Citizenship and Immigration Services (USCIS), the agency that runs the E-Verify program, has beefed up its Monitoring & Compliance Branch’s activity to review to detect, deter, and reduce misuse, abuse, and fraud. And who can blame it? The agency clearly wants to be in a position to provide detailed E-Verify data and good-looking numbers to Congress as the immigration debate heats up in Washington, DC. Fortunately for USCIS, ample funding has been designated for the program. As a result, participants have benefited not only from an extraordinary increase in E-Verify resources and training aides, but also from immensely improved technology used in the system.

It is no surprise that along with the increased funding comes increased monitoring of usage. In fact, USCIS site visits and desk reviews appear to have escalated. A number of companies recently have received calls informing them they are not in compliance with E-Verify procedures. The calls are friendly and are sometimes coupled with an “offer of assistance” in the form of a USCIS visit. By the way, it is an offer you cannot refuse without being viewed as uncooperative – not a good thing for a Government contractor.

Such visits and calls from the USCIS’ Monitoring & Compliance Branch are to be taken very seriously. Accordingly, federal contractors not only should review and revise, but truly understand, the processes they have in place for E-Verify as well as the entire Form I-9 process. Such processes also should be tested periodically for accuracy and efficacy. Federal contractors should want to know whether their E-Verify policies actually are working in the field the way they are written on the paper. Nothing a company is doing should be a surprise to the general counsel’s office, and nothing in the E-Verify reports should read like a foreign language to the individuals charged with overseeing the system.

History is Cyclical

The pace of E-Verify implementation picked up incredibly in June of 2010 when the GSA announced a mass modification of all Federal Supply Schedule (FSS) contracts that mandated the incorporation of E-Verify. Federal contractors continued to do their best to comply promptly, but oversights and omissions were inevitable.

Almost three years later, things are quieter on the E-Verify front, but the obligations and risks remain. While Immigration and Customs Enforcement(ICE) certainly reviews E-Verify matters, we have seen few if any reviews of federal contractor programs. But this soon will change. DHS likely will refocus and retool its worksite with a particular focus on E-Verify and other types of immigration compliance if the system is made mandatory for all U.S. employers. After all, USCIS no longer will have to sell its system. Everyone will buy it; there is no one else to buy it from, and there will be no choice but to buy it. It will be just a matter of when one buys. Government contractors, as the first purchasers of E-Verify, should expect to be among the first non-compliance “examples” when the time comes.

The Realities of E-Verify for Federal Contractors

There is no doubt that E-Verify is a best practice. However, it is not a replacement for background checks and other post-employment screenings and safeguards monitoring the system. In fact, the E-Verify system is still very much prone to identity theft, and must internally be monitored for misuse and overall compliance. While the Government agrees that E-Verify usage creates a “rebuttable presumption” that a company has not knowingly hired an unauthorized alien, there still can be problems. In fact, employers may face civil and criminal liability if, based upon the totality of the circumstances, it can be established that they knowingly hired or continued to employ unauthorized workers. Remember, a federal contractor’s participation in E-Verify does not provide a safe harbor from worksite enforcement. The Department of Justice’s Office of Special Counsel (OSC) also takes E-Verify violations very seriously and continues to open investigations involving abuse of the system. Unlike its sister agencies OSC has taken a keen interest in reviewing E-Verify related matters. Most notably, many of the OSC’s investigations do not involve malice in intent but rather accidental misuse of the system.

Best Practices for Federal Contractor’s

While not an all-inclusive list, federal contractors would be well served by considering the following proactive steps:

  1. Provide bi-annual training to anyone who is a user in the system. As E-Verify ramps up its site visits and desk reviews, compliance is more important than ever. Ensure your I-9 compliance is also in shape, as the I-9 data feeds into the E-Verify system.
  2. Verify your company has a viable policy established to flow down the E-Verify requirement to your sub-contractors, vendors. E-Verify usage is a “flow down” requirement; prime contractors are required to take steps to ensure that subcontractors for services or construction of more than $3,000 also implement the rules. Regardless of the size of your company, verify this process and take the extra step of seeing how it works in practice.
  3. Create a sub-contractor verification system. While the scope of a prime contractor’s “flow down” responsibilities to subcontractors and identifying which subcontracts are subject to E-Verify were not clearly defined in the FAR regulation, many believe merely having a copy of the “E-Verify Enrollment Page” of the subcontractor will not be enough when things go wrong.
  4. Carefully review the E-Verify exemptions. Limited exemptions for COTS contracts, contracts where work is performed outside of the United States, and for employees with specific active security clearances exist but are often harder to segregate and rely on then general usage of E-Verify. Consistency is key in deciding when to use E-Verify.
  5. Review overall immigration and visa compliance. In today’s world, it is simply not acceptable for employers, particularly large ones, to rely on an “off-the-shelf” compliance approach. Policies, electronic I-9 and E-Verify systems all must be vetted and monitored. Audits that review overall immigration compliance programs should address E-Verify compliance risk factors. Moreover, an independently audited immigration compliance program, preserves attorney client privilege and could protect employers from debarment or involuntary suspension from the E-Verify program. Specifically such a review should include the company’s Form I-9s, visa processes and E-Verify reports.
  6. Review E-Verify Usage. Do not assume everything is working the way it is supposed to. Someone needs to roll up their sleeves, and get dirty; ensure all users are closing case correctly and ensure all users know how to process Tentative Non-Confirmation notices. Reviewing E-Verify reports should be an ongoing, frequently completed task for someone in the organization. If you use an electronic I-9 system, it is even more important that you review the status of cases as well as historical data as often as possible. E-Verify only works well if a company first understands the importance of Form I-9 compliance.
  7. Review your Memorandum of Understanding (MOU) with the USCIS. The E-Verify program requires companies to agree to certain conditions upon enrolling in the system via the MOU. Do not take these responsibilities lightly. Ensure the specifics of the E-Verify agreement are accurate and up to date. For example, does the company still have two hiring sites? Is the company no longer performing E-Verify from the centralized location noted in the MOU? Almost three years after the FAR E-Verify clause went into effect, we still run across government contractors that are not enrolled in the E-Verify program or not correctly enrolled. We also routinely run across large prime contractors that have not adequately implemented their E-Verify program and flow-down procedures.
  8. Consider the impact of E-Verify as it pertains to any Union presence the company may have. A careful review of the National Labor Relations Board (NLRB) claim that use of E-Verify should be bargained is something to be carefully reviewed by federal contractors and their affiliates.
  9. Ensure you track employees assigned to contracts if your entire workforce was not E-verified at the onset. It is critical to have someone charged with knowledge of which employees are assigned to a contract within the meaning of the regulations and a system in place to E-Verify any legacy employees that have not previously undergone verification.
  10. Review E-Verify in the context of your current corporate structure or in terms of a merger, acquisition or other restructuring. A careful assessment of a federal contractor E-Verify related responsibilities and the associated timelines involved during any restructuring must be carefully considered. It is also important to analyze which affiliated entities are considered under government contract for purposes of the E-Verify clause. An affiliate or subsidiary with a different EIN may not necessarily be subject to the E-Verify provisions.

Debarments and Other Penalties

Federal contractors will continue to be responsible for E-Verify compliance for the foreseeable future. The consequences of a failure to use the E-Verify program leading to the loss of current and future federal contracts should not be downplayed. Federal contractor compliance with the E-Verify MOU is a performance requirement under the terms of the federal contact. As such, termination of the contract for failure to perform is one potential consequence of noncompliance with the MOU. Suspension or debarment, of course, also may be a potential consequence where the violation suggests the contractor is not responsible. Indeed, the E-Verify program’s suspension and debarment enforcement activities are being ramped up. DHS already ranks high on the agency list for debarment numbers, leading with a significant number of non-procurement FAR debarments. In FY12, ICE alone debarred 142 businesses and 234 individuals. Federal contractors need to take this enforcement activity seriously as it likely will increase in the face of mandatory E-Verify.

In short, now is the time for companies proactively to review internal polices, perform the necessary risk assessments, conduct the Form I-9 exposure as well as anti-discrimination audits, and then take ownership of any changes or improvements that need to be made.

NetSpend: Delaware Chancery Criticizes Single-Buyer Negotiating, Use of DADW & Revlon Process, But Denies Injunction

GT Law

In a nutshell, plaintiff’s motion to enjoin Total System Services’s $16 per share/$1.4 billion (cash) acquisition of Netspend Holdings was denied because the balance of the equities tipped in favor of the defendants (i.e., the court’s perceived risk to the target’s stockholders of a deal that might fail in the face of a MAC or breach when it was the only deal on the table) even though Vice Chancellor Glasscock concluded that it was reasonably likely that at trial the plaintiff would successfully establish that the Netspend board did not conduct a reasonable Revlon value maximizing process.

The key facts and observations in the case included, among others:

– A single-buyer negotiating strategy employed by the Netspend Board with no formal pre-sign check (although a go-shop was asked for several times in the negotiations and repeatedly rejected by the buyer, the repeated asks appear to have helped obtain the $16 per share price.

– An unaffected 45% premium without giving effect to an immediate pre-sign, positive earnings release by Netspend).

– Netspend had prior bad experience with collapsed sale processes and, therefore, it was queasy about undertaking another formal or elongated process.

– Netspend was not “for sale” and responded to Total System’s initial IOI and commenced discussions mainly because Netspend’s 31% stockholder and 16% stockholder wanted to exit an illiquid and volatile stock (Netspend was content to execute management’s stand-alone operating strategy absent a compelling price).

– Appraisal rights are available under DGCL 262; Vice Chancellor Glasscock questioned whether Netspend’s directors had a “reliable body of evidence” and “impeccable knowledge” of the company’s intrinsic value in the absence of a pre-sign market check and despite Netspend’s prior failed sale processes some years before.

– The fairness opinion obtained by the Netspend board was “weak” under all of the circumstances (putting more pressure on the directors’ understanding of the company’s intrinsic value).

– No interloper surfaced even after the transaction litigation delays (putting maximum pressure on plaintiff’s demand for an injunction); the deal protection package was pretty plain vanilla (the break up fee was in the “northern sector” of the range at 3.9% of total equity value, but certainly not preclusive or coercive; matching rights and other buyer protections were customary).

– A reasonable arms-length negotiating strategy was employed to obtain the $16 per share.

– Netspend’s CEO (who led the negotiations with appropriate Board participation and oversight) was not conflicted (in fact, he was found to be aligned with the non-affiliate stockholders in several respects).

– The nominees of Netspend’s 31% stockholder and 16% stockholder constituted a majority of the Netspend Board (but Vice Chancellor Glasscock found that their interests were aligned with the non-affiliate shareholders).

– Two private equity firms had conducted diligence and looked at buying a significant stake in the company from Netspend’s 31% stockholder and 16% stockholder at a materially lower price than Total System’s initial (and final) bid, but they never indicated a desire to buy 100% of Netspend.

– The support agreements entered into between Total Systems and each of the two large stockholders were coterminous with the merger agreement (but were not terminable upon the Netspend Board’s withdrawal of its declaration of advisability of the merger agreement).

In a noteworthy passage, Vice Chancellor Glasscock faulted the decision of the Netspend Board not to waive the “don’t ask-don’t waive” clauses in the confi-standstills with the two private equity firms at the time discussions commenced with Total Systems and, in the case of any post-sign unsolicited “superior offers” that might arise, he noted the ineffectual fiduciary out to the no-shop covenant in the merger agreement which required Netspend to enforce and not waive pre-existing standstills (thus, the private equity firms were precluded from lobbing in a post-sign jumping bid).

Vice Chancellor Glasscock refers to Vice Chancellor Laster’s In re Genomics decision and to Chancellor Strine’s decision in In re Ancestry pointing up, again, the Court’s sensitivity to, and the highly contextual nature of, DADW provisions in pre-sign confi-standstill agreements and perhaps further underscoring the distinction between using a DADW in a single-buyer negotiating strategy vis a via using one in a formal auction setting or where a full pre-sign market check is conducted.

Article By:

 of

Top 10 Affordable Care Act Compliance Tasks for Employers in 2013

Dickinson Wright LogoWith apologies to David Letterman, here are the top 10 Affordable Care Act compliance tasks for employers in 2013:

  1. Continue tracking for purposes of reporting the value of health plan coverage provided during 2013 on Form W-2 issued in January 2014 (for employers who issue more than 250 Forms W-2).
  2. The maximum reimbursement from a health flexible spending account for plan years beginning on or after January 1, 2013 is $2,500.  Make sure employees are aware of any reduction from prior years.
  3. An additional Medicare tax of 0.9% must be withheld from the wages of employees making more than $200,000 beginning in 2013.
  4. The summary of benefits and coverage (“SBC”) must be distributed to eligible employees during the open enrollment period.  Any changes to the SBC must generally be distributed at least 60 days before the effective date.
  5. The first payment of the Patient-Centered Outcomes Research Institute fee (the “PCORI” fee or the “comparative effectiveness” fee) is due July 31, 2013, regardless of the plan year of the health plan.  This fee is $1.00 per covered member (including employees and dependents) for the first year and is reported to the IRS on Form 720.  Health insurers will file the form and pay the fee for insured plans; a plan sponsor of a self-insured plan is responsible for filing and payment with respect to any self-insured plan.
  6.  A notice of availability of the Health Insurance Marketplace (formerly called the Exchange) must be given to current employees on or before October 1, 2013 and to all employees hired on or after October 1, 2013.  Model notices are available on the DOL website.
  7. The DOL has also published new COBRA model notices. It is unclear when the updated notices must be issued, but it appears to be no earlier than October 1, 2013, as the new COBRA notices refer to the availability of the Health Insurance Marketplace as an alternative to COBRA coverage.
  8. Establish the measurement period, administrative period, and stability period for purposes of determining whether employees are “full-time” for purposes of eligibility for the health plan and for purposes of the “pay or play” penalty.  For current employees, these periods will start in 2013 for purposes of 2014 eligibility determinations.  Determine how and when you will communicate the rules – in the SPD?  During open enrollment? As part of the employee handbook?
  9. If you are not sure whether your business is a large employer, count the number of full-time employees and full-time equivalents for at least a 6-month period in 2013 to determine if the business has more than 50 full-time/full-time equivalent employees as of January 1, 2014.
  10. If you are a large employer and you wish to avoid “pay or play” penalties in 2014, evaluate plan design and employee contributions to determine if the lowest cost option provides minimum value and is affordable.  Make sure waiting periods are not longer than 90 days.

Last word of advice: stay on top of continuing developments and be prepared for questions from employees.  It is a time of great change and uncertainty for employees as well as employers.

Article By:

 of

China Enacts New Employment Law Affecting Employers Who Do Not Directly Employ Their Workers

Sheppard Mullin 2012

China has a new employment law. This new law significantly impacts an employer who does not directly employ its own workers, but instead uses agencies such as FESCO or third party staffing companies, also known as labor dispatching agencies. At the end of 2012, the Standing Committee of the National People’s Congress adopted the Decision on the Revision of the Labor Contract Law of the People’s Republic of China (“Amendment”). The Amendment will take effect July 1st of this year. The intent of the Amendment is to offer better protection to workers employed by labor dispatching agencies.

Labor dispatching is a common method of employment where a worker enters into an employment contract with a labor dispatch agency and is then dispatched to work in another company – commonly referred to as the “host company”. This type of employment arrangement has proved problematic because many of the dispatched workers are not paid wages commensurate with their work as compared to their direct hire, permanent employee counterparts. Additionally, the dispatched workers’ health and safety rights are not well protected. The Amendment tackles this problem by requiring employers to hire the majority of their workforce directly and by strictly controlling the number of dispatched laborers. Moreover, the Amendment clearly states that all employers shall stick to the principle of “equal pay for equal work”.

The four main revisions introduced by the Amendment can be found by clicking here:

MAIN SECTION:

Heightened Standards

First, the standards for establishing a Labor Dispatch Agency are heightened. Specifically, a labor dispatch agency is now required to:

a. have a minimum registered capital of no less than RMB 2,000,000 (previously only RMB 500,000);

b. operate from a permanent business premise with facilities that are suitable to conduct its business;

c. have internal dispatch rules that are compliant with the relevant laws and administrative regulations;

d. satisfy other conditions as prescribed by laws and administrative regulations; and

e. apply for an administrative license and obtain approval from the relevant labor authorities.

All labor dispatch agencies established after July 1, 2013, will need to meet these new local labor law requirements before they can start the company registration process. Existing agencies that are already licensed have until July 1, 2014, to meet all local labor law requirements before renewing their business registration.

Equal Pay for Equal Work

Second, one of the most problematic areas of the former dispatch model was the inequitable pay between dispatch workers and their similarly situated, direct hire counterparts. The Amendment adds the principle of “equal pay for equal work” such that dispatch agencies must provide the same remuneration standards for dispatched employees as is provided to the direct hire employees who hold similar positions.

Clarification of Acceptable Outsourcing

Third, the Amendment clarifies that labor dispatch arrangements should only be implemented for temporary, ancillary or substitute positions. The Amendment clearly defines these categories as follows:

  • Temporary position: A position that will last no more than six months
  • Auxiliary position: A position that is not a part of the main or core business of the company
  • Substitute position: A position that must be temporarily filled because a permanent employee is away from work on leave or for other reasons

The Amendment further narrows the use of outsourcing by limiting the percentage of outsourced workers a company may have. The actual percentage shall be prescribed by the Labor Administration Department of the State Council. This percentage of dispatched workers does not apply to representative offices established by foreign companies in China. This is because representative offices are not allowed to hire Chinese employees directly, and instead must hire them through a labor dispatching agency.

Tougher Penalties

Fourth, the Amendment imposes tougher penalties. Specifically, for entities providing labor dispatch services without a license, the labor authorities may confiscate all illegal gains and impose a fine of no less than one time, but not more than five times, the illegal gains on such entities. Where there are no illegal gains, a fine of no more than RMB 50,000 may be imposed.

Employers and dispatching agencies violating the law, and failing to correct the violations within a certain time period, may be fined between RMB 5,000 and RMB 10,000 per dispatched worker. Additionally, labor dispatching agencies may get their business licenses revoked.

Conclusion

How aggressively the new law will be enforced remains to be seen, but companies should be prepared none the less. Companies that use labor dispatch agencies should ensure that their service provider has the proper license. Furthermore, any company with a high percentage of dispatched workers should evaluate their employment model and prepare for potentially transitioning their employment strategies in order to comply with the new Labor Contract Law. This may include direct hiring for some of the currently outsourced positions. Lastly, companies should evaluate their internal policies to ensure that they are sufficient for any changes – especially those involving headcount – that may be made.

Article By:

 of