June 2018 Newsletter

What you will find in this newsletter:


Don’t Take it Personally: Creating Boundaries in a Boutique Firm


Author: Francine Friedman Griesing is the founder and managing member of Griesing Law, LLC, and has earned numerous awards and accolades in 35 years of practice. She would like to thank Emily Griesing, marketing manager at Griesing Law, LCC, for her contribution to this article.
 
 

When I launched Griesing Law in 2010, I had practiced law for nearly 30 years in government and Big Law settings. By that point, I realized I had an opportunity to create a different kind of law firm, where attorneys, especially women, could be happy and successful practicing law. My goal was to create an environment where attorneys didn’t have to fit into the traditional big firm model to succeed, especially if they were taking care of families or other outside responsibilities.

Seven years later, Griesing Law continues to thrive on a collaborative team approach that discourages internal competition—very different than any other legal workplace I’ve been in. However, with the lofty objectives I set for myself around generating new business and delivering exceptional legal advice and service to clients, I had overlooked the difficulties that would come with leading my own team. I’ve had to learn how to navigate the role of boss and friend in an intimate, boutique setting, both to better serve my employees and to make my work life easier as the head of the business.

When I opened my doors, what I knew off the bat was the type of leader I didn’t want to be: unapproachable, difficult and arrogant, among other things. Dr. Larry Richards, a psychologist who studies the personality traits of lawyers, found that while attorneys score higher on skepticism and autonomy, they score lower than average on sociability, resilience, and empathy. These outlier qualities attributed to lawyers can be contradictory to the characteristics that produce a good leader. This trend among attorneys was sadly unsurprising to me, as it reflected what I had experienced in the profession over the course of my career and supported my reasoning for taking a different approach in my own firm. With the status quo for legal leadership in mind, I set out to do the opposite.

As any entrepreneur will tell you, your blood, sweat and tears go into growing your business from the ground up, and that was certainly the case for me. Given that, I wanted my team to know that the passion and vigor I had for the success of my business paralleled how I felt about them. I aimed to circumvent that “cog in the machine” feeling that happens all too commonly to employees. And if I expected to create this new type of law firm environment, my actions had to follow suit and set an example. I made it a priority to create a culture where I invested time and money in my team, so that they felt appreciated in their contribution and supported in achieving their career goals. I developed very close relationships with each member of my growing staff, guiding them through personal and professional hurdles and successes to reinforce the idea that we’re all in this together.

As my firm blossomed, it seemed that this approach was working—we brought in new clients, received awards and gained a reputation in the local legal community. But over the years, I came to realize that I had been giving too much, and it was taking a toll. After dedicating my financial and emotional reserves to my team, I didn’t see the results I wanted in return, which left me feeling depleted. For example, some did not take advantage of what I offered by dropping the ball and missing opportunities I had presented to them, while others eagerly sought out my guidance and suggestions, only to then move on to other firms and organizations. The closeness that I had established with my team resulted in instances where my authority and decision-making were questioned, and I wasn’t garnering the respect I thought I showed towards them. With several of these instances under my belt, I had a rude awakening: in my attempt to steer clear of the poor management styles I’d seen in the past, I had overcompensated and gone too far with my intimacy and generosity.

Instead, I had to learn to protect myself and my business by setting appropriate boundaries in my firm. This is not to say that the actions that I took as a leader were ineffective or wrong, but rather that I needed to strike a better balance of congeniality and professionalism with my team so that expectations were clear. To do this effectively, it was important to acknowledge that while my business is incredibly personal to me, it is not personal to everyone else—that is what makes me the boss. A leader must ride out the lows and the highs, and cannot assume that each and every employee will do the same. Getting too close with my employees, without a reciprocal response back, is what left me feeling frustrated and unappreciated for the investment I was making in them.

Rather, I started to realize that leaders can give their employees a sense of purpose and belonging while maintaining a professional distance. Like most things, the first step in making a change is admitting that you can do better. This can be more easily identified by bringing in an outside perspective, such as a leadership consultant or organizational development expert, who can evaluate the dynamics within the organization and offer more objective strategies for improvement. Based on the size of the organization, an audit can be conducted on the firm level, or focused on certain employees to determine how to make the most of the professional relationship.

For example, at my firm, I enlisted an outside consultant to work with a member of my team on leadership development, to enable them to take on additional responsibility and work more independently rather than relying heavily on me for feedback and direction. In addition, we have sponsored several of our lawyers and other professional staff to attend outside programs that grow their network and business development skillset. These programs have allowed me to delegate some of the responsibility of bringing in clients and developing talent to others, while also providing constructive feedback in safe environments where employees feel less vulnerable.

As it is more difficult to give honest and sometimes critical feedback when you have a close relationship with a colleague, developing performance metrics became particularly important in my business. Even for a boutique firm like mine, measurable assessments of performance and behavior must be in place to ensure fairness and consistency when evaluating team members. Rather than relying on ad hoc conversations when issues arise (although these are inevitable), it is critical to implement a formal review process which includes regular feedback on how things are going. These lines of communication should be reciprocal, but centered on business objectives rather than personal feelings. To that end, we implemented a feedback system where senior lawyers provide detailed written reviews that are then discussed in regular meetings with staff members. Although we did not want and need to have all the formality of larger firms, it became essential to do so to maintain performance standards fairly.

In terms of morale, there are many methods to show support for members of your team that foster the mission of the firm without overstepping boundaries. Professional development and civic engagement have always been priorities for me, and I strongly encourage my team to partake in them as well. I support all my attorneys in building their own personal brand based on the areas of law that interest them. Nominating employees for awards, proposing leadership opportunities outside of the firm, as well as financing continuous legal and business development training have proven fruitful for my team and the firm as a while. Team members are recognized and congratulated across the firm for their successes, and I always try to attend events where they are honored for their accomplishments. Lastly, I want my employees to enjoy coming to work every day. Employee benefits and activities such as summer Fridays, lunch and learns and holiday parties are small tokens to show how much I value them and also bring about a sense of comradery. These are some of the critical steps I took to make managing my team a rewarding effort rather than a draining one, which creates a better work environment for everyone.

Attracting, retaining and supervising a growing team, especially a tight-knit one, has been one of the most unexpected challenges of creating my firm. It can be a slippery slope when you take on the role of manager and confidant. Instead, my advice to firm leadership is it be neither friend nor foe, but to fall into a new category as professional mentor and champion. Communication is crucial to promoting this dynamic with your team, but it must be done in an appropriate and constructive way. The term “NSFW” or “Not Safe For Work” applies to leaders as much as it does to employees. If you wouldn’t want your employees doing or saying something, you shouldn’t do it either. I had to learn that the hard way.


Spring Training Isn’t Just for Baseball


Submitted by: The Labor & Employment PAC
Author: Kathleen K. Lucchesi leads the Employment Practice Group at Lincoln Derr PLLC in Charlotte, North Carolina. Kathi is a trial lawyer who also regularly advises employers, large and small, regarding all types of employment issues both in and out of the workplace.

 

If you’re a baseball fan, you know that every year since the late 1800’s, baseball teams have migrated south for that magical pre-season ritual known as Spring Training. Spring Training is just that – a series of practices and exhibition games that take place just before the start of the regular season. It’s a time for players and managers to physically prepare for the new season, but also to try out for roster spots, get to know teammates, learn new plays and MLB rules, and set the tone and expectations for the season. Pitchers and catchers have long since reported to either Florida or Arizona, Opening Day has come and gone, and the 2018 baseball season is well underway.

Major League Baseball doesn’t have a monopoly on spring training. In fact, all employers should take time early on each year to get their teams ready for the new “season.” Here are Three Simple Tips to get your company in shape for Opening Day:

  1. Review Your Game Plan

Spring is a great time to make sure your internal policies are up to date and, more importantly, policies you actually follow. Having a written policy that isn’t consistently enforced can be worse than having no written policy at all. If you don’t have an employee handbook, now’s the time to create one. In many states, employers are not legally required to have an employee handbook, but if you do have one, depending on your company’s size, there are certain policies you must have in it.

Employee handbooks aren’t one size fits all nor are they implement-and-forget-kind-of-documents. Employment law is one of the most rapidly changing areas of law, so pull out that employee handbook and make sure that your policies comply with the most current federal, state, and local laws. Specifically review those policies addressing harassment, discrimination, paid and unpaid leave, drugs and alcohol, ADA accommodations, and background checks.

In addition to compliance with current laws, it’s also important for employers to keep an eye out for Hot Button topics receiving public attention and likely to bring big workplace changes. Several Hot Button workplace issues in heavy rotation at nearly every media outlet include:

Employee handbooks are very inexpensive insurance for when employee issues arise. Employers who take time to spell out work policies and expectations in advance are more likely to avoid game day surprises.

  1. Evaluate Your Roster

Do you know what your employees do each day? Do they know what you expect them to do while on the clock? If not, you might need to draft or revise your job descriptions. A good job description which accurately identifies the essential functions of the job and reflects the duties the employee is actually performing can help you in any number of situations:

  • Managing a request for a reasonable accommodation for a disability
  • Assisting healthcare providers completing a medical certification in FMLA requests
  • Defending against claims of discrimination or unlawful pay disparity
  • Providing metrics under which you can objectively evaluate employee job performance

It can also help establish the exempt or non-exempt status or independent contractor of the employee. Why is that important? In the previous 5 years, the U.S. Department of Labor has recovered $1.2 billion in back wages for employees – $270 million in 2017 alone. While the number of wage and hour lawsuits filed in federal court is down for the second year in a row, the number of wage and hour investigations continues to rise with many states looking to join the wage and hour “big leagues” too.

Here in North Carolina Governor Roy Cooper signed into law the Employee Fair Classification Act (“EFCA”), which went into effect December 31, 2017.  Under the EFCA, employers employing one or more employees must post information detailing the difference between an employee and independent contractor and how and where an employee may report misclassification claims. Once a claim is received, the Employee Classification Section, the state agency tasked with enforcement of the EFCA, will share the complaint with the U.S. Department of Labor as well as the N.C. Department of Labor, the Industrial Commission, the N.C. Industrial Commission, and the N.C. Division of Employment Security. This high-level sharing of information will undoubtedly increase the exposure and oversight of employers who misclassify employees.

Additionally, those employers requiring state occupational licensing will be required to disclose ECFA investigations on their licensure application documents, which ultimately could lead to a denial of licenses and permits. This is one area in which an employer can’t afford to drop the ball.

  1. Invest in Actual Training

Many managers have no idea what constitutes unlawful retaliation, when overtime pay is required, or how an employee’s firmly-held religious beliefs can require a reasonable accommodation just like those offered to employees with disabilities. Annual training for managers and employees as part of an overall compliance program is one of the least expensive and most important preventive measures an employer can take to reduce the risk of government investigations and litigation.

The most common type of training is anti-harassment and non-discrimination training. It is also a necessary component in defending against claims by an employee or former employee. Under the Faragher-Ellerth line of cases, if an employer can show it exercised reasonable care to prevent and promptly correct sexual harassment and the employee unreasonably failed to take advantage of its preventative or corrective policies or program, it establishes an affirmative defense to liability and damages stemming from the employee’s claims.

Regular training on a variety of topics shows an employer is investing in its employees. If an employer trains its employees on the rules of the game and fairly applies those rules, employees are likely to be more productive, require less oversight and supervision, and be better prepared to implement a company’s strategic vision. Perhaps most importantly, well-trained employees are loyal which makes their “team” more successful.

While you might never play in or even snag a ticket to the World Series, spring training can help you keep your “club” at the top of the standings.


Practical Implications Following the California Supreme Court’s Rejection of the Borello Multifactor Test To Determine Who May Be Classified As An Independent Contractor


Submitted by: The Labor & Employment PAC
Author: Krystal N. Weaver is an Associate at Wilson Turner Kosmo LLP in San Diego where she specializes in defending employment claims, including wage and hour matters.
 

On April 30, 2018, the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court (Cal., Apr. 30, 2018, No. S222732) 2018 WL 1999120, handed down an opinion that calls into serious question the continued viability of the gig economy due to tighter restrictions that will necessarily limit the number of workers who can be properly classified as  independent contractors.  This decision has left both practitioners and hiring entities scratching their heads and wracking their brains as to how to proceed. 

Essentially, Dynamex adopts a new “ABC” test to determine if an individual is an employee under the California wage orders.  The ABC test places the onus on the hiring entity to prove three very difficult factors: (A) Is the worker free from the hiring entity’s control; (B) Does the worker perform work outside the usual course of the hiring entity’s business; and (C) Is the worker customarily engaged in an established trade outside of the work performed for the hiring entity.  Failure to prove even one factor is determinative of an employee-employer relationship.  The Dynamex court believed this test properly took into consideration the Industrial Welfare Commission’s “suffer or permit to work” definition of “employ”.

While the ABC test is limited to determining whether an individual is an employee for purposes of the wage orders, it remains to be seen whether different tests continue to apply in different cases (i.e., workers’ compensation, unemployment, etc.).[1]  Although this question was not raised on appeal, and therefore not addressed in Dynamex, the Court provided guidance on the issue—if the remedial statute in question defines

the employment relationship, that definition is controlling.  As a result, in the unemployment and workers’ compensation context, common law, or a test similar to that articulated in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 342 (Borello)[2] should still be the applicable test.[3]

While the distinction between wage order and non-wage order claims for purposes of determining  employee/independent contractor status may be an interesting academic discussion, it may be a distinction without meaning.  Practically speaking, if a hiring entity changes its practices to bring itself into compliance with Dynamex for purposes of the wage orders, it may be all but impossible to meet the multifactor test articulated in Borello.  This puts hiring entities in the very difficult position of deciding the costs and benefits of being fully or partially compliant with the ever changing legal landscape in California.

To decipher a path forward, it is imperative to unpack the Dynamex decision to garner any and all guidance it may offer on how future litigation in this area may unfold.  While the ABC test articulated in Dynamex was modeled after a handful of jurisdictions that use the same or similar test (i.e., Massachusetts, Maine, New Jersey, Vermont, Connecticut, Arkansas, Utah, Virginia, etc.), the California Supreme Court elected to use the test modeled after the Massachusetts statute.  Unlike other versions of the ABC test, “which provide that a hiring entity may satisfy part B by establishing either (1) that the work provided is outside the usual course of the business for which the work is performed, or (2) that the work performed is outside all the places of business of the hiring entity [i.e., the New Jersey statute], the Massachusetts version permits the hiring entity to satisfy part B only if it establishes that the work is outside the usual course of the business of the hiring entity.”  (Dynamex, supra, 2018 WL 1999120, at *29 fn. 23, emphasis in original).[4] 

Two recent appellate decisions interpreting the Massachusetts statute provide some industries with a potential roadmap for getting around Dynamex—preemption.  In Schwann v. FedEx Ground Package Sys., Inc. (1st Cir. 2016) 813 F.3d 429 (Schwann), the first circuit held that the express preemption provision of the Federal Aviation Administration Authorization Action of 1994[5] preempted application of Part B of Massachusetts’ ABC test to certain FedEx delivery drivers, and that such preemption did not limit application of the remaining two factors.  (Id. at p. 432; see also Massachusetts Delivery Assn. v. Healey (1st Cir. 2016) 821 F.3d 187.) 

Interestingly, the Massachusetts legislature has voiced concerns about the restrictive nature of the ABC test.  There are currently at least 10 proposed amendments to the Massachusetts law that are up for debate and consideration.  These range from exempting delivery persons;[6] persons performing mystery shopping services;[7] highly compensated individuals who consent to the classification and provide certain professional services, exercise discretion and independent judgment, have advanced knowledge in a field, or retain ownership or copyright to their work;[8] individuals who are a party to a franchise agreement;[9] artists, freelance writers, editors, proof readers or indexers in the publishing industry;[10] to changing the test to A and B or C;[11] and striking the ABC test altogether in favor of a multifactor test similar to Borello.[12]

While California courts are in no way bound by changes in Massachusetts law, this provides a clear indication of current hostility towards the overly restrictive nature of the ABC test.  Thus, as is frequently the case, if there is any relief to come for California businesses, it likely needs to come from Sacramento.

[1] The only issue on appeal was whether the Borello test applied to claims  arising under the wage orders. 

[2] The Borello test focuses on the hiring entity’s right to control the “manner and means” of the work performed.  This analysis involves a consideration of the following eight factors, none of which are dispositive: (1) the worker’s distinct occupation; (2) whether the work was performed under supervision; (3) the skill required to perform the service; (4) whether the worker provided the tools and instrumentalities required; (5) the length of performance; (6) method of payment; (7) whether the work was performed as part of the company’s regular business; and (8) the parties’ intent.

[3] Unemployment Insurance Code section 621(b) defines “employee” as “[a]ny individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee.”  Although While Labor Code section 3351 (under Division 4 Workers’ Compensation and Insurance) defines “employee,” courts and the have employed a multifactor test similar to Borello.

[4] All jurisdictions that use some form of the ABC test do so because of “suffer or permit to work” language in the remedial statute.  Dynamex adopted the Massachusetts statute, in part, because it would help limit a hiring entities ability to meet part B of the test if employees telecommute or work from their homes.

[5] 49 U.S.C. section 14501(c)(1) provides that all state laws that “relate[] to a price, route, or service of any motor carrier . . . with respect to the transportation of property” are preempted.

[6] 2017 Massachusetts Senate Bill No. 1024, proposed by Joan Lovely (D).

[7] 2017 Massachusetts Senate Bill No. 1039, proposed by Jeffrey Roy (D).

[8] 2017 Massachusetts Senate Bill No. 1049, proposed by Bruce Tarr (R).

[9] 2017 Massachusetts Senate Bill No. 1050, proposed by Bruce Tarr (R).

[10] 2017 Massachusetts Senate Bill No. 1030, proposed Michael Moore (D).

[11] 2017 Massachusetts Senate Bill No. 1024, proposed by Donald Humason (R) and 2017 Massachusetts Senate Bill No. 1018, proposed by Bradley Jones (R).

[12] 2017 Massachusetts Senate Bill No. 1036, proposed by Shaunna O’Connell (R).


Law Firm Spotlight ‑ Sapientia Law Group, | Minneapolis, Minnesota


  1. When was the firm founded and who are the firm’s founders? Also, the Latin origin of your firm name is very interesting and unusual – would love to hear how your firm decided on it!

Sapientia Law Group was founded in March 2011 by existing owners, Sonia Miller-Van Oort, Sarah Oquist, and Jonathan Strauss who had each worked for “big law” but were ready for something different. Given that we were striving for a new, non-traditional law firm model, we did not want the firm’s name to be based on attorneys’ monikers, which is where hierarchy in a firm often takes root.  Instead, we wanted the name to reflect our identity and what clients could expect.  Sapientia [say-pĕn-chee-uh] means “wisdom” in Latin.  We chose this name because we believed it was our collective wisdom – all our past experiences and our future vision for a different kind of law firm – that would set us apart and provide the best value to our clients.

  1. Who are the firm’s current leaders and how would you describe the firm’s culture and personality?

Sapientia currently has nine attorneys, one paralegal, and three other support professionals – all of whom act as leaders in the firm through their contributions, examples, and responsibility for the firm’s success. Everyone as a leader, drawing upon his or her strengths and diverse backgrounds, is a crucial part of our collaborative team-driven culture.  One of our mantras is “No Egos, Just Results.”  Annually, we sit down together as a team providing written and verbal feedback to each other – lawyers and staff – with regard to his or her leadership strengths and growth opportunities. We work hard. We play hard. As you might sense from our photo, we strive to create an element of fun in our firm personality. With regard to specific officers, Sonia Miller-Van Oort, a Latina whose family is from Ecuador, is the President and Chief Manager of Sapientia, and Sarah Oquist, an enrolled member of the Mille Lacs Band of Ojibwe Indians, is the Chief Operating Officer.

  1. What makes the Sapientia Law Group team special?

We have five guiding principles that set us apart from other firms.  #1 – the true diversity and inclusion of our team. We have varied backgrounds, pasts and experiences, and we continually revisit how to best respect and capitalize upon our differences.  #2 – a spirit of innovation and desire to improve the practice of law both for our clients’ benefits and for the legal profession’s benefit. With lawyers who have served as a corporate counsel, business executive, faculty, movie director and other unique and varied roles, we approach the entire practice of law and delivery of client service from varied perspectives, continually improving our practices and identifying better ways to serve our clients. #3 – an environment supporting and demanding perpetual improvement by every individual and the team. As we mentioned, we perform annual face-to-face 360 degree feedback team gatherings so that we can improve individually and as a team. We also have a formal process for obtaining client satisfaction feedback. #4 – our frequent celebration of each other and client successes. When you visit our office [that’s an open invitation], you will see our “bell” prominently displayed and in easy reach to ring in celebration. When the bell rings, we gather around to hear about the success.  #5 – we take our fun seriously. The ability to provide excellent client service, notable legal advice, and client-desired results, while also enjoying our colleagues, work environment and our time working is a goal we work toward daily.

  1. What are the firm’s significant areas of practice?

Commercial Litigation, Employment Litigation, Bankruptcy, Real Estate Transactions & Business Consulting

  1. How did your firm become interested/involved in NAMWOLF? When and why did you join?

Even before our doors opened, we knew we wanted to become a member of NAMWOLF. Because the diversity of Sapientia was a cornerstone of who and what the firm was going to be, being a member of NAMWOLF was an affirmative part of our business plan to make connections with potential clients who championed the importance of having diverse legal advocates with other firms who could be partner resources.  We became a NAMWOLF member in August 2015.

  1. Why is diversity important to your firm?

Diversity makes us smarter.  The diversity of our team gives us broader perspectives to identify strategies and solutions for our clients.  Having a diverse firm makes Sapientia an agent for change in the profession and local legal community.  And on a personal level, the diversity within the firm makes our professional experiences invigorating and fun.

  1. What has been your involvement with NAMWOLF? For how long?              

As with any organization, we knew our first step had to be “showing up”. Since becoming a NAMWOLF law firm member in September 2015, Sapientia has sent multiple attorneys to every business and annual meeting. Then, we got involved. We have served multiple times as vendor ambassador, firm mentor, CLE presenter, and facilitators of law firm and PAC sessions at the annual and business meetings. We have traveled with NAMWOLF members to present CLEs at corporate member sites on two occasions. We introduced and brought one of our clients to a NAMWOLF meeting to participate in a meet-and-greet with NAMWOLF colleagues. We have been active in several PACS, including Labor & Employment, Product Liability, Trials, Financial Services Litigation, and Transactional. We have a current co-chair of the Financial Services Litigation PAC, a co-chair of the Real Estate Subcommittee of the Transactional PAC, and a co-chair of the Banking & Finance Subcommittee of the Transactional PAC.  We also have team members involved in the Marketing Best Practices Committee, Law Firm Management Committee, the CLE Committee, the Events Committee, and the Law Firm Cross-Marketing Committee.

  1. What is your commitment to community service?

Sapientia is committed to being a responsible member of its community. We actively recruit attorneys who value community involvement and service: this is part of Sapientia’s DNA. A couple times each year, we close our office so that we can participate in community service projects as a team. Further, Sapientia designates a portion of its end-of-the year profit bonus distribution to team members who demonstrate this community service commitment and a different portion to those who provide the minimum hours of pro bono legal services. We believe that designating bonus distributions to these core values underlines our commitment to their importance. Some examples of our team service projects include decorating a women’s shelter for a children’s holiday party, sorting donations at a non-profit goodwill facility, and helping immigrant community members practice reading and speaking in English. Our team members also have extensive histories volunteering and serving on various community and nonprofit boards of directors. We also provide pro bono legal services to a domestic violence long-term shelter and other organizations. Two of Sapientia’s attorneys have been awarded the “Raeder Larson Public Service Award” from the Bankruptcy Section of the Minnesota State Bar Association for their exemplary service to the public.

  1. Exciting recent developments at the Sapientia Law Group?

Sapientia hosted two engaging and timely CLE programs this spring to increase cultural awareness; both events were well attended and highly regarded by attendees: “Workplace Harassment and the Power of Culture” and “Cake & the Gods: Using Critical Thinking to Eliminate Bias & Find Inclusion.”

In its short history with NAMWOLF, Sapientia has appreciated being asked to serve as Minnesota local counsel for other NAMWOLF law firms and their corporate clients and working collaboratively with another NAMWOLF law firm on another matter. Because of the Pitch Perfect presentation in San Diego in February, Sapientia was engaged by a new client, a Fortune Global 50 company.

This year, Sonia Miller-Van Oort served as the President of Minnesota State Bar Association (“MSBA”) – the fifth female MSBA president and first Latino/a president in MSBA’s 135-year history. Last year, MSBA’s President was also from Sapientia, Robin Wolpert, who was the fourth female president of MSBA.

10. If your law firm was a band, what kind of music would you play and who would be your lead singer(s)?

Sapientia’s band would play energetic pop music, uniquely recognized by its eclectic mix of instruments (drums, banjos, kazoos, guitars, washboards, saxophones, trumpets, and keyboard). Although you may think folksy pop, it definitely has a subtle hip-hop underlying beat to it, that makes you want to just dance, dance, dance. Sonia and Sarah would definitely be fronting the band with backing vocals by the rest of the team, with Sarah dancing more than singing.  This hip-hop-pop fury would also be known for its Superhero/Action Figure attire displayed in certain performances on tour.

Sapientia Law Group is a modern, client-centric law firm dedicated to innovation and direct action. We reject traditional law firm practices and embrace diversity, collaboration, and adaptation to offer the best solution for our clients.

Sapientia Law Group

120 South 6th Street, Suite 100

Minneapolis, MN 55402

P: 612.756.7100

www.sapientialaw.com


The Phase-Out of LIBOR and Impact on Financial Transactions


Author: Lisa D. Love is Co-Managing Partner of Love and Long, LLP.  Love and Long has offices in New York City, Philadelphia, and Newark, New Jersey and represents Fortune 500 companies in commercial transactions. 

 

For nearly fifty years, the London Interbank Offered Rate (LIBOR) has been used by banks and other financial institutions as a global floating reference rate (benchmark).  It is the primary benchmark for short-term interest rates around the world and underpins more than $350 trillion in mortgages, commercial loans, bonds and derivatives.  LIBOR is the average of interest rates at which large banks can borrow from one another on an unsecured basis.  LIBOR comes in seven maturities (from overnight to 12 months) and in five different currencies. The official LIBOR interest rates are announced once per working day at around 11:45 a.m. London time by ICE Benchmark Administration.  The U.S. Dollar LIBOR is calculated based on data submitted by a panel of 18 major banks.  Each bank is asked the same question: “At what rate could you borrow funds, were you to do so, by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11:00 a.m.?”  Once the rates are submitted, the four highest and four lowest rates are discarded, and the remaining rates are averaged to calculate the U.S. Dollar LIBOR for such day. Understandably, fluctuations in LIBOR impact the global financial system’s critical infrastructure.

As a result of well-publicized scandals involving the manipulation of LIBOR by panel banks, the subjective nature of panel bank submissions, and the lack of actual transactions to support LIBOR, the International Organization of Securities Commissions established Principles for Financial Benchmarks by Administrators of EURIBOR, LIBOR and TIBOR in 2014, which included the principle that reference rates should be transitioned to “rates that are anchored in observable transactions.” Also in 2014, the Federal Reserve convened the Alternative Reference Rates Committee (AARC) to identify a set of alternative reference interest rates that could serve as an alternative to LIBOR for use in new derivative and other financial contracts that are more firmly based on actual transactions and that would have a deep underlying market that is robust over time.

In June 2017, ARRC selected the Secured Overnight Funding Rate (SOFR), a fully-transactional based rate, as its recommended replacement for the U.S. Dollar LIBOR.  In recommending SOFR, AARC concluded that it is the most robust reference rate available with underlying transactions of about $700 billion per day or more, much larger than the volumes associated with other potential LIBOR alternatives.  SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities.  SOFR includes all trades in the Broad General Collateral Rate (which is a measure of rates on overnight Treasury general collateral repurchase agreement (repo) transactions) plus bilateral Treasury repurchase agreement (repo) transactions cleared through the Delivery-versus-Payment (DVP) service offered by the Fixed Income Clearing Corporation (FICC), which is filtered to remove a portion of transactions considered “specials.”  Specials are repos for specific-issue collateral, which take place at cash-lending rates below those for general collateral repos (GCF) because cash providers are willing to accept a lesser return on their cash in order to obtain a particular security.  SOFR is calculated as a volume-weighted median of transaction-level tri-party repo data collected from the Bank of New York Mellon as well as GCF repo transaction data and data on bilateral Treasury repo transactions cleared through FICC’s DVP service, which are obtained from DTCC Solutions LLC, an affiliate of the Depository Trust & Clearing Corporation. Each business day, the New York Fed publishes the SOFR on the New York Fed website at approximately 8:00 a.m. EST.  (See Secured Overnight Financing Rate Data published by the Federal Reserve of New York https://apps.newyorkfed.org/markets/autorates/sofr#Chart12.)

After AARC’s recommendation, in July 2017, the UK Financial Conduct Authority, planning to phase-out LIBOR by 2021 and replace it with a more reliable benchmark, announced that it would no longer use its influence or legal powers to compel or persuade banks to submit to LIBOR panels after the end of 2021.

As LIBOR is phased out and SOFR is phased in, the Federal Reserve began publication of SOFR on April 2, 2018 at the initial rate of 1.80% based upon $849 billion in overnight transactions from April 1 to April 2.  Although SOFR has the distinct benefit of being a transaction based robust reference rate, SOFR has two distinct challenges relative to its appropriateness for loan transactions. First, SOFR is a secured rate based upon U.S. Treasury securities serving as collateral and LIBOR is an unsecured rate. Secured borrowing rates are generally lower than unsecured rates.  Second, SOFR is an overnight rate only, while U.S. Dollar LIBOR is currently published in seven tenors: overnight, one week, one month, two months, three months, six months and one year.  Shorter tenor instruments (e.g., an overnight rate) generally have lower borrowing costs than longer-tenor instruments (e.g., one-year LIBOR). Thus, LIBOR will generally be higher than SOFR since SOFR is a secured rate currently only having an overnight tenor. 

In addition to impacting other markets, the LIBOR phase-out will have a broad impact on the derivatives market and the $4 trillion syndicated loan market, including currently existing loan transactions that extend past 2021.   With respect to derivatives, such as futures contracts, forward contracts, options, swaps, and warrants, the International Swaps and Derivatives Association (ISDA) is leading an initiative to determine fallbacks for LIBOR (and other key IBORs) that would apply if an IBOR is permanently discontinued.  The working group is expected to suggest (i)  a fallback rate or fallback rates and other fallback mechanism, that would apply in the event that the applicable IBOR is permanently discontinued; (ii) amendments to the ISDA 2006 Definitions to add selected fallbacks that would apply upon any such permanent discontinuation; and (iii) the development of a proposed plan to amend legacy contracts referencing the applicable IBORs to include the amended definitions, including potential development of a protocol mechanism to facilitate multilateral amendments. See Development of Fallbacks for LIBOR and other Key IBORs – Work of the FSB Official Sector Steering Group and ISDA https://www.isda.org/a/vKiDE/development-of-fallbacks-for-libor-and-other-key-ibors.pdf.

With respect to loan transactions, banks and financial institutions should review their existing portfolio to determine those LIBOR based transactions that terminate after the end of 2021 to prepare for the LIBOR phase-out.  Since LIBOR will continue to be published until the end of 2021, transactions that terminate prior to the end of 2021 may simply expire upon their respective terms. For those LIBOR transactions that terminate after the end of 2021, the existing fallback provisions of the transaction documents should be evaluated to determine the applicable rate should LIBOR become unavailable and the associated risks and shortcomings of the existing fallback provisions.  Although typical fallback provisions may include a waterfall of alternative reference rates if LIBOR is unavailable (i.e., an alternative base rate or prime rate, a rate selected by the administrative agent, a reference bank rate or mean of several reference banks rates, or the lender’s cost of fund), some fallback rates may result in a substantially higher interest than was intended by the parties.  If so, the transaction documents may need to be amended.  For new LIBOR transactions that terminate after the end of 2021, flexible fallback provisions that anticipate the substitution of LIBOR with alternative reference rates should be incorporated into the transaction documents.  


Action By Department of Justice To Enforce Federal Marijuana Laws Is Inconsistent With State and Local Laws Protecting Marijuana Users


Author: Barbara Johnson is Counsel to Potter & Murdock, P.C. Barbara has more than 25 years of experience in representing employers in labor and employment law matters, and substantial experience helping clients translate complex legal issues into practical business-minded solutions and drive legal strategies aligned with business objectives. Author:  Andrew Knauss has lectured on intellectual property law involving copyright and trademark. A native Washingtonian and avid museum-lover, he previously worked in-house at both the Smithsonian Institution and the National Gallery of Art. He also has a background in art and digital design.

On January 2018, Attorney General Jeff Sessions rescinded three Obama-era memos, known as the “Cole memo,” that provided for a federal policy of non-intervention in states with marijuana-friendly laws.  The move gave federal prosecutors wide discretion in how to prioritize their resources to combat possession, distribution, and cultivation of marijuana in the nine states, plus the District of Columbia, where recreational use has been legalized. 

This decision came just days after recreational marijuana use became legal in California, the highest-populated market in the world to legalize the drug thus far.  Voters in California approved the measure in November 2016, but the commercial sale of marijuana under state law only went into effect on January 1, 2018.  California has permitted medical marijuana use for two decades, and 29 states, plus the District of Columbia, allow qualifying patients to use marijuana for medicinal or rehabilitative purposes.

The Justice Department’s policy shift is seemingly at odds with an amendment to a congressional budget rider prohibiting the use of federally appropriated funds to interfere with state-sanctioned medical marijuana operations.  In United States v. McIntosh, 833 F.3d 1163 (9th Cir. 2016), the Ninth Circuit interpreted this amendment to effectively immunize medical marijuana users and sellers complying with state law from criminal prosecution.[i]  A Justice Department official said that prosecutors would respect the McIntosh decision while reserving their rights to prosecute individuals in states not covered by the decision.  Sessions has argued vehemently against the amendment’s continued inclusion in the budget rider.  In his view, it allows drug traffickers to hide behind state medical marijuana laws as they illegally cultivate and distribute marijuana.  He has also doubled down on his rhetoric against marijuana use, maintaining that “good people don’t smoke marijuana” and the drug is “in fact a very real danger.” 

Ironically, Sessions’ hardline approach has galvanized pro-marijuana policymakers across the country.  On January 22, 2018, in response to his decision regarding the Cole memo, Vermont became the first state to legalize marijuana through legislation as opposed to ballot initiatives.[ii]  In March 2018, Congress rejected Sessions’ entreaties and again included the marijuana amendment as part of its new spending bill, which will fund the federal government until the end of September.  In April 2018, Sen. Chuck Schumer announced that he would introduce legislation to remove marijuana from Schedule I of the Controlled Substances Act (CSA).  Also in April, President Donald Trump promised Sen. Cory Gardner that he would support legislation protecting Colorado and other states that have legalized recreational marijuana use from the Department of Justice.  Finally, many members of Congress are supporting the Marijuana Justice Act, modeled after California’s Proposition 64, that would legalize marijuana under federal law and allow individuals convicted of marijuana possession to clear their criminal records.

Despite the mixed messages coming out of Washington, the possession and use of marijuana, for any purpose, is still illegal at the federal level.  However, employers should be wary of state laws that prohibit discrimination against medical marijuana users.  Until recently, case law supported employers’ discretion to fire or refuse to hire individuals who tested positive for marijuana.  Two cases in 2017 challenged this status quo.  In July 2017, the Massachusetts Supreme Judicial Court ruled that state law requires an employer to accommodate an employee’s use of medical marijuana. See Barbuto v. Advantage Sales and Marketing, LLC, 477 Mass. 456 (2017).  Even more surprisingly, a Connecticut district court judge held that federal law does not preempt Connecticut’s Palliative Use of Marijuana Act (PUMA), which protects employees and job applicants from employment discrimination based on their lawful use of medical marijuana. Noffsinger v. SSC Niantic Operating Co. LLC, 273 F. Supp. 3d 326, at 338 (D. Conn. 2017).  Despite lacking an express statutory enforcement mechanism, the Court ruled that PUMA provides employees and job applicants with an implied private right of action with respect to the law’s anti-discrimination prohibition.  Id. at 340.

In 2015, plaintiff Katelyn Noffsinger was prescribed medical marijuana to treat her post-traumatic stress disorder (PTSD).  She registered with the Connecticut Department of Consumer Protection and began taking Marinol (a.k.a. dronabinol), a synthetic form of marijuana, every night before bed.  Id. at 331.  In July 2016, Ms. Noffsinger was recruited for a position with defendant Bride Brook.  She informed the company of her use of Marinol as a “qualifying patient” under PUMA to treat her PTSD.  Nevertheless, Bride Brook rescinded her job offer after learning that she had tested positive for cannabis in her mandatory pre-employment drug test.  Id. at 332.  In August 2016, Ms. Noffsinger sued the company in Connecticut Superior Court.  Bride Brook removed the case to federal court and filed a motion to dismiss, arguing that the PUMA claim was preempted by the CSA, Americans with Disabilities Act (ADA), and Food, Drug, and Cosmetic Act (FDCA).

The Court found no federal preemption of PUMA.  While “the CSA makes it a federal crime to use, possess, or distribute marijuana,” it neither prohibits employing marijuana users nor attempts to regulate employment practices.  Id. at 334.[iii]  The Court then explained that while the ADA contains “an illicit-drug-use exception” to its protections, it does not authorize employers to take adverse employment actions based on an employee’s illicit drug use outside of the workplace.  Id. at 337.[iv]  Finally, the Court found that PUMA does not conflict with the FDCA’s goals, even though it permits drug use that the Food and Drug Administration has not approved.  Id. at 338 (“[T]he FDCA does not purport to regulate employment.”).  Therefore, an implied private right of action does exist under PUMA’s anti-discrimination prohibition.  Id. at 340-41 (“[W]ithout a private cause of action, [PUMA] would have no practical effect, because the law does not provide for any other enforcement mechanism.”).

Bride Brook indicated that it will appeal to the Court of Appeals for the Second Circuit.  Still, Noffsinger marked the first time a court has found that marijuana’s status as an illegal drug under federal law does not bar a plaintiff’s state-law discrimination claim.  The decision may have a dramatic impact on employers in states that provide affirmative employment protections for authorized medical marijuana users.  Both Barbuto and Noffsinger could signal a shift toward affording greater protections to employees who use medical marijuana under state law, forcing employers to reevaluate their zero-tolerance workplace drug policies and drug-testing programs.


[i] See also United States v. Samp, 2016 U.S. Dist. LEXIS 171732 (E.D. Mich. Dec. 13, 2016) (“The language of § 542 clearly prohibits the [Justice Department] from expending funds to prevent Michigan from implementing its own state law regarding the use, distribution, possession, and cultivation of medical marijuana.”). 

[ii] Governor Phil Scott begrudgingly signed the law, legalizing possession of up to one ounce of marijuana.  However, he rejected the tax-and-regulate model adopted in other states that have legalized marijuana, where sales of the drug reportedly generated over $9 billion in tax revenue in 2017.  As a result, critics are fearful that the majority of Vermont’s commerce involving marijuana will remain underground and unregulated.

[iii] Cf. Emerald Steel Fabricators, Inc. v. Bureau of Labor & Industry, 230 P.3d 518 (Or. 2010).  Unlike PUMA, Oregon’s medical marijuana statute lacked a provision explicitly barring employment discrimination.  See also EEOC v. Pines of Clarkston, 2015 U.S. Dist. LEXIS 55926 (E.D. Mich. Apr. 29, 2015) (denying defendant’s motion for summary judgment on plaintiff’s discrimination claim under Michigan’s Persons With Disabilities Civil Rights Act, which alleged that defendant refused to hire her not for her medical marijuana use but for her epilepsy).

[iv] Neither the Court nor the parties addressed the fact that Marisol may be prescribed under the CSA as a Schedule III drug.  Thus, while Ms. Noffsinger’s state-law discrimination claim was also potentially actionable under the ADA, the Court’s decision might have limited value in future cases involving Schedule I or II drugs.


Standing Out Among the Standouts


Author: Matt Stokes is a writer and consultant at Roth Stokes 360, a legal marketing firm he co-owns with his wife Laci Roth. As a ghostwriter, he works closely with attorneys to create engaging articles, blog posts, newsletters, and website content consistent with the attorney’s brand.

 

The NAMWOLF Law Firm Expo is a sea of stimuli, and the most successful booths are the ones run by law firms executing a clear strategy for standing out among standouts.   All marketing campaigns should fit within a larger plan and vision, and the best law firm booths take a holistic approach to their presentations, making sure they advance their marketing goals.

Some firms want to give away as many clever and memorable promotional items as they can. With this goal in mind, it’s vital that the firm pick a unique but useful item—electronic key trackers, USB hubs, and S’well water bottles are all great ideas for giveaways that people want to keep and use frequently.

A great way to make an immediate impression is to give away something that can be worn instantly, which is why a firm at last year’s New York Expo gave away Statute of Liberty crowns. For a stretch of time on the afternoon of the Expo, dozens of people were walking around wearing that firm’s logo on their heads.

Then there are firms that have truly unique, on-brand promotional items. One firm at last year’s Expo gave away stuffed dog toys of its company mascot, while another had trading cards for its attorneys that detailed their special skills and attributes. The firms in these cases not only had clever ideas for swag, but their swag selection communicated a message about their firm identities.

Great promo items only go so far, however, and if they’re not tied into a larger message they can be a fruitless endeavor. That’s why it’s so important that each firm make sure its promo items echo its brand as presented in the NAMWOLF directory. Elements and themes should recur from one medium to another, from advertisement to promo item, all working together to strengthen and enhance the brand.

The most valuable giveaway, however, is time—time spent by attorneys at the Expo with attendees stopping by their booths. Conversation is the best way to forge a lasting connection, and the very best firm tables should gear their presentation strategy toward starting these conversations with passersby. Photo booths are always a great opportunity for connection because they give the booth attendant time to speak with the visitor while the photo is set up and information is exchanged. A great illustration of this strategy was executed at last year’s Expo when a firm tied the photo booth in with a donation to one of a handful of charitable organizations. Talking over the choice of charity gave more opportunity for exchange and connection. In an age of smartphone cameras, people still want a physical photograph as a keepsake, and this firm successfully gave out heaps of photos showing its logo, and had the chance to start a conversation with every picture taker.

However a firm chooses to approach NAMWOLF’s Law Firm Expo, the most important thing is that it stick to its vision. What is the firm trying to accomplish, how can it make that happen, and how will it measure success afterward? The most successful presentations at NAMWOLF’s Law Firm Expo will give careful consideration to these questions, and will see the returns going forward in the many great impressions they made.

Interested in joining the Marketing Best Practices Committee? Email Katie Bryk (bryk@bsplaw.com) and Anna Ludwig (ALudwig@lkclaw.com) for more information.


The Problem with Parking (and other Fringe Benefits) Under Tax Reform


Submitted by: The Labor & Employment PAC

Author: Sherrie Boutwell has focused for thirty years in the areas of employee benefits law and ERISA, with an emphasis on retirement and deferred compensation plans. She advises and counsels a broad range of clients, including employers, employees, plan fiduciaries, financial institutions, government agencies and trade associations, on a wide range of employee benefits matters. Sherrie has extensive experience and is a highly sought after speaker and writer on employee benefits topics.

 

It may be time to renegotiate your office lease.  Here is why – the 2017 Tax Cuts and Jobs Act[1] broadly disallows employer deductions for “qualified transportation fringe benefits” such as employer paid parking.  In addition, it requires certain tax-exempt employers to treat specified fringe benefits, including employer paid parking and other qualified transportation benefits[2] as being subject to “unrelated business income tax” (“UBIT”) resulting in a tax on the organization (generally at a 21% rate).

Background

Prior to 2018, employer paid parking was not a “hot topic.”  For profit employers were generally able to deduct parking expenses for their employees under Code Section 274 and employees were generally able to exclude “qualified transportation benefits” such as employer paid parking or mass transit passes from their taxable income under Code Section 132.  That Code Section also allowed (and still allows) employees to pay for their own parking on a pre-tax basis via a salary reduction election. 

Beginning on January 1, 2018, the Tax Cuts and Jobs Act completely changed the tax rules for employer paid parking.  Now, for tax-exempt and other employers, (especially those located in a major metropolitan area such as downtown Los Angeles, where most employees drive to work and free parking is virtually non-existent), the tax consequences of employer paid parking are a big deal. 

Changes under the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act makes two statutory changes that affect employer paid parking:

  1. Loss of deduction (for profit employers). Code Section 274 was amended to prohibit any deduction by an employer for “qualified parking” for an employee.  “Qualified parking” is defined as parking at or near the business premises of the employer (or a park-n-ride type facility); and
  2. Unrelated Business Income Tax (certain tax-exempt employers). Code Section 512(a) was amended to subject employer paid parking and other qualified transportation benefits to the unrelated business taxable income rules. Employers subject to those rules must file a Form 990-T and pay a 21% tax[3] on amounts paid or incurred for “qualified parking” or with respect to any parking facility used in connection with providing qualified parking to its employees (and may have related obligations to make estimated tax payments).    

What can Employers do?

Employers do have some choices, although further guidance from the Internal Revenue Service will be needed to clarify the tax treatment of certain approaches:

  1. Stop paying for employee parking/start charging employees for parking or mass transit/treat amounts paid for parking or mass transit as wages and report on Form W-2. This approach will not work for many employers.  First, this may not be possible if local laws require an employer to provide “qualified transportation benefits.”  Second, it may not be tenable for employers fighting for talent in today’s tight labor market.  And, even if permitted under local law, and in the employer’s best interest, employers will still want to check employee handbooks and employment agreements before eliminating an expected benefit.

  2. Establish a “qualified transportation plan” that allows employees to pay for their own parking on a pre-tax basis through salary reduction. Even with a salary reduction plan, the employer may still lose its income tax deduction and a tax-exempt employer may still be subject to UBIT.  This is because under a salary reduction arrangement, the employer agrees to forgo paying salary, and instead of paying salary is agreeing to pay for parking.  See Treas. Reg. Section 1.132-9, Q&A-11 and Revenue Ruling 2004-98.[4]   Note – the regulation that allows salary reduction arrangements was issued under the same Code Section that is referenced in Code Section 274 to define the disallowed deduction. 

The good news is that with this type of salary reduction plan, under current guidance, even if the employer’s income tax deduction is lost, the employees should still avoid income tax and amounts paid through the plan for parking are not subject to FICA and FUTA taxes.  These plans are subject to monthly dollar limits and other restrictions, so be sure the plan is compliant with the regulations under Code Section 132.  And, be aware, the IRS recently confirmed that this type of plan will not create a parking deduction after tax reform.  See, IRS Publication 15b – “Employer’s Tax Guide to Fringe Benefits” for use in 2018.

  1. Renegotiate the lease/move to new space. Absent additional guidance, for-profit employers who own their own buildings or who lease space that offers free parking should not be affected by the loss of a deduction under Code Section 274.  Employers who currently pay for parking may be able to renegotiate their lease and as a part of that renegotiation get “free parking.”  For this approach, the facts should show that the renegotiation involved more than just reallocating the cost of parking – the renegotiation should involve other changes.  For tax-exempt employers, guidance is needed – the Service was expressly given regulatory authority with respect to the allocation of depreciation and costs for “parking facilities” under the new Section 512(a) rules.

Employers will want to explore their options carefully and tax-exempt employers, in particular, may need to budget for both a new tax and the costs of filing an additional tax return.

[1] P.L. No. 115-97.

[2] Certain athletic facilities are also included in the new tax, but a discussion of those is beyond the scope of this article.

[3] The actual rate will depend on whether the organization is a corporation or a trust and excludes amounts related to an actual trade or business regularly carried on by the organization.

[4] See also Rev. Rul. 2004-98, 2004-42 I.R.B. 664 (10/18/2004)(in a payroll deduction arrangement where parking is paid for with pre-tax salary reduction amounts, it is the employer who is paying for the parking).


Wearable Woes: An Emerging Issue in Product Liability Litigation


Submitted by: The Products Liability PAC

 

Author: Randy C. Mallaber is an associate with the law firm of Burden, Hafner & Hansen, LLC.  He is a litigation attorney representing both plaintiffs and defendants in the area of medical malpractice, nursing home negligence, motor vehicle negligence, toxic torts, industrial accidents, products liability, scaffold law, municipal law/government liability and civil rights.     Author: Sarah E. Hansen is a partner with the law firm of Burden, Hafner & Hansen, LLC.  She is a litigation attorney who primarily defends personal injury cases arising out of trucking and automobile accidents, product liability, labor law, municipal law/governmental liability, premises liability cases, and also handles employment law matters.  Burden, Hafner & Hansen, LLC is certified as a Women’s Business Enterprise by WBENC and is a member of NAMWOLF and its Product Liability, Restaurant, Retail & Hospitality and Trials PACS. 

 

Popular wearables such as the Fitbit have experienced setbacks as they sell millions of their fitness trackers to the public.  These problems have ranged from skin irritation to a failure to accurately monitor the user’s heartrate.  Fitbit has fended off multiple lawsuits, including a shareholder lawsuit resulting from alleged failures of their device to work as advertised, resulting in a plunge in its stock value.

In October 2013, Fitbit released its Force model and by the end of that year, users were reporting skin irritations on their wrists where they were wearing the fitness tracker.[1]  The symptoms reported by users ranged from red patches to blisters.[2]  Apple Watch users also reported skin irritation in the area where they were wearing their watch.[3]  Several customers who alleged that they suffered from skin irritation commenced a lawsuit against Fitbit claiming to have been misled by their advertising of the device.[4]  Overall, approximately 1.7% of the Fitbit Force users reported skin irritation.[5] 

As a result of the consumer complaints, Fitbit issued a recall of the Force model offering a full refund.[6] Fitbit conducted the recall of the Force with the Consumer Product Safety Commission.[7]  The recall was announced on February 20, 2014 and involves approximately 1,000,000 units in the United States and another 28,000 in Canada.[8] 

In a letter dated October 17, 2014 from the CEO of Fitbit, James Park, Fitbit announced that after their investigation, it is believed that some users were reacting to the nickel in the stainless steel or to the methacrylate used in the adhesives to manufacture the Force.[9]  Mr. Park said that their test results indicated that the affected customers were most likely experiencing contact dermatitis, a minor skin irritation.[10]

Of more significant concern, were allegations about the failure of the Fitbits and other wearables to accurately measure the user’s heartrate during vigorous exercise.  In January 2016, Fitbit customers filed a class action lawsuit against the company alleging that the constant rate heart monitoring technology, which the company calls “PurePulse,” was not as accurate as advertised.[11]  The lawsuit focused on the Fitbit Charge HR and Surge models. 

In support of their lawsuit, the attorneys representing the Plaintiffs commissioned a study conducted by researchers at the California State Polytechnic University, Pomona.[12]  The researchers compared the accuracy of the Fitbit with an electrocardiogram (ECG).[13]  The study concluded that the Fitbit devices were about twenty (20) beats per minute off from the ECG.[14]  Fitbit rejected the study, pointing out that the study was funded by the Plaintiffs’ attorneys, and that the Fitbit was designed and marketed as a fitness device that was not designed for scientific or medical use.[15]

There seems to be a consensus that wrist-worn heart rate monitors such as Fitbit are generally accurate when a person is at rest or sitting still, but their accuracy comes into question when the user starts to engage in more vigorous exercise.[16]  The difference is in the way that the wrist-worn monitors track your heart rate.  Electrocardiography and chest strap heart rate monitors measure the electrical impulses from the heart muscle. [17]  By contrast, wrist-worn heart rate monitors shine an LED light through the user’s skin to measure blood flow through the capillaries. [18]  The quality of the information regarding the user’s heart rate obtained by a wrist-worn monitor can be impacted by movement of the monitor, the user’s skin tone and any interference between the monitor and the skin.[19]

A review of the recommendations for use of the heart rate monitor on the Fitbit website illustrates ways to increase the accuracy of the heart rate monitor.  Fitbit recommends that during workouts, the band should be secured three finger-widths above the wrist bone. [20]  Fitbit also warns that the signal for the heart rate monitor could be lost during exercises that cause the wrist to be bent.[21]  If the signal is lost, the user is recommended to stop for ten seconds to wait for the signal to return.[22] 

Testing has shown that following the Fitbit directions on how to wear the device during vigorous exercise improved the accuracy of the heart rate monitor function.  Consumer Reports did a study on the Fitbit Charge HR and Surge Models after the commencement of the class action lawsuit and concluded that when following the instructions from Fitbit, they were nearly as accurate as a chest strap heart rate monitor.[23]  The test by Consumer Reports did note a problem with the Charge HR when it was worn by the female test subject and showed a heart rate of 144 and 139 beats per minute when she was at 150 beats per minute.  The problem was resolved when they moved the Fitbit up the tester’s arm.[24]   

At this point, there have been no reported injuries related to the alleged failure of the wrist-worn heart rate monitors as claimed in these lawsuits.  Because the wearable fitness trackers such as the Fitbit are not medical devices, they are not regulated by the Food and Drug Administration.[25]  The pending lawsuits are claiming fraud for allegedly failing to perform as advertised and do not make any claims for physical injuries.   

Wearable sales are expected to grow by 20% each year over the next five years.[26]  Competition is fierce with pure fitness trackers, such as those sold by Fitbit, losing ground to broader platforms (that include fitness tracking) such as the Apple Watch.[27]  With wearables becoming more complex and containing more functions, including fitness tracking, we expect that product liability lawsuits from customers will increase in the coming years.                

[1] Katherine Rosman, “Fitbit Now Faces Class-Action Suit in Rash Fallout,” Wall Street Journal (March 19, 2014), available at: https://blogs.wsj.com/digits/2014/03/19/fitbit-now-faces-a-class-action-suit-in-rash-fallout/

[2] Id.

[3] Aimee Picchi, “Why Apple Watch is rubbing some users the wrong way”, CBS Money Watch (May 6, 2015), available at: https://www.cbsnews.com/news/why-apple-watch-is-rubbing-some-users-the-wrong-way/

[4] Katherine Rosman, “Fitbit Now Faces Class-Action Suit in Rash Fallout,” Wall Street Journal (March 19, 2014), available at: https://blogs.wsj.com/digits/2014/03/19/fitbit-now-faces-a-class-action-suit-in-rash-fallout/

[5] Heather Kelly, “Fitbit recalls activity tracker due to skin rashes,” CNN.com (February 24, 2014), available at: https://www.cnn.com/2014/02/21/tech/gaming-gadgets/fitbit-force-recall/index.html

[6] Id.; see also: https://www.cpsc.gov/Recalls/2014/Fitbit-Recalls-Force-Activity-Tracking-Wristband/

[7] Katherine Rosman, “Fitbit Now Faces Class-Action Suit in Rash Fallout,” Wall Street Journal (March 19, 2014), available at: https://blogs.wsj.com/digits/2014/03/19/fitbit-now-faces-a-class-action-suit-in-rash-fallout/

[8] “Fitbit Recall Force Activity-Tracking Wristband Due to Risk of Skin Irritation,” U.S. Consumer Product Safety Commission, available at: https://www.cpsc.gov/Recalls/2014/Fitbit-Recalls-Force-Activity-Tracking-Wristband/

[9] James Park, “Letter from the CEO” (October 17, 2014), available at: www.fitbit.com/forcesupport?utm_source=Skimlinks&utm_medium=affiliate&utm_campaign=Fitbit+-+Deep+Linking

[10] Id.

[11] Jason Cipriani, “Lawsuit Says Fitbit Fitness Trackers Are Inaccurate, Fortune (January 6, 2016), available at: http://fortune.com/2016/01/06/fitbit-heart-rate-accuracy-lawsuit/

[12] Lisa Eadicicco, “4 Things to Know About the Fitbit Accuracy Lawsuit,” Time (May 23, 2016), available at: http://time.com/4344675/fitbit-lawsuit-heart-rate-accuracy/

[13] Id. ; see also, Edward Jo, PhD and Brett A. Dolezal, PhD, “Validation of the Fitbit Surger and Charge HR” available at: http://www.lieffcabraser.com/pdf/Fitbit_Validation_Study.pdf

[14] Id

[15] [15] Jason Cipriani, “Lawsuit Says Fitbit Fitness Trackers Are Inaccurate, Fortune (January 6, 2016), available at: http://fortune.com/2016/01/06/fitbit-heart-rate-accuracy-lawsuit/

[16] Robert Jimison, “ Fitness trackers’ heart rate monitoring accurate enough for most, study says” CNN (4 13, 2017), available at: https://www.cnn.com/2017/04/10/health/fitness-tracker-fitbit-mio-accuracy-study/index.html

[17] Id.; see also, Sharon Profis, “Do wristband heart trackers actually work” A checkup.” Cnet (May 22, 2014), available at: https://www.cnet.com/news/how-accurate-are-wristband-heart-rate-monitors/

[18] Id.

[19] Robert Jimison, “ Fitness trackers’ heart rate monitoring accurate enough for most, study says” CNN (4 13, 2017), available at: https://www.cnn.com/2017/04/10/health/fitness-tracker-fitbit-mio-accuracy-study/index.html

[20] https://www.fitbit.com/purepulse

[21] Id.

[22] Id.

[23] Patrick Austin “Tracking the Pulse of Fitbit’s Contested Heart Rate Monitors” Consumer Reports (January 22, 2016), available at: https://www.consumerreports.org/fitness-trackers/taking-the-pulse-of-fitbits-contested-heart-rate-monitors/

[24] Id.

[25] Sharon Profis, “Do wristband heart trackers actually work” A checkup.” Cnet (May 22, 2014), available at: https://www.cnet.com/news/how-accurate-are-wristband-heart-rate-monitors/

[26] Paul Lamking, “Smartwatch Popularity Booms With Fitness Trackers On the Slide”, Forbes (February 2, 2018) available at: https://www.forbes.com/sites/paullamkin/2018/02/22/smartwatch-popularity-booms-with-fitness-trackers-on-the-slide/#16bdcf867d96

[27] Id.


California’s Cleaning Product Right to Know Act


Submitted by: The Products Liability PAC

Author: Dee Cohen Katz is a partner at Walsworth whose practice emphasizes the defense of claims involving toxic torts, general liability, products liability and business litigation. She represents manufacturers, distributors, retailers and premises/business owners in cases that run the spectrum from single plaintiff/defendant to multiple-party complex matters.

 

Federal regulations do not currently require manufacturers to disclose all components of consumer and institutional cleaning products. While warnings concerning ingredients that are linked to toxicity (such as bisphenol A and phthalates) are mandated, complete transparency regarding product ingredients, including those relating to fragrance, is not required. At present, only certain companies, such as Seventh Generation, voluntarily identify all ingredients on product labels. Various consumer advocacy groups have voiced complaints for years over the potential impact of allergens and other fragrance ingredients on sensitive consumers, including those suffering from health challenges or merely trying to be mindful of exposure to certain substances.

On Sept. 16, 2017, California Governor Jerry Brown signed into law Senate Bill 258, the Cleaning Product Right to Know Act of 2017 (the Act). The law was introduced by State Senator Ricardo Lara, motivated by his mother who had been a domestic worker for years. The Act was supported not only by companies who had long been staunch advocates of such disclosures, including The Honest Company, but also by worldwide manufacturers such as Procter & Gamble and SC Johnson.

Under the Act, manufacturers of designated products must disclose ingredients online by 2020 and on product labels by 2021. “Designated products” are defined to include general cleaning products (soaps, detergents, or other products whose purpose is to clean or disinfect fabric, dishes, household surfaces and appliances), air care products (air fresheners), and automotive products (used for waxing, polishing, cleaning or treating the exterior or interior surfaces of a motor vehicle). Concern held by manufacturers regarding the disclosure of proprietary ingredient information was assuaged by the inclusion of language protecting ingredients deemed to constitute “confidential business information (CBI).” This term is defined within the bill and in those instances, manufacturers only need to provide a generic chemical name to protect those ingredients.

Except for CBI and fragrance ingredients, intentionally added ingredients must be identified in descending order of prominence. Nonfunctional constituents and fragrance ingredients, however, only need to be specified when present in the product at a concentration at or above 0.01 percent (100 ppm).

The law prohibits retailers from selling products that do not comply with the new disclosure requirements. While the Act does not impose penalties for violations or specify a mechanism for enforcement, violations are likely to be enforced by private litigants or the California Attorney General under California’s Unfair Competition Law (CA Business & Professions Code Section 17200), which prohibits any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.

The law will also impact the duty imposed on manufacturers to relay information on products regulated under the federal Occupational Safety and Health Act and in turn, employers’ obligations to transmit product information in the workplace. For products subject to the Act, manufacturers will be required to make the ingredient information available in an easily printable format. They can satisfy this requirement by including the information on the product safety data sheet or in a separate printable list. Employers that are currently required to make product safety data sheets readily accessible to employees will also need to make readily available in the workplace the printable information for such designated products. If manufacturers do not update safety data sheets to include the information, employers should be proactive and obtain the available printed information on their own. Most likely this will be as simple as visiting a manufacturer’s website where all necessary information may be in printable form (if it is not, the manufacturers would need to be contacted directly), but it would still impose an extra duty on employers that does not currently exist.

As the Act contains numerous additional provisions and definitions, manufacturers of designated products and employers that use them would be well served to carefully review the Act to ensure they will be in compliance with the law.


Business Partner Spotlight: RVM Enterprises, Inc., a Woman-Owned eDiscovery Business


RVM Enterprises, Inc. has a rich tradition of excellence in electronic collections, litigation services, and consulting going back to its founding in the late-1990s.

However, since 2006 the company has taken a much stronger stance toward client-centric practices with a focus on diversity. This change has manifested itself in long-term relationships with clients as well as a pool of business with other companies who share and reflect our passion for diversity.

A big reason for this change is Cheryl Brunetti. Hired in 2004 as RVM’s Chief Financial Officer, Cheryl worked quickly to instill her values in the company. Today she is a majority stakeholder in the company, serving as Executive Chairwoman. Cheryl took the time to reflect on the advancements that RVM has made under her leadership and the significance of RVM’s identity as a woman-owned business.

Q:            What does it mean to be a woman-owned business?

A:            The business world is learning that parity and diversity in the workforce is a source of strength to be encouraged and leveraged. But, while the trend of companies that are run or owned by women is accelerating, there are still too few of them. In the eDiscovery industry specifically, RVM is one of only a handful of woman-owned businesses. Technology-related industries continue to fall behind.  I’m proud of what we have accomplished at RVM, and I hope it creates inspiration for others in these industries.   As a mother of three young women, parity and diversity in the workplace are of utmost importance to me. These have been driving factors in RVM’s partnership with NAMWOLF over the past four years, which has been a leading voice for the advancement of diversity and inclusion amongst law firms.

Q:            Why is partnership with NAMWOLF important to RVM?

                There’s a lot of synergy between RVM and our fellow NAMWOLF law firm and corporate members. I believe that business strength stems from having partners that can all work toward a common goal. NAMWOLF deserves credit for bringing our organizations together in an environment where we can learn from each other, provide mentorship to one another, and grow our businesses while staying true to the goal of creating a diverse workforce for those in the legal profession.     

Q:            What accomplishment at RVM are you most proud of?

A:            I am proud of a lot of the things that RVM has done. In particular, I am proud of the growth that RVM has achieved in the last 14 years. We were a one-office location in New York City just over ten years ago, and are now an international multi-city company providing legal technology services around the world. We are a David among Goliaths, and it is important to note that many of our clients may see themselves in the same way. We want those clients to believe that by being strategic and aligning themselves with the right partners, they too can compete and win against competitors that may seem to have advantages.

Q:            What makes RVM special?

A:            RVM is made special by our experience and perspective. Since our founding we’ve acquired global exposure and the capability to help huge multinational corporations. Yet through it all, we haven’t forgotten that we provide boutique solutions that make sense for smaller clients. The difference isn’t in the technology, but in the professionalism of our team. They are able to understand each client’s circumstance and develop a plan that is strategic, giving the client the necessary support to produce the desired results. I’m proud to say that our team has always been equal to the task, and it has paid off for RVM and our clients.

Q:            What’s on the horizon for RVM?

A:            RVM is in an exciting place, being so intertwined with technology. Our business model has always kept us on the cutting edge of legal tech, and that will never change. That said, as the clients that we serve change, and as people evolve in their interactions with technology, so too will our role as a guide. We are not technologists, we are advisors and problem-solvers. So, as each advancement creates new sets of problems, RVM’s team will be there to provide solutions.

Cheryl Brunetti, Executive Chairwoman cbrunetti@rvminc.com

To learn more about RVM’s eDiscovery and consulting services, visit www.rvminc.com.

X