Businesses now operate in a fast-changing world. Technology may get most of the “credit” for this, but legal issues also present in a kaleidoscope of local, regional, national and international regulations; public awareness and mobilization; and operational changes.
A few areas where this is felt that are of common concern across industries are employment, intellectual property, global commerce, privacy and data security, and finance. For an overview of “what businesses need to know,” In Business Magazine turned to attorneys who specialize in these practice areas.
Change can come from many quarters — through new regulations, new court decisions or public outcry. It’s a never-ending task for businesspeople to understand the impact and formulate the best plan to deal with it. In Business Magazine greatly appreciates the attorneys who shared the expertise of their practice areas.
In Business Magazine is also proud to offer the 2019 edition of its annually updated Business Owner’s Legal Guide.
[link Business Owner’s Legal Guide to the guide online]
One of the most volatile areas of commerce for businesses here — especially with the current political situation — is global trade, and Melissa Proctor, a principal with Miller Proctor Law, notes, “We continue to see fast-moving developments on the global trade front that may significantly impact imports and exports.” The most recent examples involve the increases in tariffs on China, the possibility that Congress may refuse to enact the newly negotiated U.S.-Mexico-Canada Agreement (USMCA), and whether the World Trade Organization’s moratorium on electronic transmissions will be eliminated. “These developments would have a swift and profound impact on U.S. companies engaged in overseas sourcing, marketing and e-commerce activities,” Proctor says.
Increased Tariffs on China – and a Looming Deadline
There is a short deadline for businesses to make their voices heard. Shares Proctor: “On May 13th, the office of the United States Trade Representative issued a request for public comments on the proposed imposition of tariffs on new group of Chinese goods valued at $300 billion. Those tariffs would impact nearly 4,000 HTSUS (Harmonized Tariff Schedule of the United States) classifications covering goods including textiles, apparel and footwear; however, the tariffs would not be applied to items including pharmaceuticals, medical devices and rare earth metals. A public hearing is scheduled to be held in Washington, D.C., on June 17th. The deadline for submitting written comments to USTR is June 17th, and requests to participate in the hearing are due June 10th.”
It’s been a volatile situation; Proctor’s summary puts the information into perspective, as of our publication deadline of May 14:
- On May 10th, the Trump Administration moved forward with increasing the 10-percent tariffs on certain Chinese-origin goods (List 3 Goods) to 25 percent, and is contemplating imposing additional 25 percent tariffs on remaining imports of Chinese goods valued over $300 billion that have, until now, remained untouched. The increase in tariffs on the List 3 Goods was triggered by reports that China has begun to renege on certain commitments it made to the United States in the ongoing trade talks. These tariffs, along with others first implemented against Chinese goods in July 2018, were imposed under Section 301 of the Trade Act of 1974 in response to China’s forcing U.S. companies to transfer their intellectual property rights in order to be permitted to do business in China.
- Per Customs’ CSMS #19-000238 issued on May 10th, the increased tariffs of 25 percent will begin to be applied to List 3 Goods on May 10th if they were exported to the United States on or after May 10th; and the 10 percent tariff rate will continue to be applied to List 3 Goods if they were exported to the United States before May 10th and entered before June 1st.
The USTR also announced that it intends to roll out a process whereby companies may request that certain covered products be excluded from the additional duties. That process will be the subject of a future Federal Register notice.
Proctor urges companies impacted by these tariffs to submit exclusion requests to the USTR, revisit their current tariff classifications and assess whether alternative classifications may be lawfully used for their imported products. “It is likely that U.S. Customs and Border Protection (CBP) will scrutinize tariff classification changes; therefore, importers are urged to perform detailed classification analyses, document their findings, consult with customs counsel if needed, and consider submitting binding ruling requests to CBP. If a company changes its tariff classifications, it should also consider filing a prior disclosure with CBP, since such a change effectively indicates that the previous classifications used were not correct — those errors constitute violations of the U.S. Customs Regulations.”
U.S.-Mexico-Canada Agreement – Yes or No?
Daniel Arana, a partner in the Nogales office of law firm Fennemore Craig, points to the United States-Mexico-Canada Agreement as one of the biggest issues that could impact global trade in 2019. “Sometimes referred to as the ‘New NAFTA,’ this new agreement is intended to replace the North-American Free Trade Agreement,” he says, but notes, “While the agreement was signed on November 30, 2018, by the countries’ three leaders, it still faces a long road to approval by the United States, Mexico and Canada.
“The proposed provisions in the USMCA,” Arana continues, “include a wide range of changes from NAFTA, largely related to labor rights, intellectual property and digital trade — all having the ability to impact businesses in the U.S.” She shares her insights:
- Labor: While still being negotiated, a final USMCA agreement will definitely include labor reform and enact policies requiring Mexico and Canada to adhere to more stringent labor laws than they have in the past. The U.S. is still pushing for the agreement to contain effective enforcement mechanisms to ensure compliance to updated labor laws by member countries. There is no doubt that any U.S. company conducting business in Mexico and Canada will have to adhere to more stringent labor laws in these foreign jurisdictions than they have in the past.
- Intellectual Property: For U.S. companies doing business in Mexico and Canada, these will be welcomed changes that aim to protect their valuable intellectual property abroad. USMCA expands international intellectual property rights through requiring national treatment of copyright and related rights, patentability standards, trademark protection, protection of trade secrets and strengthened measures at the borders to combat counterfeit and pirated goods. It also includes a provision that requires the member countries establish or maintain a system that provides for pre-established damages, or additional damages in civil judicial proceedings with respect to both copyright infringement and trademark counterfeiting. While the agreement does not significantly change intellectual property obligations, Mexico and Canada will have to make substantial legislative changes to implement the proposed intellectual property provisions in USMCA.
- Digital Trade: Since the adoption of NAFTA in 1994, the digital economy has evolved significantly, and U.S. international businesses will benefit from additional certainties created under USMCA with regard to digital trade. For example, USMCA contains a chapter on digital trade that meaningfully advances international economic growth and opportunities in international digital trade. Some of those provisions include the prohibition of customs duties and other discriminatory measures on digital products that are distributed electronically (e.g., e-books, videos, music, software, etc.) and validity of electronic authentication and electronic signatures. Additionally, USMCA limits civil liability of internet platforms that host or process third-party content; however, internet platforms must comply with internet service regulations, intellectual property enforcement and criminal laws. USMCA goes a long way in prohibiting data localization, with proposed provisions prohibiting member countries from requiring use or location of computing facilities within a member country in order to conduct business in that country. As a consequence, foreign companies will be able to work in a member country without having to invest in costly data infrastructure in that country.
Proctor explains why the NAFTA (and, therefore, the USMCA) is critical to Arizona’s economic growth and future job forecasts. “Arizona’s exports to Canada and Mexico increased by over 300 percent since NAFTA’s entry into force in 1995, and Canada and Mexico are currently Arizona’s largest trading partners. Arizona’s agricultural sector advocates that the USMCA allows agricultural products to be traded more fairly and expands exports of U.S. products to Canada and Mexico. Further, nearly 260,000 jobs in Arizona rely on trade and investment with Canada and Mexico, with tourism serving as a significant driver of Arizona’s overall economic success — roughly 900,000 Canadian tourists and 3.5 million Mexican tourists visit Arizona annually.” She believes Arizona’s economy and future job outlook would be severely impacted if the USMCA fails to be enacted and the U.S. were to walk away from the NAFTA.
In spite of its nickname as the New NAFTA, there are significant differences between provisions in USMCA and NAFTA. Arana notes that the impacts to labor, intellectual property and digital trade are just a few of them. Therefore, he says, “I encourage U.S. companies that do business with Canada and Mexico to familiarize themselves with the USMCA, follow the debate around the final agreement, and contact their legal counsel to better understand how USMCA could impact their business and what steps are needed to ensure compliance.”
Acknowledging that there is no certainty the USMCA will enter into force, Proctor suggests U.S. importers should still take steps now to review the USMCA’s requirements, assess whether goods will qualify for preferential tariff benefits, and develop strategies for implementing the policies and processes that will be necessary for compliance. “Companies should also consider how a potential withdrawal from the NAFTA by the United States could impact their supply chains, sourcing decisions, and markets vis-à-vis Canada and Mexico, and begin thinking of the significant adjustments that will need to be made.”
Customs Duty Moratorium on Electronic Transmissions – Yes or No?
Proctor addresses another simmering area of global commerce, pointing out that certain of the World Trade Organization member countries — such as South Africa, India and Indonesia — are urging the WTO’s World Customs Organization to eliminate the current Customs Duty Moratorium on Electronic Transmissions. “Such a move would allow countries to impose customs duties or import taxes on e-commerce goods and services that are traded via e-commerce.” The Moratorium, established in 1998, differentiates electronic transmissions from tangible goods physically imported into a country (which are assessed duties) so as to foster and facilitate the growth of the internet economy.
However, developing member countries have begun to view digital products and e-commerce as a means to level the playing field with more developed countries. The Moratorium is renewed every two years at the WTO Ministerial, its last renewal is slated to expire in December of this year, and continuing renewals are becoming increasingly difficult to obtain. Explains Proctor, “South Africa and India have argued that developing countries experience higher revenue losses because of the increase in goods that are traded over the internet; accordingly, they propose a kind of import value-added tax (VAT) on those products. Indonesia even took the dramatic step of amending its harmonized tariff code to include software and digital products that are transmitted electronically — even though this currently violates the WTO rules. Further, the United Nations Conference on Trade and Development (UNCTAD) in February issued a report supporting the proposition that the Moratorium should be eliminated.”
In Proctor’s view, however, it is unlikely that eliminating the Moratorium would raise revenues. “Rather, it would likely increase costs in WTO member countries in view of the significant technical and compliance burdens that would have to be addressed, the challenges associated with determining the proper valuation and appraisement of electronic transmissions and the actual collection of the duties themselves. For the United States, the elimination of the Moratorium would likely harm U.S. exporters of goods and services and threaten U.S. jobs.”
Proctor urges U.S. companies operating in the e-commerce sector, as well as software and digital product developers, to monitor the ongoing discussions at the World Customs Organization closely, consider the potential impact of the elimination of the Moratorium on their business operations, and, further, to “actively participate in the many U.S. industry associations’ efforts to block the proposed lifting of the Moratorium.”
PRIVACY AND DATA SECURITY
The internet figures into another of the key areas of common business concern: data security and privacy. Of these related topics, concerns about privacy issues are supplanting data security. Says Kim Phan, a partner at Ballard Spahr, “While data security was the hot topic a couple of years ago in the wake of major data breaches at Target, Sony and Equifax, the new hot topic is privacy — and, unlike data security, where companies could look to their IT departments for help, many companies do not have internal privacy capabilities.” Data privacy is also, points out Laura Rogal, a partner at Jaburg Wilk, more of a policy and legal question, whereas data security is more of a technical question regarding physically protecting information.
Says Rogal, “Fair information practices are the tenets of privacy law. These policies speak to not just direct personal information, like social security numbers and credit card numbers, but also indirect information that, when combined properly, could create an identification of an individual. When we talk about data privacy, this is the information we seek to protect or, at the very least, identify and guide policy toward reasonable accommodations between privacy and acceptable use.”
The General Data Protection Regulation, a law out of the European Union that went into effect in May of last year, made its impact felt by companies in non-EU countries (e.g., U.S. companies) as well, as its broad language could be construed to apply not only to any company that does business with any person who is an EU resident or located within the EU, but also with companies whose website does or potentially could reach into those EU member countries. Broadly speaking, GDPR seeks to address the rights of individuals with respect to their choice in having data about them collected and their consent of what data is being stored and how that data can be used.
A similarly focused law — putting an emphasis on privacy notices, consumer choice and consumer access to data — was recently signed into law in California and is set to go into effect in January 2020. “The California Consumer Privacy Act is a sea change in U.S. privacy law, as evidenced by the varied copycat state laws across the country,” says Phan, adding, “The CCPA requirements could motivate Congress to finally enact a comprehensive privacy law” like the GDPR.
Rogal notes, “Historically, the United States has been far behind in data privacy regulations. This is still the case, although things may change in the near[ish] future. New proposals, including calls for a federal data privacy law, are emerging. In the meantime, there are more than a dozen federal laws that have privacy elements to them, along with every single state (and U.S. territory) that has its own state-specific data privacy law.”
One of the things that new data privacy laws is doing, Rogal points out, is forcing businesses to re-evaluate the information lifecycle — the collection, use, retention and disclosure of data. “It has caused companies to look at what data they’re collecting and storing, and why it’s being stored. Many privacy advocates have suggested going on a ‘data diet’ to retain data only as long as required, as opposed to storing everything simply because doing so is reasonably inexpensive. Another across-the-board change that we have seen is companies engaging in much more stringent password and access control policies.”
These new laws and proposed regulations are encouraging a privacy-by-design concept during the development of new products and systems, as well as the evaluation of current business programs. Businesses are turning the mirror onto themselves to determine whether they are doing the “right thing” with consumer data, and being transparent with their data collection and consumption efforts, explains Rogal. “We regularly hear stories about data privacy nightmares, not just with basic data breaches, but with companies collecting and using data where the consumer had no reasonable expectation that their data would be used in such a manner. The pressure is on companies to be better about conspicuously advising consumers what to expect when they provide information to the business.” Observing also that there is a push for consumers to become more knowledgeable overall regarding the rights they may be surrendering by using a particular business, Rogal says, “That movement, coupled with a more clear and concise information from the business itself, should — in theory — create a shift in the culture of data privacy.”
Phan suggests companies should be setting aside sufficient manpower and resources to act when further guidance from the California Attorney General is released, as well as mapping the personal information held in their systems, reviewing and revamping their internal policies and procedures, and renegotiating their vendor contracts.
Mincing no words, Rogal says, “Education is key to being compliant with the GDPR, the CCPA, and any state law that may apply to your business. If you don’t know these laws, you need to hire someone who does.” It need not necessarily be a full-time position. “Typically, you will need one to three different types of professionals to address these concerns: someone who can speak to the law and policy issues; someone who can address the technical needs of compliance; and someone who can implement the best practices within your business, including being responsive to requests for information from consumers regarding their data.”
Patents, trademarks and taboo trademarks are intellectual property concerns. Legal efforts in this area are being profoundly impacted by technological advances in data analytics.
Comparing where we are now with where we have been, Lee Fraley, a partner at Snell & Wilmer, says, “Clients have often relied on their attorneys to predict the chances of success in a particular matter. In the not too distant past, attorneys were left to their own creative devices to gather information about judges, arbitrators, examiners and other decision makers to generate these predictions.” These investigations were sometimes conducted through email communications; more often, however — due to sensitivities of memorializing certain statements in writing — attorneys resorted to telephone or other direct discussions with colleagues who had prior experiences with such decision makers. “Even then,” he says, “the input and information was anecdotal and subjective, rather than an exact science.” With the proliferation of public information on the internet, attorneys began to conduct further diligence through online research. “But data was limited in quantity and reliability, and compiling research for individual matters was time consuming.”
Then “Big Data” came along. Making an analogy to sports in the “Moneyball” era — when sports teams of all sizes began using data analytics to make personnel decisions, Fraley says the legal profession has begun to take advantage of “Big Data” analytics tools offered by third parties. “These tools allow attorneys to view trends in how individual decision makers rule, improving their ability to predict outcomes and even guiding attorneys as they formulate legal theories and strategies for their clients.”
How is all this impacting patents and trademarks? What’s happening with taboo trademarks (ones deemed disparaging or scandalous)?
Use of Data Analytics as Applied in the Area of Patents and Trademarks
- One example Fraley offers is use by intellectual property attorneys in the prosecution of intellectual property rights, including patents, trademarks and copyrights: “When patent and trademark applications are filed, attorneys can assess what types of inventions and marks can be handled by more difficult or cooperative examiners. This can dictate how aggressive or conservative the attorney might be in patent claims, or in the scope of goods and services for a mark. After being assigned to an examiner and upon receiving certain objections and rejections to a patent or trademark application, attorneys can assess which arguments have tended to work with the assigned examiner in the past, and which have been less successful. In the event of final refusals, attorneys can assess their chances on appeal, as well as the more and less favorable bases for appeal.”
- Fraley also offers an example of data analytics in intellectual property, which also applies to litigation generally, in the enforcement/defense of intellectual property rights, including patents, trademarks and copyrights: “Prior to initiating certain actions, attorneys can assess their likelihood of success, based on the claims and defenses that have proven successful in a certain court or jurisdiction. Once judges are assigned, attorneys can assess the likelihood that certain dispositive motions will be granted or denied, thus helping to steer the litigation strategy. Similarly, decisions on whether to appeal can be influenced by considering the data on similarly situation appeals.”
Federal Registration of Taboo Trademarks
Fraley explains that federal law, for approximately 70 years, has prohibited registration of certain trademarks deemed disparaging or scandalous but has never explicitly prohibited their use. “The unavailability of federal registration has presented significant hurdles to protection and enforcement of these trademarks.” Change may be coming. Relating that, in 2017, a longstanding statute that prohibited registration of any trademark that disparaged a person, institution, belief or national symbol was found unconstitutional by the Supreme Court, Fraley says, “The Supreme Court is now poised to strike down a similar statute prohibiting registration of immoral or scandalous trademarks.”
The issue runs up against our right of free speech protected under the First Amendment’s Free Speech Clause. “Under the Supreme Court’s recent precedent, trademark applications and registrations are considered private speech,” Fraley explains. “The government can no longer object to a disparaging trademark application, regardless of how derogatory or degrading it is to an individual or group.”
Trademarks – Changes for Fringe Businesses
Changing attitudes in society are raising issues in trademarking certain products. Christina Noyes, a partner at Gust Rosenfeld, addresses a few of these:
“From a public movement standpoint, the recent changes in states approving marijuana use for recreation — in addition to the more accepted use for medical ailments — is causing a potential ripple effect in the intellectual property word and in related businesses,” she says. At the federal level, the United States Patent and Trademark Office will refuse registration where the mark or the identified goods or services are unlawful because actual lawful use in commerce would violate the Controlled Substances Act. But there may be some change at the state level. “With the legal use of cannabis or marijuana products and related goods in many states, state departments may be more likely to grant state trademarks for a broader variety of cannabis related products and services.”
The issue has implications for franchising, a business model that relies heavily on a protected trademark or trade name, now that the franchising industry is starting to see cannabis franchising models emerge and be offered for sale. Noyes notes, “There would be significant risks of investing in a franchise model that has to rely on the lesser protection of state trademarks and which has significant challenges from the continued federal law violations.” She points out that, in this area, even banking is difficult due to federal regulations. “However, given the amount of money that is seemingly being generated by this industry, many people are interested in capitalizing on this concept in some manner,” she says.
“On the upcoming front, the U.S. Supreme Court agreed to hear arguments on whether a clothing brand with a spelling that is only profane when pronounced may be federally trademarked.” Noyes explains that the USPTO has denied prior applications on the grounds that the words are immoral or scandalous matter, which is an “absolute bar to registration” under Section 2(a) of the Trademark Act and Section 1203.01 of the Manual on Examining Procedure. However, she notes, even the Manual acknowledges that meaning is determined by the context of the current attitudes and the current market — and the owner claims the need for federal protection to protect against knock-off brands and, furthermore, claims that failure to permit registration is an unconstitutional violation of the First Amendment free speech rights. The case is anticipated to be decided in the summer. “If permitted,” Noyes observes, “businesses might have more protections than before for ‘off color’ products that could appeal to a younger consumer.”
Trademarks – Changes for More Regular Business Interests
Procedural changes promise to streamline some of the official paperwork businesses have to deal with: The Arizona Secretary of State has fully implemented its online filing process for Trade Names and Trademarks. But Noyes cautions businesses with existing registrations that are up for renewal to familiarize themselves with the process. “We would recommend that a business leave sufficient time for the learning curve. While certain aspects are easier, the execution and payment process is more complicated,” Noyes says. “For example, payment is not accepted until the application is reviewed. A second step is required to complete payment, and business owners will need to monitor emails after filing in order to complete the process.
“Further, for new filings, the ‘proofs of use’ must meet very specific requirements, and it may be more likely that an application is initially rejected. Once rejected, a business owner must create a new application with the corrections and resubmit.” Noyes encourages businesses to review the Arizona Trade Name and Trademark Handbook, which is available online at the Secretary of State website, to minimize the rejection possibility. In this case, as with the payment process, she emphasizes that “without careful monitoring of the response emails to refile, it is easy to overlook the rejection and not realize that the application for renewal or registration was not initially accepted.”
Impact of Registration and Enforcement of Disparaging and Scandalous Marks
With the changes regarding “taboo” trademarks, attorneys and their clients have new freedom and flexibility to seek protection of disparaging and, potentially, scandalous trademarks. “These freedoms come with significant risks, however,” Fraley notes. “In the age of social media, businesses must be thoughtful about their branding decisions or they could face boycotts, negative viral publicity, or public pressure to change their branding.
“Because federal registration of taboo marks has long been unavailable, many businesses likely have established limited common law rights in their disparaging or scandalous trademarks,” Fraley also points out. He suggests businesses consult their attorneys to ensure that the requirements for federal registration can be met, and to determine whether seeking federal registration could lead to costly legal disputes with competing trademark users.
EMPLOYMENT AND PERSONNEL
Overtime Eligibility Change
A rule proposed by the Department of Labor this past March would make more than a million more American workers eligible for overtime starting in January 2020. Explains John J. Balitis, a partner at Jennings, Strouss & Salmon, “The proposal would increase the minimum salary requirement for an employee to qualify for an overtime exemption from the current $23,660 per year to $35,308, provided the employee performs certain duties that are defined and that will remain unchanged if the proposal becomes law.”
The change may not happen quickly, but businesses should be aware of what’s happening — and may wish to add their input. The proposed rule is subject to a 60-day public comment period, then, after considering the comments received, the DOL will prepare final regulations for publication. “This entire process can take years to complete, but in some instances has taken as little as a few months,” Balitis says. “The last time the DOL proposed changes to the overtime rules in 2003, it took almost 13 months to issue final regulations.”
Payroll may also feel an impact from another quarter. Says Balitis, “The #MeToo movement continues to sustain momentum through ongoing efforts to promote greater workplace equality. One example of this trend is evident in a late April 2019 federal court ruling that has accelerated expanded pay reporting requirements for federal contractors and businesses with more than 100 employees.” The ruling arises out of a lawsuit filed by public-interest groups against the Trump-era Office of Management and Budget that put on hold expanded pay reporting requirements developed during the Obama administration, Balitis explains, and notes the ruling includes a September 30 deadline for covered companies to submit pay data that must include much more detail than what was previously required.
“These developments will impose obvious burdens on employers,” says Balitis. Businesses will have to decide, for example, whether to raise the pay of some workers in order to maintain their overtime exemptions or, in deciding to give up exemptions, regulate overtime work while leaving current salaries intact. “Which approach an employer opts to take will have morale implications for workers.”
There is an urgency to this, Balitis points out. “Unlike the overtime exemption issue, the pay data reporting requirement leaves employers with no options and very little time. The new reporting details are burdensome, and not only will they be a challenge to fulfill by the end of September, but will be costly do to so.”
Balitis advises employers to consult with counsel to address these developments in ways that best suit particular business needs, as one solution won’t work for all employers. For instance, some businesses may want to engage third-party vendors to collect and organize pay data if internal resources are insufficient to meet the deadline. It’s also important that employers inform themselves on how the reporting requirements have changed so that this round of data meets muster. “With respect to overtime exemptions, employers are well advised to educate their workers about why changes are being made,” he says, noting, “Employees often are skeptical when they are reclassified from exempt to hourly, with concerns focusing on whether back overtime is due because of an historical misclassification.”
According to Helen Holden, a partner with Spencer Fane, the EEOC is expected to issue revised, and “long-awaited,” harassment guidance in the next couple of months. In the interim,” she says, “we are seeing an increase in internal complaints of harassment and discrimination.” Because of the increased awareness of discrimination and harassment issues by employees, she suggests employers continue with pro-active efforts to ensure respectful workplaces and train managers to address issues before they fester. Saying “Workplace culture matters!” Holden recommends all employers have robust anti-discrimination and harassment policies, and provide regular training to managers and employees alike about what a respectful culture looks like. “Pro-active, positive training can be an effective tool to manage issues. When issues do arise, companies should be prepared to investigate promptly. Allegations should be taken seriously and investigated, and recommended corrective action should be implemented.”
Discussing another impact of the #MeToo Movement, Simone Raess, an attorney at Snell & Wilmer, observes, “With the greater awareness and impact of the #MeToo Movement in the workplace, an unfortunate response from some men has been to limit their interaction with female colleagues.” Acknowledging that the desire to avoid conflict is understandable, she finds this response to be problematic. Her examples, set in the context of the legal industry, can easily be applied to other business scenarios.
“Limiting interaction with female colleagues, particularly if they are subordinates, can fuel potential discrimination claims rather than avoid them. Gender-segregating workplace interactions is particularly problematic in the legal profession. Because the vast majority of private practice partners are male, positive and rewarding opportunities for mentoring and business development could be limited or entirely withheld for female attorneys.
“This can result in leaving females behind their male counterparts in many areas, which is a concern given the continued progress the legal profession has made in improving opportunities for women in the workplace.”
Raess offers suggestions to help avoid some unintended negative consequences stemming from #MeToo’s heightened awareness. These, too, can be applied more broadly than to just the legal profession: “Male and female partners can create gender-inclusive opportunities for associates and should be aware of interactions that might be misperceived as disparate treatment. Both female and male associates should be given assignments and opportunities to network and interact with clients, on a gender-neutral basis. Attorneys should make efforts to see that administrative and non-billable tasks are being assigned equally to female and male associates. And, while it sounds like ‘Captain Obvious’ advice, for outside events, multiple attorneys (male or female) should be included if a partner or associate is uncomfortable in a one-on-one environment.”
It’s an evolving situation, and Don Johnsen, a partner at Gallagher & Kennedy, offers perspective for the changes. “Under current law, most cases of alleged sexual harassment in the workplace turn on whether the particular conduct at issue was objectively ‘offensive,’ and on whether the employer took ‘timely and appropriate remedial action’ to address the conduct,” he says, observing that the #MeToo movement is likely to affect courts’ consideration of both of those factors.
Johnsen notes that, for decades, many courts have been hesitant to conclude that particular levels of behavior could be truly “offensive” enough to constitute unlawful “sexual harassment.” “Many courts, that is, have dismissed claims over conduct that, while objectionable, they view as really only ‘petty.’” He believes the #MeToo movement has heightened public awareness of workplace harassment issues, and has the likelihood to drastically change courts’ perceptions of what is truly “offensive.”
A related attitudinal issue is the courts’ long-held mindset that employers are not necessarily required to terminate workers who have engaged in improper behavior, but rather that it usually is sufficient to take some other remedial action to prevent the conduct from recurring, such as some form of discipline short of termination. “The #MeToo movement is likely to generate a significant change in the public perception of what remedial action is ‘appropriate’ in any given situation,” Johnsen says. “Courts may be more likely to conclude that termination is the only way to truly validate a stated policy of ‘zero tolerance’ for wrongful harassment.”
And Other Social Waves
#MeToo is arguably the highest profile of social movements sweeping the country, but Johnson points out it is hardly the only one as communication via social media continues to expand at a breakneck pace. “Consumers have more and more choices of social media platforms, and providers continue to refine their offerings to attract a bigger slice of each new generation of users,” he says. One product of that continued expansion he points to is the increasing likelihood of employees discussing their working conditions on social media, whether among themselves or with the public at large. He calls special attention to two particular legal consequences of those kinds of communications.
“First, owners need to recognize that communications via social media can create a ‘hostile working environment’ for employees who are the subject of such posts and messages. A business is not insulated from liability for ‘workplace harassment’ simply because the conduct is taking place online, after hours and off site; if the conduct is having an effect on the environment at work, the employer has a responsibility to step in.
“Second, business owners also need to be wary of disciplining workers who express criticism of ownership or management in social media posts or messages. Under the National Labor Relations Act, workers have the right to communicate among themselves concerning the terms and conditions of employment. Workers also have the right to engage in activity ‘in concert’ with each other to advocate for change in the workplace. Under certain circumstances, an employee’s social media post about working conditions might constitute just such ‘protected concerted activity,’ and an employer who disciplines or discharges a worker because he or she has exercised that protected right commits an ‘unfair labor practice.’”
The New 10-year Judgment Renewal Statutes
Arizona’s judgment renewal statutes were recently amended to extend the enforceable lifespan of Arizona judgments from five to 10 years. Explaining the impact of this change, Joe Cotterman, a partner at Gallagher & Kennedy, says, “Like a statute of limitations for filing a lawsuit, a judgment in Arizona has a lifespan during which it can be enforced, unless it is renewed just before it expires. As a result of the recent amendments, any judgment entered on or after August 3, 2018 — and, most likely, prior judgments that were unexpired and enforceable on that date — are now enforceable for 10 years from the date they were entered, and can be renewed again and again just before the end of successive 10-year periods. When assessing whether a judgment is alive and enforceable, or dead and gone, it’s important to keep in mind the new time period concerning the judgment and any renewals of it.”
The Relation of LLCs to Member Transactions
There are changes in store on statutes governing LLCs. Discussing credit and judgment, Cotterman points out that an individual borrower’s financial statement, although accurate, may not accurately reflect his situation when it comes to creditworthiness and recourse for collection. “The individual may be the exclusive but indirect owner of valuable assets which can be unavailable to satisfy a judgment if he defaults,” he explains.
To illustrate this situation, Cotterman offers the following example: A lender makes a loan to Mr. Entrepreneur, who is a member (perhaps the sole member) of an LLC that owns a parcel of valuable undeveloped land. Mr. Entrepreneur defaults; Lender obtains a judgment against him and seeks to enforce it. However, the valuable parcel of land owned by Mr. Entrepreneur’s LLC is likely immune to lender’s judgment enforcement efforts against Mr. Entrepreneur. According to both Arizona’s current and soon-to-be-effective LLC statutes (new statute language here):
On application by a judgment creditor of a member or transferee, a court may enter a charging order against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment. A charging order requires the limited liability company to pay over to the person to which the charging order was issued any distribution that otherwise would be paid to the judgment debtor . . . This Section provides the exclusive remedy by which a person seeking in the capacity of judgment creditor to enforce a judgment against a member or transferee may satisfy the judgment from the judgment debtor’s transferable interest.
“The LLC that holds only nonrevenue-generating investment property typically won’t make distributions to members until the property is sold,” Cotterman says. “And that language about the ‘exclusive remedy’ means Mr. Entrepreneur’s judgment creditor can’t seize his membership interest and break up the LLC or get to its assets the way a creditor of a shareholder or a partner can sometimes do to a corporation or partnership. Moreover, a voluntary assignment of Mr. Entrepreneur’s interest in the LLC assigns only his ‘transferable interest,’ — that is, his right to receive distributions. Such an assignment is merely a voluntary means by which a lender can acquire the same distribution rights that the charging order attaches in the forced collection scenario.”
Change can come from many quarters — through new regulations, new court decisions or public outcry. It’s a never-ending task for businesspeople to understand the impact and formulate the best plan to deal with it. In Business Magazine greatly appreciates these attorneys for sharing the expertise of their practice areas.
[Landis, use the following website info to create hot links on the names of the firms as they are mentioned in the article – a link in EACH SUBSECTION on the first mention of each name.]
Ballard Spahr L.L.P.
Fennemore Craig, P.C.
Gallagher & Kennedy
Gust Rosenfeld, P.L.C.
Jennings, Strouss & Salmon, P.L.C.
Miller Proctor Law P.L.L.C.
Snell & Wilmer L.L.P.
Spencer Fane L.L.P.