Retail and Consumer Products Law Roundup - November 2015

by Manatt, Phelps & Phillips, LLP
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In This Issue:

  • SEC Not Keeping Quiet About Employee Confidentiality Agreements
  • NAD Unzips Eddie Bauer's Jacket Claims
  • FTC Not Green With Envy Over Environmental Certifications and Seals
  • Different Court, but Jordan Wins Again: $8.9M Award in Publicity Rights Suit
  • Subway Learns Tough Lesson With Jared Debacle
  • (Virtually All) Made in the USA
  • DOJ Policy Alert: Here's Looking at You, Kid—DOJ Announces Six Specific Steps to Hold Individual "Corporate Wrongdoers" Accountable
  • Second Circuit: Judicial Review of EEOC Pre-Suit Investigations Limited
  • New California Employment Laws on Fair Pay, Waiver of Meal Periods

We are pleased to share with you the first issue of Manatt's Retail and Consumer Products Law Roundup. The newsletter will be published on a monthly basis and will survey topics of critical importance to the retail, restaurant and consumer products industries, including litigation and regulatory developments involving electronic payments, privacy and data security, advertising and marketing, employment and labor, and insurance recovery.

In this month's highlights, Barnes & Noble revealed in a quarterly filing that the SEC is investigating the company's use of employee confidentiality agreements, demonstrating stepped-up protection for whistleblowers…California Governor Jerry Brown signed a bill into law relaxing the labeling requirements for products carrying the "Made in America" or "Made in USA" labels in the state…advertisers are reminded of the importance of including a morals clause in an endorsement deal after the downfall of Subway's spokesperson Jared Fogle…and Deputy Attorney General Sally Quillian Yates issued a memo to all DOJ department heads and U.S. Attorneys which detailed the Government's new policy centered on accountability for individuals who are alleged to have perpetrated corporate misconduct. Read on for more details.

SEC Not Keeping Quiet About Employee Confidentiality Agreements

Why it matters

Demonstrating the Security and Exchange Commission's (SEC) stepped-up protection of whistleblowers, national retailer Barnes & Noble revealed in a quarterly filing that the agency is investigating the company's use of employee confidentiality agreements. The Dodd-Frank Wall Street Reform and Consumer Protection Act prohibited companies from placing restrictions on the ability of employees to report alleged wrongdoing. The SEC has taken the attempt to encourage whistleblowing to heart, keeping an eye on employers that might be running afoul of the statute—such as Barnes & Noble.

The company's disclosure provides an important reminder to companies about the SEC's vigilance in the area of whistleblowing, particularly on the heels of the agency's recent rule interpretation that whistleblowers that report unlawful activity internally are entitled to the same legal protections as those who report to the agency. Although the agency has not commented on the Barnes & Noble investigation, it cautioned employers about the use of such agreements in a settlement earlier this year. "SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other types of agreements that may silence potential whistleblowers before they can reach out to the SEC," Andrew J. Ceresney, director of the agency's Division of Enforcement, said in a statement. "We will vigorously enforce this provision."

Detailed discussion

When the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed by President Barack Obama in 2010, the statute included a provision prohibiting employers from restricting employees from blowing the whistle on alleged wrongdoing.

To enforce the provision, the SEC promulgated Rule 21F-17, which makes it a separate violation of law to "take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement."

In April, the SEC brought its first enforcement action based on an employer's confidentiality agreement. Texas-based KBR, Inc. had a policy under which employees could be disciplined or fined if they discussed an internal investigation with a third party absent prior approval from the legal department.

While the SEC noted that it had no evidence of specific incidents where KBR tried to block whistleblowing activity, the policy had a "potential chilling effect," the agency said. KBR neither admitted nor denied the charges but paid a $130,000 fine to settle the case and changed company policy to clarify that employees are able to report possible violations to third parties without prior approval.

Barnes & Noble could be the second company to reach a deal. In the company's third-quarter Form 10-Q, the national retail chain disclosed the agency is investigating its use of employee confidentiality agreements. "The SEC staff has identified [a] matter, related to Rule 21F-17 of the Dodd-Frank Act, resulting from certain historical confidentiality provisions in agreements with employees," according to the SEC filing. "The Company is in the process of discussing a potential negotiated resolution of this issue with the SEC staff in order to close the investigation."

To read Barnes & Noble's Form 10-Q, click here.

NAD Unzips Eddie Bauer's Jacket Claims

Why it matters

The National Advertising Division (NAD) requested substantiation form Eddie Bauer, LLC as part of its routine monitoring. At issue was the company's claim that its MicroTherm StormDown Jacket is "Lightest" and "Warmest." NAD said "lightest" and "warmest" were not puffery because they were not vague and fanciful superlatives with no objective measure of superiority. Instead, both claims "are objectively measurable and refer to specific attributes that suggest that this jacket is comparatively, measurably superior to other products," according to the decision.

For advertisers, NAD's decision offers a helpful reminder that they should carefully avoid making unqualified superiority claims. An unqualified superiority claim requires substantiation by comparative testing against "a substantial portion" of comparative products, usually 80 percent.

Detailed discussion

As part of its routine monitoring, the NAD requested substantiation from Eddie Bauer, LLC for the company's claim that its MicroTherm StormDown Jacket is "Lightest" and "Warmest." Ads for the jacket read: "The New MicroTherm StormDown Jacket. Lightest. Warmest. Guaranteed." and "Hydrophobic, DWR-treated down retains loft and insulating power even when wet."

Eddie Bauer argued that the jacket was designed to be a thermally efficient, water-repellant, lightweight, down-insulated jacket and that the use of the words "lightest" and "warmest" constituted puffery and did not refer to a comparative claim that would be reasonably construed to mean that the jacket is the lightest, or the lightest in a particular category. However, NAD disagreed. Stepping into the shoes of the reasonable consumer, NAD said "lightest" and "warmest" were not puffery because they were not vague and fanciful superlatives with no objective measure of superiority. Instead, both claims "are objectively measurable and refer to specific attributes that suggest that this jacket is comparatively, measurably superior to other products," according to the decision.

Eddie Bauer also argued that "Lightest. Warmest. Guaranteed." were not superiority claims. The company stated that the jackets are sold exclusively through the retailer's stores, catalogs, and website—all of which provide additional information to put the claims in context. The "Lightest" claim clearly refers to the type of insulator used in the jacket and the "Warmest" claim is supported by testing and analysis performed by the independent International Down and Feather Laboratory and Institute showing that down is superior to other insulators. Reasonable consumers would read the words "Lightest. Warmest. Guaranteed." in combination with the understanding that the terms were used together to describe the combination of thermal efficiency and qualities of the down used in the jacket and not as a superiority claim.

NAD disagreed with the advertiser's position that the claims "Lightest" and "Warmest" were adequately supported, noting that the claims were unqualified superiority claims that must "generally be substantiated by comparative testing against a substantial portion of the comparative products, usually 80%. Eddie Bauer did not substantiate its claim that the MTSD jacket is the lightest jacket, nor did it substantiate its claim that it is the warmest jacket." Further, NAD determined that context did not save the claim because at least one advertisement conveyed no additional information about the jacket, while comments in the catalog were not featured as prominently as the "Lightest. Warmest." claim.

Eddie Bauer did provide support that all of its products—including the MTSD jacket—are backed by the company's guarantee that every item sold will "give you complete satisfaction or you may return it for a full refund," so that portion of the claim passed NAD's review. In addition, testing in industry-recognized methods conducted by an international independent testing laboratory backed the water-repellant claims. The test results were sufficient to support the advertiser's claims that the jacket is "hydrophobic" and "retains loft and insulating power" under wet conditions, NAD said.

To read NAD's press release about the decision, click here.

FTC Not Green With Envy Over Environmental Certifications and Seals

Why it matters

The Federal Trade Commission sent warning letters to five providers of environmental certifications and seals and 32 businesses that used them expressing concern that they may be deceptive. Their names were not released. The warning letters quoted the FTC's Green Guides, released in 2012: "Because it is highly unlikely that marketers can substantiate all reasonable interpretations of these claims, marketers should not make unqualified general environmental benefit claims."

"Environmental seals and certifications matter to people who want to shop green," Jessica Rich, director of the FTC's Bureau of Consumer Protection, said in a statement about the letters. "But if the seals' claims are broader than the products' benefits, they can deceive people. We are holding companies accountable for their green claims." Green advertisers should take care to reduce the risk of deceptive claims by using "clear and prominent qualifying language that clearly conveys that the certification or seal refers only to specific and limited benefits," as suggested by the Green Guides.

Detailed discussion

Released in October 2012, the Guides for the Use of Environmental Marketing Claims—better known as the FTC's Green Guides—provide guidance for advertisers making environmental marketing claims on issues ranging from "compostable" claims to advertising products made with renewable energy.

The Guides specifically require that marketers using third-party certifications and seals be able to substantiate all claims that are reasonably communicated, noting that if the seal or certification does not communicate the basis for the certification or seal, a misleading general environmental benefit claim could be conveyed.

The warning letters quoted the Guides: "Because it is highly unlikely that marketers can substantiate all reasonable interpretations of these claims, marketers should not make unqualified general environmental benefit claims."

To illustrate the problem, the agency provided two examples of environmental certifications. In the "bad" example, the seal states "Green Approved." Such a general claim is likely deceptive because "it does not convey the basis for certification" and it "is highly unlikely that marketers can substantiate all the attributes implied by general environmental benefit claims," the FTC explained.

Alternatively, a "good" example of a certification may state "Green Approved" but includes additional terminology such as "Biodegradable, Recyclable, Compostable." If the claims are accurate, the seal "is not deceptive because it lists the specific attributes that form the basis for the product's certification," the agency said.

In some cases, consumers may click on the seal or certification logo for more information. However, "the logo itself is not likely an effective hyperlink label leading to the necessary disclosures," the FTC wrote, per the Dot Com Disclosures guidance document. The symbol or icon might not provide sufficient clues about why the claim is qualified or the nature of the disclosure, and consumers may view the symbol "as just another graphic on the page."

While the FTC declined to take any legal action at the current time, the letters requested a response with an explanation of "the steps you are taking to ensure" compliance with the Green Guides.

To see the FTC's examples of "Good" and "Bad" seals, click here.

To read the letters to the certification or seal providers, click here.

To read the letters to the businesses using the certifications or seals, click here.

Different Court, but Jordan Wins Again: $8.9M Award in Publicity Rights Suit

Why it matters

He may have retired from professional basketball, but Michael Jordan scored a big win when an Illinois jury awarded him $8.9 million in a publicity rights suit against a local grocery chain. When Jordan was inducted into the Naismith Memorial Basketball Hall of Fame in 2009, Sports Illustrated released a commemorative issue and invited companies to include congratulatory ads. Dominick's accepted with an advertisement featuring Jordan's name and jersey number with an image of a man dunking a basketball and text reading "You are a cut above." At the bottom of the page was a coupon good for $2 off steak.

The verdict in the case against Dominick's—and Jordan's cautionary words in his statement—provide a valuable reminder for advertisers about the importance of obtaining permission when using celebrity images. And the $8.9 million verdict may be only the beginning. Jordan sued another grocery store over a different ad in the commemorative issue that depicted a pair of basketball shoes with the number 23 and text reading "Jewel-Osco salutes #23 on his many accomplishments as we honor a fellow Chicagoan who was 'just around the corner' for so many years." A federal district court initially dismissed the suit on Jewel-Osco's argument that the ad was noncommercial speech entitled to full constitutional protection, but the Seventh Circuit Court of Appeals reversed last year. Trial is set for December.

Detailed discussion

Michael Jordan sued Dominick's for violations of Illinois's Right of Publicity Act. Over the course of several years of legal wrangling, a federal court judge determined that the advertisement violated Jordan's right of publicity and the jury was tasked simply with awarding damages.

Jordan's team presented evidence that despite his 2003 retirement, he still earns about $100 million per year in endorsement income and that he recently turned down an $80 million offer to hawk headphones. The fair market value of the ad featuring his name and jersey number was roughly $10 million, Jordan told the jury.

Dominick's countered that Jordan was owed just $126,900.

Jurors deliberated about six hours—and requested a calculator—before awarding Jordan $8.9 million.

Although less than requested, the verdict was a slam dunk for Jordan, who released a statement that he was pleased with the award. "No one—whether or not they're a public figure—should have to worry about their identity being used without their permission," he said. "The case was not about the money, as I plan to donate the proceeds to charity. It was about honesty and integrity. I hope this case sends a clear message, both here in the United States and around the world that I will continue to be vigilant about protecting my name and identity. I also hope the size of the monetary reward will deter others from using someone else's identity and believing they will only pay a small penalty."

Subway Learns Tough Lesson With Jared Debacle

Why it matters

After federal authorities arrested Subway spokesperson Jared Fogle on charges related to child pornography, Subway cut ties with him. Subway may face an uphill battle regaining the trust of consumers, given its lengthy relationship with Fogle and the disturbing nature of the crimes committed. For other companies, the high-profile downfall of a celebrity endorser reiterates the importance of including a morals clause in endorsement deals, and providing a means to terminate an agreement or at least reduce the money owed when an endorser commits an act that falls within the provision. While the issue of whether particular acts fall within the scope of a given morals clause can be a point of intense negotiation and later disagreement, Fogle's guilty plea should make Subway's exit from the deal easy.

Detailed discussion

What lesson should advertisers take from the downfall of Subway's spokesperson Jared Fogle in the wake of his plea deal on charges related to child pornography?

For starters, there is the importance of including a morals clause in an endorsement deal.

Jared Fogle was a Subway success story, rising to fame after eating the sandwich chain's products and losing more than 200 pounds while a college student. National media picked up a story in the college paper and Fogle became a household name as a Subway endorser. For 15 years he was the face of the company—he appeared in over 300 commercials, he was featured on the website, and he made public appearances on the company's behalf.

But that changed in July when federal authorities raided Fogle's home. The government did not specify why the endorser was being investigated, but less than two months earlier the president of the Fogle Foundation, a charitable organization established to teach children healthy lifestyle habits, had been arrested on charges related to child pornography.

Initially, Subway "suspended" its relationship with Fogle following the raid. References to Fogle were removed from the website, including a game on its children's site called "Jared's Pants Dance." The company had already stated that it had severed all ties with the Fogle Foundation's president.

In August Fogle reached a plea deal with federal authorities that included admissions of sex with minors and the possession of child pornography, with some images of children as young as six years old. Fogle will pay $100,000 in restitution to each of 14 minor victims, register as a sex offender, and undergo treatment for sexual disorders. Prosecutors agreed not to seek a sentence higher than 12 ½ years in prison and Fogle will not ask for fewer than 5 years.

Subway then officially cut ties with its former spokesperson in a tweet, stating, "We no longer have a relationship with Jared and have no further comment."

(Virtually All) Made in the USA

Why it matters

Bringing the state into line with the rest of the country as well as with federal regulations, California Governor Jerry Brown signed a bill into law relaxing the labeling requirements for products carrying the "Made in America" or "Made in USA" labels in the state.

Lawmakers pushed for the bill by arguing that California needed the regulatory tweak to compete with other states and help businesses thrive in a global economy. A potential decrease in consumer class actions certainly didn't hurt the legislation's passage, either. Whatever the motivation, the new law will ease the burden on California manufacturers seeking to use a "Made in the USA" label.

Detailed discussion

Before this bill was signed into law, state regulations mandated 100 percent American production for manufacturers to use the "country of" designation on their labels, a standard that resulted in a wave of class action litigation challenging companies over slight percentages of non-American ingredients.

Senate Bill 633 was introduced in response and was passed by the Senate in May and the Assembly in July. The measure amends the Business and Professions Code Section 17533.7 to state: "It is unlawful for any person, firm, corporation, or association to sell or offer for sale in this state any merchandise on which merchandise or on its container there appears the words 'Made in U.S.A.,' 'Made in America,' 'U.S.A.,' or similar words if the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States."

The new law "shall not apply to merchandise made, manufactured, or produced in the United States that has one or more articles, units, or parts from outside of the United States, if all of the articles, units, or parts of the merchandise obtained from outside the United States constitute not more than 5 percent of the final wholesale value of the manufactured product."

In addition, the label prohibition will not apply if the manufacturer "shows that it can neither produce the article, unit, or part within the United States nor obtain the article, unit, or part of the merchandise from a domestic source," and "[a]ll of the articles, units, or parts of the merchandise obtained from outside the United States constitute not more than 10 percent of the final wholesale value of the manufactured product."

The new law aligns California with the rest of the country as well as the Federal Trade Commission standard that "all, or virtually all" of a product must be made in the country for a "Made in" label to be lawfully used.

To read SB 633, click here.

DOJ Policy Alert: Here's Looking at You, Kid—DOJ Announces Six Specific Steps to Hold Individual "Corporate Wrongdoers" Accountable

Why it matters

On September 9, 2015, Deputy Attorney General Sally Quillian Yates issued a memo to all DOJ department heads and U.S. Attorneys which detailed the Government's new policy centered on accountability for the individuals who are alleged to have perpetrated corporate misconduct. The memo, entitled "Individual Accountability for Corporate Wrongdoing," details the "six key steps" the government will now take going forward "to strengthen our pursuit of individual corporate wrongdoing." Accountability for individuals in corporate investigations has long been a stated goal of the DOJ, and Deputy Attorney General Yates's September 9 memo makes it official.

Detailed discussion

On September 9, 2015, Deputy Attorney General Sally Quillian Yates issued an internal memo, entitled "Individual Accountability for Corporate Wrongdoing (Yates Memo), which detailed the "six key steps" the DOJ is instituting to ensure that, in both criminal and civil corporate investigations going forward, individuals accused of corporate misconduct will also be held accountable. As Deputy Attorney General Yates said when speaking about the new policy in a speech at NYU School of Law the next day, "[c]rime is crime. And it is our obligation at the Justice Department to ensure that we are holding lawbreakers accountable regardless of whether they commit their crimes on the street corner or in the boardroom. In the white-collar context, that means pursuing not just corporate entities, but also the individuals through which these corporations act."

The six steps detailed in the Yates Memo are described as a combination of new measures that reflect "policy shifts" as well as those that "reflect best practices that are already employed by many federal prosecutors," and they apply to both criminal and civil investigations conducted by the DOJ. They are summarized as follows:

1. In order to qualify for any mitigating cooperation credit with the DOJ in a corporate investigation, corporations must provide the DOJ with all relevant facts relating to the individuals responsible for the misconduct. The Yates Memo makes clear that "[c]ompanies cannot pick and choose what facts to disclose. That is, to be eligible for any credit for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to that misconduct."

2. The DOJ will focus on individuals from the inception of any criminal or civil corporate investigation. According to the Yates Memo, this will accomplish multiple goals: "First, we maximize our ability to ferret out the full extent of corporate misconduct. Because a corporation only acts through individuals, investigating the conduct of individuals is the most efficient and effective way to determine the facts and extent of any corporate misconduct. Second, by focusing our investigation on individuals, we can increase the likelihood that individuals with knowledge of the corporate misconduct will cooperate with the investigation and provide information against individuals higher up the corporate hierarchy. Third, by focusing on individuals from the very beginning of an investigation, we maximize the chances that the final resolution of an investigation uncovering the misconduct will include civil or criminal charges against not just the corporation but against culpable individuals as well."

3. DOJ attorneys handling criminal and civil corporate investigations will routinely communicate with each other from the beginning of their investigations. The Yates Memo provides that "the Department has long recognized the importance of parallel development of civil and criminal proceedings… Department attorneys should be alert for circumstances where concurrent criminal and civil investigations of individual misconduct should be pursued. Coordination in this regard should happen early, even if it is not certain that a civil or criminal disposition will be the end result for the individuals or the company."

4. When resolving an investigation with a corporation, the DOJ will not release culpable individuals from civil or criminal liability except under "extraordinary circumstances" or in the case of "approved departmental policy" (specifically referencing the Antitrust Division's Corporate Leniency Policy). Per the Yates Memo, if resolution is reached with a corporation prior to reaching resolution with the individual wrongdoers, the ability to pursue the individuals criminally or civilly must be preserved. Furthermore, "[a]ny such release of criminal or civil liability due to extraordinary circumstances must be personally approved in writing by the relevant Assistant Attorney General or United States Attorney."

5. Related to Step #4, DOJ attorneys will not resolve matters with a corporation without a "clear plan" to resolve related individual criminal or civil matters prior to expiration of the applicable statute of limitations, and any declinations as to such individuals must be in writing and similarly approved by the relevant U.S. Attorney or Assistant Attorney General.

6. In deciding whether to pursue civil action against an individual in a corporate investigation, the DOJ civil attorneys must focus on factors beyond the individual's ability to pay. The Yates Memo recognizes that, in civil investigations, the "twin aims" of returning the maximum amount of purloined funds to the "public fisc" on the one hand and individual accountability and deterrence on the other may at times conflict. However, the fact that an individual may not have sufficient funds to satisfy a judgment should not control the decision of whether to pursue civil action against him or her and any assessment must also take into account factors "such as the individual's misconduct and past history and the circumstances relating to the commission of the misconduct, the needs of the communities we serve, and federal resources and priorities."

It remains to be seen whether the DOJ's new policy regarding individual accountability for corporate misconduct will be effective. Deputy Attorney General Yates recognized this in her speech at NYU School of Law, stating that "[w]e make these changes recognizing the challenges that they may present. Some corporations may decide, for example, that the benefits of consideration for cooperation with DOJ are not worth the costs of coughing up the high-level executives who perpetrated the misconduct. Less corporate cooperation could mean fewer settlements and potentially smaller overall recoveries by the government. In addition, individuals facing long prison terms or large civil penalties may be more inclined to roll the dice before a jury and consequently, we could see fewer guilty pleas. Only time will tell. But if that's what happens, so be it. Our mission here is not to recover the largest amount of money from the greatest number of corporations; our job is to seek accountability from those who break our laws and victimize our citizens. It's the only way to truly deter corporate wrongdoing."

See here to read the DOJ's 9/10/15 press release, entitled "Deputy Attorney General Sally Quillian Yates Delivers Remarks at New York University School of Law Announcing New Policy on Individual Liability in Matters of Corporate Wrongdoing."

See here to read the DOJ's 9/9/15 memo, entitled "Individual Accountability for Corporate Wrongdoing."

Second Circuit: Judicial Review of EEOC Pre-Suit Investigations Limited

Why it matters

Applying the "narrow" judicial review established by the U.S. Supreme Court in EEOC v. Mach Mining, a three-judge panel of the Second Circuit Court of Appeals reversed summary judgment in favor of an employer and remanded the case for additional proceedings. The Equal Employment Opportunity Commission (EEOC) filed suit against Sterling Jewelers after the agency received 19 charges of sex discrimination from female employees in nine states over the course of two years. Sterling moved to dismiss the pattern or practice allegations, arguing that the agency did not conduct a nationwide investigation to substantiate the charges. A federal district court agreed, but the panel reversed.

Although Mach Mining did not directly address the obligation of the EEOC to investigate charges, the Second Circuit said similar boundaries of judicial review existed. Therefore, the sole question for the court was whether an investigation occurred and an evaluation of the sufficiency of the investigation was inappropriate, the panel said. Because the EEOC did conduct an investigation—documented by testimony from agency investigators and the investigative file—and the court had no desire to "second-guess" the agency's choices, the court said the suit could move forward.

Detailed discussion

Between 2005 and 2007, the EEOC received 19 individual charges of discrimination from women employed by Sterling Jewelers. The largest fine jewelry company in the United States, with operations nationwide, Sterling faced complaints from nine states: California, Colorado, Florida, Indiana, Massachusetts, Missouri, Nevada, New York, and Texas.

Initially, five investigators began looking into the charges, 16 of which alleged that the employer engaged in a continuing policy or pattern and practice of discrimination. Later, the EEOC transferred all of the charges to one investigator. The agency also requested copies of Sterling's companywide policies and protocols, personnel files, and pay and promotion histories.

Sterling and the charging parties entered mediation and invited the EEOC to participate. The agency agreed to suspend its investigation during the process and both sides provided it with all the documents relied upon by their experts. The charging parties hired a labor economist to conduct a statistical analysis of Sterling's pay and promotion practices, and he testified that the employer paid female employees less and promoted them at slower rates than similarly situated male employees.

The EEOC also agreed not to use any of the documents or information gleaned during the mediation in legal proceedings against Sterling. However, the parties subsequently signed an addendum to the confidentiality agreement permitting certain documents to be placed in the EEOC's investigative file if the mediation were unsuccessful, including the statistical analysis.

In 2007 the mediation failed, and the EEOC filed suit in 2008 alleging that Sterling engaged in a nationwide pattern or practice of sex-based pay and promotion discrimination in violation of Title VII. One of the agency's key pieces of evidence: the labor economist's statistical analysis.

During discovery, Sterling deposed two EEOC investigators, both of whom invoked the deliberative privilege. One testified that he didn't "really recall" much about the investigation.

Sterling then moved for summary judgment, arguing that the EEOC had not satisfied its statutory obligation to conduct a pre-suit investigation. Holding that no evidence existed that the agency investigated a nationwide class to support the pattern or practice allegations, a New York federal court judge granted the motion. The EEOC appealed.

On appeal, the Second Circuit Court of Appeals explained the EEOC must meet five requirements before it can bring an enforcement action under Title VII: (1) it must receive a formal charge of discrimination against the employer, (2) provide notice of the charge to the employer, (3) investigate the charge, (4) make and give notice of its determination that there was a reasonable cause to believe that a violation of Title VII occurred, and (5) make a good faith effort to conciliate the charges.

The statute does not define "investigation" or prescribe the steps that the EEOC must take in conducting an investigation, the three-judge panel noted, and the proper scope of judicial review is an issue of first impression in the circuit.

Looking for guidance, the court turned to the U.S. Supreme Court's April decision in EEOC v. Mach Mining, a case about the scope of judicial review of the agency's obligation to conciliate. The Court held that the review should be "narrow" and serve to "enforce[] the statute's requirements … that the EEOC afford the employer a chance to discuss and rectify a specified discriminatory practice—but goes no further." A sworn affidavit from the EEOC stating that it satisfied its conciliation efforts but failed to reach an agreement "will usually suffice to show that it has met the conciliation requirement," the justices added.

"Mach Mining did not address the EEOC's obligation to investigate, but we conclude that judicial review of an EEOC investigation is similarly limited: The sole question for judicial review is whether the EEOC conducted an investigation," the Second Circuit wrote. "[C]ourts may not review the sufficiency of an investigation—only whether an investigation occurred."

As with the sworn affidavit satisfying the court's review with regard to conciliation, the EEOC need not "describe in detail every step it took or the evidence it uncovered," the panel said. Instead, "an affidavit from the EEOC, stating that it performed its investigative obligations and outlining the steps taken to investigate the charges, will usually suffice."

This limited review respects the discretion given to the EEOC by Title VII, the Second Circuit said, and avoids turning the litigation into a two-step action where parties litigate the pre-suit issues before ever reaching the merits of the case.

Applying this standard to Sterling, the court said the deposition testimony from the investigators as well as the 2,600-page investigative file show that the EEOC took multiple steps to investigate the claims against Sterling, including obtaining Sterling's company policies, the personnel documents of the charging parties, interview notes, and the statistical analysis.

"[I]t cannot be said here that the EEOC failed to conduct any pre-suit investigation at all," the panel wrote. Although one of the investigators acknowledged that he didn't remember very much about the investigation, his testimony was not tantamount to an admission that he failed to conduct an investigation, particularly since he was deposed seven years after the conclusion of the review, the court said.

Sterling's "laundry list" of steps the EEOC failed to take during the investigation did not persuade the court. "For a court to second-guess the choices made by the EEOC in conducting an investigation 'is not to enforce the law Congress wrote, but to impose extra procedural requirements. Such judicial review extends too far,'" the court said.

The EEOC investigation was nationwide, the panel added, as the charges were filed in states across the country, from California to Texas to New York. While the court recognized some tension in the various provisions and changes to the parties' confidentiality agreement, it allowed the EEOC's use of the statistical analysis based on companywide data.

"[W]hat other purpose could the parties have for allowing the EEOC to include [the expert's] analysis in its investigative file if the EEOC could not review the analysis as part of its investigation?" the court asked. "Because the EEOC was permitted to rely on [the expert's] analysis in making its reasonable-cause determination, the EEOC properly referenced that analysis as part of the proof that its investigation was nationwide."

Reversing summary judgment in the employer's favor, the Second Circuit remanded the case for further proceedings.

To read the decision in EEOC v. Sterling Jewelers, click here.

New California Employment Laws on Fair Pay, Waiver of Meal Periods

Why it matters

California continues its focus on employment-related legislation. Touted as the toughest law of its kind in the nation, Senate Bill 358 expands California's Fair Pay Act, moving the burden to employers to prove that an employee's higher rate of pay is based on factors other than gender (such as seniority or a merit system) and providing employees with the ability to sue if they are paid less than coworkers of a different gender performing "substantially similar" work. In addition, employers must maintain records of wages and wage rates, job classification, and related terms and conditions of employment for a three-year period. The new law becomes effective January 1, 2016.

A second law involving the waiver of meal periods in the healthcare industry was passed in reaction to a decision from the state's appellate court earlier this year in Gerard v. Orange Coast Memorial Medical Center. Analyzing the interplay between California Wage Order 5 and Labor Code Section 512, the court created panic by disallowing the common practice of waivers of second meal periods for employees in the healthcare industry, and made its decision retroactive. Senate Bill 327 reversed this decision and reaffirms the validity of waivers of a second meal period during a healthcare worker's 12-hour shift. The bill amends the California Labor Code to reflect that position, taking immediate effect.

Finally, employers dodged a bullet when Governor Brown elected not to sign Assembly Bill 465, which would have prohibited employers from requiring employees to agree to mandatory arbitration. In a veto statement, the Governor stated that he wished to avoid "years of costly litigation" challenging the measure and that "[i]f abuses remain, they should be specified and solved by targeted legislation, not a blanket prohibition."

Detailed discussion

The California Legislature continues to focus on employment legislation, recently sending three bills to Governor Jerry Brown for his signature.

The first, Senate Bill 358, expands California's existing prohibition on unequal pay between the genders. The state's Fair Pay Act, originally enacted in 1949, provided that an employer may not pay an employee at a rate less than that paid to employees of the opposite sex in the same establishment for equal work performed on equal jobs. The new law lessens the burden on employees by requiring them to prove only that they received lower wages for "substantially similar" work and by eliminating the "same establishment" requirement.

In addition, the bill identifies the limited circumstances where an employer can show that wage disparity is based on a legitimate factor other than sex. Only a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a differential based on any bona fide factor other than sex (such as geographic location, education, experience, or training) will suffice. These defenses "shall apply only if the employer demonstrates that the factor is not based on or derived from a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity." The burden to establish a bona fide factor other than sex is placed on the employer.

SB 358 also added a prohibition regarding retaliation and bans employers from interfering with workers' ability to discuss and share information about their wages.

Recordkeeping requirements are included in the legislation, with employers mandated to maintain records of the wages and wage rates, job classification, and other terms and conditions of employment for a three-year period.

The new provision of the Fair Pay Act will take effect on January 1, 2016.

A second new law was passed in response to a decision from a California appellate court earlier this year. In Gerard v. Orange Coast Memorial Medical Center, the court had held that workers in the healthcare industry could not waive their statutory right to a second meal period when they worked more than 12 hours per day.

While state labor law requires that employees who work more than 10 hours in a workday must receive two 30-minute meal periods, Section 11(D) of California Wage Order 5 expressly permits employees in the healthcare industry to waive the second meal period if the workday is not longer than 12 hours and the first meal period was not waived. A trio of former hospital employees filed a putative class action claiming that this Wage Order was in conflict with Labor Code Sections 512(a) and 516.

A trial court sided with the hospital but the appellate panel reversed, holding that the more permissive Wage Order was partially invalid and was trumped by the Labor Code. The court made its decision retroactive, basically upending years of reliance on the Wage Order.

While the Gerard case is currently pending before the California Supreme Court, the Legislature stepped in, passing Senate Bill 327 to affirm the validity of such meal period waivers in the healthcare industry. The new law took immediate effect upon Governor Brown's signature on October 6.

Finally, employers can breathe a sigh of relief after the Governor vetoed a measure that would have barred the use of mandatory arbitration agreements in the employment context. Assembly Bill 465 had provided that any arbitration agreement entered into, revised, extended, or renewed on or after January 1, 2016, must include a statement that the agreement is not mandatory and that signing it is not a condition of employment.

The State Legislature passed the bill by narrow margins (22 to 15 in the Senate and 45 to 30 in the Assembly), but Governor Brown vetoed the controversial measure when it arrived on his desk. "While I am concerned about ensuring fairness in employment disputes, I am not prepared to take the far-reaching step proposed in this bill for a number of reasons," according to the veto statement. "If abuses remain, they should be specified and solved by targeted legislation, not a blanket prohibition."

The Governor also noted that blanket bans on mandatory arbitration have been "consistently" struck down in other states as violating the Federal Arbitration Act (FAA) and that the U.S. Supreme Court is currently considering two cases arising from California courts involving preemption of state arbitration policies under the FAA. "Before enacting a law as broad as this, and one that will surely result in years of costly litigation and legal uncertainty, I would prefer to see the outcome of those cases," Governor Brown said.

To read SB 358, click here.

To read SB 327, click here.

To read AB 465, click here.

To read the veto statement, click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

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