The “clean” beauty movement is picking up steam. Health-conscious consumers are paying more attention to ingredients applied to their bodies and are looking for products made without harmful chemicals. In response to the demand, some popular cosmetics companies are now offering so-called, “clean” beauty lines. Companies considering joining this trend should take into account the substantial legal risks.

A look at the food industry’s use of the adjectives like “natural”, “clean”, “simple,” and “wholesome” illustrates the kinds of risks the beauty industry may face. When consumers began paying more attention to ingredients, companies began marketing their products with these health driven adjectives. However, this led to a barrage of class action lawsuits for false advertising under state consumer protection laws as plaintiffs lawyers argued that the claims made on the front of the label did not match the ingredients on the back of the label.

The food industry started to use the word “clean” after the use of “natural” resulted in a barrage of consumer lawsuits. As it turned out, however, the alternative claim also resulted in consumer class action lawsuits. The theory behind these suits is that “clean” is just a synonym of “all-natural” and signifies to consumers the absence of any synthetic chemicals. Similarly, it is argued that “wholesome” and “simple” are misleading consumers as to the real nutritional value of food products. This is at best an idiosyncratic view, not backed by legitimate consumer evidence. However, merely making the allegation is sometimes sufficient to survive a motion to dismiss, where the court must consider whether “no reasonable consumer” could share the plaintiff’s alleged interpretation.

Adding to the complexity is the difficulty of placing a sufficiently prominent and clear explanation, or definition, for such adjectives in an unavoidable location where the plaintiff cannot reasonably allege she failed to notice it. Courts have sometimes held that consumers need not be expected to turn around the bottle or package to read textual information on the back label before purchase.

We have seen false advertising claims creeping into the skincare industry as well, and this, coupled with the history of the food industry, should put the beauty industry on notice of the legal risks. For example, just last month, a lawsuit was filed in California State Court against the makers of Coppertone sunscreen. Prescott, et al. v. Bayer Healthcare Pharmaceuticals Inc., et al., No. 5:20-cv-00102 (N.D. Cal. filed Jan. 3, 2020). The suit alleges that Coppertone deceived consumers by labeling certain sunscreens as “mineral-based” when in fact chemicals make up a significant portion of its active ingredients. The plaintiff’s theory is that the headline “mineral-based” claim suggests to consumers that the product protects skin from sun damage exclusively with minerals.

In the “all-or-nothing” world of the plaintiffs’ lawyers, any ingredient call-out or characterization creates legal peril by negative implication. If the label says “clean,” the product can contain no synthetic substances. If the label says “plant-based,” the product should not have any synthetic or animal components – even if trivial in amount. Plaintiffs are routinely sending products to labs for rote chromatographic analysis, and the tiniest detectable amounts of disfavored chemicals can trigger lawsuits. In California, the consumer protection laws include California’s Unfair Competition Law, False Advertising law, and the Consumer Remedies Act. Companies making sales in California also need to be mindful of Proposition 65 which requires warning labels on products that contain any enumerated chemicals identified by the State to cause cancer, birth defects, or reproductive harm.

Since there are no regulations mandating the definition of such descriptive terms on cosmetic labels, these definitions (e.g., “clean”) can vary from company to company. The beauty industry should heed caution when using “clean” beauty claims. In order to avoid consumer confusion— and ultimately litigation— companies should define “clean” in a way that they can, and do, meet, and that definition should be available at the point of sale.

On February 7, 2020, California’s Office of the Attorney General (OAG) released proposed revisions to the California Consumer Privacy Act (CCPA) draft regulations of 2019.

The proposed revisions, available here, are substantial and come in response to public comments submitted to the OAG last year. The revisions and a new deadline of February 24, 2020 for additional public comments suggest some sensitivity to concerns raised by industry and policy advocates.

See the link below for an overview of key proposed revisions that, if adopted, could have a significant impact on companies’ compliance efforts. These proposed revisions cover the following topics:

  • Definitions
  • Notice at Collection of Personal Information
  • Notice of Right to Opt-Out of Sale of Personal Information
  • Privacy Policies
  • Requests to Know and Requests to Delete
  • Service Providers
  • Special Reporting Requirements

Click here to continue reading the full version of this article.

On January 31, 2020, the Trump administration issued an executive order cracking down on U.S. businesses that import directly or facilitate the import of counterfeit or pirated goods, illegal narcotics and other contraband. The order, entitled “Ensuring Safe & Lawful E-Commerce for US Consumers, Business, Government Supply Chains and Intellectual Property Rights,” directs various government departments and agencies to undertake a series of measures to carry out the president’s effort to combat illegal imports. The initiative has far-reaching implications not only for importers and brand owners but also for e-commerce platforms, government contractors, and service providers in the global supply chain that provide warehouse, customs brokerage and transportation services. Parties that fail to comply with the new measures may be barred from participation in certain transactions involving the federal government and/or banned from importing goods into the United States. Additionally, the Department of Justice will be notified of custom violations that are actionable under the False Claims Act, thus another implication is the potential for increased civil and criminal enforcement actions.

Background & Content

This executive order is a culmination of the president’s “call to action” to combat infringing goods set forth in his April 2019 “Memorandum on Combating Trafficking Counterfeit and Pirated Goods.” The Memorandum outlined the impact that illicit goods are having on U.S. businesses and consumers and set in motion the administration’s effort to study and establish a plan to address the issue. The Department of Commerce subsequently issued a Federal Register notice on July 10, 2919 (84 FR 3281), soliciting public comment from IP rights holders, online third-party marketplaces, and other interested parties. The Department of Homeland Security followed up with its recent report, “Combating Trafficking in Counterfeit and Pirated Goods” on January 24, 2020.

The DHS report provides a roadmap on how the administration will accomplish the goals set forth in the president’s January 31st order. The report analyzes how e-commerce platforms, online third-party marketplaces and other parties in the global supply chain facilitate the import and sale of infringing goods. DHS states that it has devised a plan to “fundamentally realign incentive structures and thereby encourage the private sector to increase self-policing efforts” to fight the import of counterfeit and pirated goods. DHS will implement regulations to include:

  • Ensuring that “all appropriate parties to import transactions are held responsible for exercising a duty of reasonable care.” This effort will include extending liability to parties well beyond the traditional importer of record, including warehouses, fulfillments centers, and e-commerce platforms that handle infringing goods. DHS explicitly stated that CBP would be charged with advising the Department of Justice on the types of customs violations that are actionable under the False Claims Act and publishing information on successful FCA claims.
  • Increasing scrutiny on so-called “Section 321” import entries (entries with a value of $800 or less). E-Commerce platforms and other online vendors are responsible for the vast majority of these low-valued imports that generally have avoided government inspection when imported by express couriers and the U.S. Postal Service (USPS).
  • Prohibiting non-compliant companies and individuals from participating in CBP’s Importer of Record Program. This prohibition could have a lasting impact, as the government “shall consider all appropriate action” to ensure that persons or entities debarred or suspended by CBP are excluded from the Importer of Record Program. This effort will require express consignment operations, carriers, and hub facilities to verify and refuse to engage in activities requiring an importer of record number with persons or entities that have been suspended, debarred, or ineligible for the Program under the criteria to be established. There will be increased scrutiny of international mail posts and efforts to reduce the international shipment of illicit goods.
  • Pursuing civil and criminal fines, penalties, and injunctive actions against third party intermediaries dealing in infringing goods. This pursuit not only addresses enforcement actions under existing laws and regulations, but also indicates that DHS will seek statutory changes to enhance its enforcement power.
  • Analyzing whether the fees collected by CBP are sufficient to cover the costs associated with processing, inspecting, and collecting duties, taxes, and fees for courier packages.

In the executive order, the president adopts the DHS measures and directs the appropriate government departments and agencies to begin implementation. The president states that the government will impose significant penalties on parties that fail to comply with the new measures. Any parties or person “who knowingly, or with gross negligence, imports, or facilitates the importation of, merchandise into the United States in material violation of Federal law evidences conduct of so serious and compelling a nature” will be referred to CBP to determine whether the parties should be allowed to participate in procurement and non-procurement transactions with the federal government. The order further states that CBP will be enforcing its discretionary authority to suspend and debar parties that run afoul the customs laws and ban them from importing goods into the United States.

Specific actions outlined in the order include:

  • Instructing DHS to initiate a notice of proposed rulemaking establishing criteria for importers to obtain an importer of record number, and impose requirements for express couriers, hub facilities, and customs brokers to report parties that attempt to circumvent the new importer of record program.
  • Directing the USPS, in conjunction with the Department of State, to extend the importer of record requirements to international postal shipments and monitor non-compliance by international posts.
  • Requiring CBP and ICE to publish information about seizures of goods involving intellectual property violations, illegal drugs and other contraband, incorrect country of origin, undervaluation, and other violations of law.

Ramifications

The effect of the president’s executive order will be wide ranging on e-commerce platforms, service providers, and government contractors. Up until now, the importer of record has been the primary party liable for penalties and enforcement actions associated with infringing imported goods. CBP usually would pursue parties such as customs brokers, warehouse operators, or e-commerce platforms only if they knowingly aided or abetted an importer in the importation of illegal goods. The initiative seeks to extend liability beyond the importer of record for gross negligent actions by a service provider that “facilitated” the import of such goods, an effort that likely would require additional statutory authority. The executive order makes clear that the government will consider criminal enforcement actions where appropriate.

International Trade Supply Chain – E-Commerce Platforms and Service Providers

The administration’s executive order will impact e-commerce and other online third-party platform businesses. The platform business often requires sellers to serve as the importer of record of goods sold on their platforms, thereby avoiding duty and penalty liability for illegally imported goods. The new initiative likely will impose requirements that may limit the ability of non-resident importers to serve as the importer of record, such as increased bonding requirements and more extensive information reporting requirements. More importantly, the crackdown on Section 321 shipments will slow down their entry due to increased inspections and enforcement measures by CBP, thereby delaying the fulfillment of online orders to customers.

The liability of platforms and service providers could also increase. A company other than the importer of record could face enforcement liability for infringing imports even if it is not the importer of record if it “facilitates” the imports by grossly negligent actions. It isn’t a stretch to predict that CBP would find that most companies in the global supply chain – customs brokers, carriers, warehouse operators, and e-commerce platforms – facilitate the entry of goods imported by their customers. The lower level of culpability sought by the administration will increase the liability of companies and require new procedures and business structures to mitigate risk.

Government Contractors and Present Responsibility

The administration’s executive order will particularly impact government contractors that are also importers of record. Those entities that have a dual role must ensure that they do not “flout the customs law,” or engage in any other activity whereby they could be found not presently responsible, as such acts could lead to debarment or suspension by CBP. Such a finding is required to be published in the System for Awards Management (SAM), the electronic roster of suspended and debarred individuals or companies excluded from Federal procurement and non‐procurement programs throughout the U.S. Government. Conversely a government contractor that is suspended or debarred will likely not be able to be an importer of record. This additional layer will likely require additional review to one’s supply chain to ensure that the presently responsible entities can be deemed importers of record and/or be limited by the CBP as the agency considers various criteria consistent with applicable law.

Additionally, the CBP is required to develop new standards to measure efforts by foreign postal services providers to reduce counterfeit shipments. Foreign postal services that fail these standards may be subject to greater inspection of their shipments or be blocked from importing into the U.S. This could affect government contractors that ship goods through non-compliant international posts as their goods may be swept into the inspection or they may need to redirect shipments through compliant posts.

With the recent rise of federal Food & Drug Administration (FDA) warning letters to the manufacturers of various ingestible cannabidiol (“CBD”) products, we can expect an increase in false advertising claims against manufacturers, distributers and sellers of those products. Nonetheless, in an important case of first impression in this arena, a federal trial court in the Southern District of Florida recently stayed a false advertising class action against a seller of CBD products under the “primary jurisdiction” doctrine.

The primary jurisdiction doctrine applies when a plaintiff’s claims require a federal agency’s expertise or guidance with respect to a regulated product. Cases are often stayed under the doctrine when relevant federal legislation is pending or applicable regulations are under review. However, other courts have declined to stay cases under primary jurisdiction when the government’s timing for issuing its guidance is unclear, or regulatory review has been pending for an overlong period.

Regulatory oversight of CBD ingestible products is currently vested in the FDA. Thus, although the state of Florida had established labelling requirements for CBD products (effective January 1, 2020), the district court emphasized that (1) the FDA had clearly expressed its concern with respect to CBD (or other hemp-derived) product labels, (2) the FDA was under pressure from Congress and the hemp industry to expedite the publication of regulations and policy guidance, and (3) the FDA was actively considering the regulation of CBD products. Therefore, the court declined to rule on the merits of plaintiffs’ class action based solely on the Florida legislation and stayed the case until the FDA completes its rulemaking regarding the labeling of such products.

While it is difficult to predict the content of the FDA’s ultimate labeling requirements for CBD products, manufacturers and sellers of these products have another weapon in their arsenal for responding to potential class actions and mass tort claims, at least in the near term.

The case is Snyder v. Green Roads of Florida, LLC, Case No. 0:19-cv-62342-UU, 2020WL 4239 (S.D. Fl. Jan. 3, 2020).

When selling and sourcing from China, companies should closely track any fapiaos issued from its Chinese subsidiaries and obtained from Chinese vendors, as missing, falsified, or fake fapiaos can carry significant potential civil and criminal penalties.

Anyone who has travelled to China will have encountered little pieces of paper called “fapiao” that act as receipts for purchases. Similarly, any company doing business with or in China would have encountered fapiaos in the course of the transaction. A fapiao is an invoice issued in an official format by the Chinese tax authorities that plays a central role in compliance with tax requirements in China. Recently the Chinese tax authority has developed an electronic fapiao system for greater monitoring and control of fapiaos, which makes it easier for the Chinese tax authority to detect an inconsistencies and suspicious activities. Retail and wholesale businesses that sell in or source from China should have an understanding of the significance of fapaios to ensure compliance with Chinese tax laws.

There are many different types of taxes in China, but the primary taxes from a government revenue perspective are the value-added tax (“VAT”), enterprise income tax (“EIT”) and individual income tax (“IIT”). Fapiaos are especially important for VAT and EIT.

The VAT in China for goods has been lowered recently from 17% to 13%. Foreign businesses most often encounter the application of Chinese VAT for goods when their Chinese vendors discuss export VAT rebate. VAT fapaios are evidence of the input amount (for purchases) and output amount (for sales) the difference of which forms the basis for the VAT that needs to be remitted to the tax authorities. VAT fapiaios are also used to determine the amount of the VAT rebate when exporting goods from China. Given the above, when doing business in China, it is important for risk management to clarify in writing whether the quoted price in a contract is intended to include China VAT (i.e., whose responsibility it is to pay China VAT).

EIT is generally 25%, but recently there have been some preferential treatments to small enterprises with minimal profits and enterprises doing research and development for the purpose of encouraging innovation. EIT is calculated after costs, as evidenced by properly issued fapiaos, have been deducted. The development and research cost deductions are granted an additional 75% on the top of the actual expended costs, meaning that if the research cost is CNY 100, the deduction is worth up to CNY 175. Fapiaos that do not conform to the prescribed format or requirements cannot be used to evidence cost deductions.

Please be reminded, companies doing business in China should ensure proper management of Chinese fapiaos, including procedures for requesting fapiaos from Chinese partners, maintaining fapiaos in their record systems, and issuing fapiaos (for subsidiaries in China).

As concern about coronavirus – the upper-respiratory infection that was first diagnosed in humans in Wuhan, China in late 2019, and has spread to the United States in recent days – grows worldwide, employers face a series of questions regarding the impact the virus will have on the workplace.

What Must Employers Do to Maintain a Safe Workplace?

U.S.-based employers may have concerns about compliance with workplace safety laws,  including the Occupational Safety and Health Act (OSHA). Under OSHA, workers have the right to working conditions that do not pose a risk of serious harm; to receive information and training about workplace hazards; and to exercise their rights without retaliation, among others. To that end, employers should continue to monitor the development of the coronavirus and analyze whether employees could be at actual risk of exposure. Employers may refer to OSHA’s Guidance for Preparing Workplaces for an Influenza Pandemic. While not written to address coronavirus in particular, this Guidance does provide steps employers can take to address public health crises. OSHA has also aggregated its resources relating directly to coronavirus, and will continue to update its guidance as conditions evolve.

Given that employers have a legal obligation to provide a safe workplace for employees, employers should take some basic steps to help prevent the spread of disease and keep employees healthy:

  • Educating employees on the signs and symptoms of the coronavirus and the precautions that can be taken to minimize the risk of contracting the virus. At this time the CDC believes symptoms appear within two to fourteen days after exposure, with some infected individuals showing little to no signs.
  • Providing hand sanitizer and hand washing stations, flu masks and facial tissues; encouraging employees to wash hands with soap and water for at least 20 seconds; and cleaning and disinfecting frequently-touched objects and surfaces.
  • Minimizing unnecessary meetings and visitors, and assessing the risks of exposure by identifying workers who may have recently traveled to, come in direct contact with, or are scheduled to go to Wuhan City, and the Hubei Province in China.
  • Implementing and/or evaluating workplace emergency response protocols.
  • Implementing travel guidelines and procedures for approvals for travel to China.
  • Allowing sick employees to work from home or take leave as appropriate.

Does Contraction of Corona Virus Implicate the ADA?

One question facing U.S.-based employers is whether an employee who contracts coronavirus – or, for that matter, any similar communicable disease, like influenza – could be considered to have a disability under the meaning of the Americans with Disabilities Act (ADA). Generally, the answer is no. Although an argument might be made that an upper-respiratory virus like the coronavirus meets the ADA’s definition of a “disability” on the basis of its limiting of the major life function of breathing, the fact that the coronavirus is a temporary condition weakens that argument. That said, employers should take care not to make assumptions about any employee’s illness or other health condition – including refraining from making armchair diagnoses which run the risk of generating a “regarded as” claim under the ADA. The ADA permits employees to bring claims that an employer discriminated against them because the employer regarded them as having a physical or mental impairment that substantially limits a major life activity. Employers may note that the U.S. Equal Employment Opportunity Commission has issued a fact sheet on Pandemic Preparedness in the Workplace and the ADA, which provides some guidance on this issue. Employers should also consider applicable state and local laws, which may apply definitions of “disability” broader than that of the ADA.

How Should Employers Handle Travel Concerns?

As of January 27, 2020, the CDC had issued a “Level 3” health travel notice advising travelers to avoid all non-essential travel to China. On January 30, following the World Health Organization’s (WHO’s) global health emergency declaration, the U.S. State Department raised its China travel advisory to “Level 4: Do Not Travel.” In its communication, the U.S. State Department noted that “the World Health Organization has determined the rapidly spreading outbreak constitutes a Public Health Emergency of International Concern” and advised that “travelers should be prepared for travel restrictions to be put into effect with little or no advance notice.”  Employers should consider whether to limit business travel to affected areas at this time and provide reasonable accommodations such as video conferencing during the duration of the threat and heightened risk.

Many large global employers have put a complete suspension on travel to China, or implemented policies which would require senior management approval for any such travel that would be considered essential. Employers would be wise to be particularly sensitive to requests from employees whose health is vulnerable, including employees with immunodeficiencies and those who are older or pregnant. Employers should also monitor travel alerts issued by the U.S. State Department, which provides objective guidance about the level of danger posed by travel to specific areas. Indeed, at this time, commercial carriers have reduced or suspended routes to and from China.

To the extent employers have employees who have recently traveled to China, and to the Wuhan area in particular, employers can consider asking the returning employees to work from home and/or place them on paid leave to ensure they are not bringing the virus into the workplace. Any such approach should take into account the recency of the travel, the areas to which the employee traveled, and the employee’s current condition. In short, employers should consider the facts and circumstances of each situation and make decisions that protect against the potential spread of the virus but also account for employee rights.

Employers with employees in China should continue to work closely with their employees and be mindful of the local regulations being implemented for safety precautions. The State Council in China issued a Circular on January 27 under which the public holiday of the Chinese New Year will be extended to February 2 (Sunday) and all employees will start to return to work on February 3 (Monday). Following this announcement, several local governments issued local rules to further extend the start date for all companies to open offices locally (i.e., February 9th). Employers should be mindful of the continued updates and communicate closely with their employees in China.

Employers in the U.S. and elsewhere are wise to remain sensitive to employee concerns and accommodate them to the extent reasonable. They should avoid assuming that any given employee would opt out of travel, e.g. passing over a pregnant employee who may in fact want to take an opportunity which would require travel, as doing so could give rise to an accusation of disparate treatment. And, to the extent possible, employers should not pressure employees into traveling; disciplining an employee for refusing to travel to Asia may not directly give rise to an actionable claim, but would negatively impact workplace morale.

What Else Should Employers Keep In Mind?

The number of new coronavirus cases is small, and employers should not overreact to any threat it poses. Many employers can likely continue to operate largely as normal; those with significant employee travel or employee interchange in Asia should continue to take steps that are appropriate in light of all circumstances and updates issued by the State Department and the WHO.

Coronavirus impacts persons of all ethnicities; singling out employees because of their ethnicity for testing, leave, or other virus-related actions could lead to discrimination charges. All policies should be enforced in a uniform and consistent way. Within China, as the quarantine measures are now conducted by the local governments, any employees who are ordered to be quarantined by the local government (including patients, suspected patients and individuals who are categorized as close contacts), should not have their pay impacted by the fact that they cannot perform work during the special period due to the quarantine measures. Employers should continue to check updated local rules in China for further information as different local governments in China may have different local rules regarding employee benefits and pay practices during the extended period after February 3rd – the official date published by the State Council for employees to return to work.

U.S.-based employers should not administer any medical tests for workers, unless they are otherwise a job-related necessity, because insisting upon such tests may violate the ADA. U.S. employers operating abroad should consult applicable laws and regulations regarding medical testing in other countries. However, employers should reinforce sick leave policies and encourage employees to stay home if they are feeling ill, to the extent feasible. And, employers should not offer medical opinions or propagate information about the virus that does not come from a reliable government source. As this situation continues to evolve, employers should continue to seek guidance from counsel.

 

Recalls in Review: A monthly spotlight on trending regulatory enforcement issues at the CPSC.

It’s hard to miss news headlines lately noting CPSC actions involving infant reclined sleepers.  In today’s installment of “Recalls in Review,” we look back at CPSC regulatory action involving a similar baby product –  infant cribs.

Approximately 110 recalls of cribs have been conducted since 1978.  As you can see in the chart above, CPSC recalls of cribs saw a dramatic increase in 2008 (12 recalls that year) and spiked in 2010 (20 recalls that year).  The increase shows the lead-up to the implementation of improved federal safety standards (16 CFR 1219 and 16 CFR 1220) enacted in June 2011 which prohibited the manufacture and sale of drop-side rail cribs, among other added safety requirements.  During 2008, the most common reason for the recall was a failure to meet minimum side-height requirements of 26 inches.  During 2010, the majority of recalls were due to drop-side hardware that could break or fail, posing entrapment and fall hazards.  Other reasons for recalls over the years have included loose or breaking slats and spindles, chipping paint, gaps between the sides and mattress, and faulty or inadequate mattress support causing the mattress to fall.  There have been no recalls of cribs since 2015.

As for post-recall enforcement, there have been five civil penalties brought against crib manufacturers and retailers, with civil fines ranging from $175,000 to $1.3 million.

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About Recalls in Review: As with all things, but particularly in retail, it is important to keep your finger on the pulse of what’s trending with consumers.  Regulatory enforcement is no different – it can also be subject to pop culture trends and social media fervor.  And this makes sense, as sales increase for a “trending” product, the likelihood of discovering a product defect or common consumer misuse also increases. Regulators focus on popular products when monitoring the marketplace for safety issues. 

As product safety lawyers, we follow the products that present “hot” issues or are likely targets for regulatory attention.  Through Recalls in Review, we share our observations with you. 

The Department of Labor (DOL) has released its much-anticipated final rule on the often-litigated “joint employer” issue under the Fair Labor Standards Act and its statutory requirements relating to minimum wage and overtime obligations. This final rule represents the first significant revisions to DOL’s regulations on this subject in more than 50 years. As expected, the final rule represents good news for retailers and other employers, as it sets forth a standard that is more difficult for plaintiffs to meet. The final rule becomes effective March 16, 2020. The DOL’s Fact Sheet is found here. The final rule, as published in the Federal Register, is found here.

As expected, the final rule is mostly unchanged from the text that DOL initially proposed for “notice and comment” in April 2019. It introduces the use of a four-factor balancing test to determine joint employer status. It also explains the level of association between separate businesses required for joint employer status when these businesses employ a worker to work separate sets of hours in the same workweek. And the rule provides guidance that certain business arrangements do not, just by their very nature, establish joint employer relationships.

First, DOL is establishing a balancing test that examines whether the putative joint employer that also benefits from the employee’s work (1) has the power to hire and fire the employee, (2) supervises or controls the employee’s work schedule or conditions of employment, (3) determines the employee’s wage rate and method of payment; and (4) maintains the employee’s records of employment that relate to the first three factors. It is not necessary for all four factors to exist for a joint employer relationship to exist, and the appropriate weight to give each factor will vary depending on the circumstances. Thus, a company could reserve the right to control the employee’s working conditions, but that right of control – while relevant to the analysis – would not dictate the outcome of the joint employer analysis if the company did not actually exercise that control. In addition, DOL provides that the fourth factor, i.e., the maintenance of employment records, will not by itself demonstrate joint employer status. Additional factors “may be considered,” according to DOL, but “only if they are indicia of whether the potential joint employer exercises significant control over the terms and conditions of the employee’s work.” This new multi-factor test stands in sharp contrast to the 2016 effort by the Obama DOL Wage Hour Division, which set forth a broad interpretation of an FLSA regulation from the late 1950s that allowed for a joint employer finding when two employers are not “completely disassociated” from each other in relation to the employee(s) at issue.

Second, the new regulation sets forth an analysis of the factors that will influence whether two companies that engage an employee to work separate sets of hours in the same work week are “sufficiently associated with respect to the employment of the employee” to warrant a finding of joint employer status. This part of the proposed rule triggered little input during the comment period, and it was adopted as initially proposed.

Third, the new regulation discusses various business settings and practices that will not, in and of themselves, influence the joint employer analysis. The examples discussed in the regulation include the following: (a) the existence of a franchisee-franchisor relationship, even if the franchisor provides its franchisees a sample employee handbook; (b) one company allowing another company to perform business on its property (in the absence of other indicia of control), (c) one company requiring its business partners to maintain compliant policies regarding sexual harassment prevention and workplace safety (but this principle does not extend to the setting of minimum wage “floors” by the direct employer); (d) one company allowing another company’s employees to participate in its apprenticeship program; (e) one company enforcing another company’s compliance with quality control standards to ensure the consistent quality of a work product or brand; and (f) one company offering employees of another the right to participate in its health and retirement plans. DOL concluded that its myriad examples “will allow parties to make business decisions and enter into business relationships with more certainty and clarity regarding what actions will result in joint liability under the Act.”

The DOL’s new balancing test, and its guidance about factors that should (and should not) enter the joint employer analysis, represent welcome news for businesses that are most often challenged as joint employers under the FLSA, including retail franchisors. Yet to be determined, however, is whether the final rule will be challenged in court and, assuming it would survive such a legal challenge, the weight that courts will give it as they address this heavily-litigated issue. Retailers and other employers should continue to exercise caution in this area if they benefit from the work of persons whom they do not treat as their employees.

On January 1, 2020, California’s landmark privacy law, the California Consumer Privacy Act (CCPA), took effect. The CCPA imposes various obligations on covered businesses and provides extensive rights to consumers with respect to controlling the collection and use of their personal information. While some companies have largely completed their CCPA compliance efforts, many others are still digesting the CCPA and draft proposed regulations, and taking steps to meet the CCPA’s myriad compliance obligations.

Confusion persists about how businesses can comply with certain provisions of the CCPA. In October 2019, the California Attorney General issued proposed regulations that provide guidance on a number of key areas, but the regulations are not yet final. If adopted, violations of the proposed regulations will be treated the same as violations of the CCPA itself, with the same penalties. We have summarized the proposed regulations in previous alerts:

Comments on the proposed regulations can be viewed here.

While formal enforcement proceedings by the California Attorney General will not begin until July 1, 2020, it is possible the agency will pursue retroactive enforcement for violations that occur between January 1 and July 1, 2020. The California Attorney General may impose civil penalties of $2,500 for each violation or $7,500 for each intentional violation after notice and a 30-day cure period.

In addition, the CCPA grants California consumers a private right of action and statutory damages of $100 to $750 per incident against companies that experience a data breach caused by failure to implement and maintain reasonable security procedures. Those lawsuits may be filed at any time.

Companies that have not yet completed (or commenced) CCPA compliance efforts should continue (or get started) in an effort to mitigate CCPA risk. Due to “limited resources,” California Attorney General Xavier Becerra has stated the agency will “look kindly on those that … demonstrate an effort to comply.”

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For assistance with CCPA compliance, please contact one of our privacy team members listed below.

Please also check back for additional analysis of forthcoming California Attorney General CCPA updates and final regulations.

Crowell & Moring has released Litigation Forecast 2020: What Corporate Counsel Need to Know for the Coming Year. Retailers and consumer products company can benefit from the Forecast’s forward-looking insights from leading Crowell & Moring lawyers which will help legal departments anticipate and respond to challenges that might arise in the year ahead.

For 2020, the Forecast focuses on how the digital revolution is giving rise to new litigation risks, and it explores trends in employment non-competes, the future of stare decisis, the role of smartphones in investigations and litigation, and more.

The cover story, “A Tangled Web: How the Internet of Things and AI Expose Companies to Increased Tort, Privacy, and Cybersecurity Litigation,” explores how the digital revolution is transforming not only high-tech companies, but also traditional industries with products, business models, and workforces that are being affected by increased connectivity, artificial intelligence, and the ability to gather and use tremendous amounts of data.

In a story on advertising practices, “False Advertising Claims: Opting for Court,” outlines a growing trend in advertising that shifts claims against competitors being solved via self-regulation to being addressed in federal court cases.