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Frantz Ward attorneys Tom Haren and Pat Haggerty attended the Marijuana Business Conference this past November. Tom was a presenter at the Marijuana Business Crash Course, and Pat attended the Hemp Forum. The biggest takeaway from the conference is that 2019 could be a banner year for cannabis in Ohio and nationwide.

Hemp reform is moving forward.

It has now been confirmed that the 2018 Farm Bill will include the federal Hemp Farming Act, which would remove industrial hemp (cannabis containing less than 0.3 percent THC) from the Controlled Substances Act.

Hemp-derived CBD has been all the rage as of late, with this segment of the industry on track to hit $591 million in 2018. Some analysts predict this could be a drop in the bucket: The Brightfield Group predicts that the CBD industry alone could hit $22 billion by that time.

Legalization of hemp at the federal level is the first step toward a nationwide market for hemp and its derivatives — after passage of the 2018 Farm Bill, it will be incumbent upon the states to develop their own hemp programs.

Broader cannabis reform is possible in 2019.

With the coming change in control of the House of Representatives, many are confident that 2019 will bring significant cannabis reforms. For one thing, the expected Democratic Chair of the House Rules Committee will no longer block cannabis-related amendments from being debated on the House floor.

While that is newsworthy in and of itself, there is also confidence that Congress may finally pass the STATES Act during this session.

The STATES Act would exempt state-compliant cannabis operators from the purview of the federal Controlled Substances Act. In addition to removing the fear of federal prosecution, this change would allow banks to service state-compliant cannabis businesses, and also permit state-compliant cannabis companies to take standard tax deductions on their federal tax returns.

President Trump has indicated that he supports this change, which has bipartisan support in both chambers of Congress.

If you have questions about the 2018 Farm Bill, the Hemp Farming Act, or the STATES Act, please do not hesitate to contact one of Frantz Ward’s Cannabis Attorneys.

In today’s day and age, it is widely understood that no one is safe from a data breach.  If you have been so fortunate as to escape fraudulent credit card purchases, data security breaches, or having your entire identity stolen, cybersecurity experts will tell you that is no longer a matter of “if,” but “when” it will happen to you.  In response to national and international cybersecurity incidents during the past few years, state legislators in all 50 states (as well as the District of Columbia and several U.S. territories) have enacted data breach notification legislation that requires private entities to notify individuals of security breaches involving their personal identification information (“PII”).

State and federal judiciaries have also begun to weigh in on the issue of cybersecurity, particularly in the employment context and most recently in Pennsylvania, where the State’s Supreme Court held that employers have an affirmative duty to protect employee PII from cybersecurity incidents.  Dittman v. UPMC, 2018 Pa. LEXIS 6051 (Pa. Nov. 21, 2018).

Dittman arose out of a data breach of personal information at the University of Pittsburgh Medical Center (“UPMC”) that affected all of UPMC’s 62,000 current and former employees.  A class action was filed after employees’ names, birth dates, social security numbers, tax documents, and bank accounts were hacked and stolen from UPMC’s internet-accessible computer systems.  The data was then used to file fraudulent tax returns.  Alleging negligence and breach of implied contract, the Dittman plaintiffs argued that UPMC had a common law duty of care to protect their PII, particularly given the fact that UPMC had collected this data from them as a condition of their employment.  Based on UPMC’s failure to implement a data security program (including but not limited to sufficient firewall protection, authentication protocols, encryption) and its failure to create proper processes or protocols to detect security breaches, the plaintiffs alleged that they incurred monetary damages.

The trial court dismissed the lawsuit, which Pennsylvania’s intermediate Superior Court affirmed.  In their decisions, the lower courts first declined to recognize a “new” common law duty by employers to protect employee PII, holding that the creation of such a duty was outside the province of the judiciary and should be left to the state legislature.  The lower courts also declined to expand Pennsylvania’s economic loss doctrine by allowing the plaintiffs to recover only economic damages without alleging any physical injury or property damage.

After granting discretionary review of the case, the Supreme Court of Pennsylvania reversed both of its lower courts in toto.  First, the Court determined that, as a threshold matter, it was not creating a “new” duty, but rather was “appl[ying] an existing duty to a novel factual scenario.” Second, the Court reasoned that UPMC engaged in affirmative conduct when it required the plaintiffs to submit their PII, which triggered a duty on UPMC’s part to exercise reasonable care to protect the employees from risk of harm.

The Court also rejected UPMC’s argument that it could not be liable under general tort law principles because the actions of the third party hacker were a superseding event (i.e. not foreseeable).  The Court agreed with the plaintiffs, and growing public consensus, that “troves of electronic data stored on internet-accessible computers held by large entities are obvious targets for cyber criminals” and a reasonable entity in UPMC’s position should have foreseen that “failure to use basic security measures could lead to exposure of the data and serious financial consequences…”

Lastly, with respect to the economic loss doctrine, the court confirmed that Pennsylvania law recognizes “purely economic losses are recoverable in a variety of tort actions,” and that “a plaintiff is not barred from recovering economic losses simply because the action sounds in tort rather than [in] contract law.”

Given the heightened scrutiny that is now paid to cybersecurity on the national and international stage, the Dittman decision is not completely unexpected.  Employers, both big and small, should take the decision as a lesson: employers who do not take reasonable steps to protect their employees’ data put themselves at risk of costly class action litigation.  Pennsylvania employers and employers elsewhere should take immediate steps to update and address critical gaps in insurance, procedures and I.T. services – if not only to meet the duty of care, but as good business practice to ensure that any eventual cybersecurity threat will minimize disruption to business operations.

Hardhat.

In what should be viewed as a victory for employers, the United States Circuit Court of Appeals for the Eleventh Circuit recently issued a decision limiting the scope of OSHA inspections. United States v. Mar-Jac Poultry, Inc., No. 16-17745 (11th Cir. 2018).

In February 2016, an employee at Mar-Jac’s poultry processing facility was severely burned and hospitalized after attempting to repair an electrical panel.  Within days of Mar-Jac reporting the injury to OSHA, OSHA compliance officers visited Mar-Jac’s facility.  OSHA sought to inspect not only the accident site, but Mar-Jac’s entire facility.  Mar-Jac gave limited consent to inspection of the electrical accident site, but refused to permit inspection of any additional areas.

OSHA’s limited inspection revealed additional potential violations of electrical safety, personal protective equipment, machine guarding and other standards. OSHA also determined that the injuries reported on Mar-Jac’s OSHA 300 logs suggested additional possible violations covered by an OSHA Regional Emphasis Program (“REP”) that permits random “programmed” inspection of such facilities based on neutral criteria.

OSHA sought an administrative warrant from a federal magistrate judge to expand its inspection, arguing that it had probable cause to conduct a top-to-bottom inspection on three grounds: 1) the OSHA compliance officers had personally observed additional hazards during its limited inspection, (2) the OSHA 300 logs revealed additional potential hazards, and 3) probable cause existed to conduct a programmed inspection based on OSHA’s Poultry REP.  The District Court quashed the warrant, and OSHA appealed.

On appeal, OSHA argued that the District Court erred by applying a more stringent standard which purports to require OSHA to show that employees had been injured as a result of suspected violations.  OSHA also argued that the District Court conflated the terms “hazard” and “violation” and that OSHA had presented reasonable suspicion of additional violations based on Mar-Jac’s OSHA 300 logs.

The 11th Circuit affirmed the District Court’s ruling.  First, the Court held that the District Court correctly applied the reasonable suspicion standard and simply found that OSHA did not establish reasonable suspicion to inspect for the additional suspected hazards. Second, the Court rejected OSHA’s argument that “because there was an injury, there must have been a hazard, and because there was a hazard, there is likely a violation to be found.”  Rather, the Court affirmed that “the existence of a ‘hazard’ does not necessarily establish the existence of a ‘violation,’” and that OSHA must, when applying for a warrant, demonstrate reasonable suspicion that a violation (not simply a hazard) exists.”  Finally, after reviewing Mar-Jac’s OSHA 300 logs, the Court determined that the injury descriptions were vague and showed no common thread sufficient to justify a comprehensive inspection.

Mar-Jac (1) reinforces the notion that there are limits on OSHA’s inspection authority and (2) confirms the right of employers to limit consent to inspect or to challenge a warrant. OSHA cannot expand an accident-based inspection simply because of an emphasis program, injuries recorded on an OSHA 300 log, or the mere existence of a hazard. So, if faced with a request by OSHA to expand the scope of an accident-based inspection, employers should contact counsel immediately to determine an appropriate response.

 

Last week, a closely-watched trial involving a Colorado cannabis cultivator sued by a neighbor ended with a jury finding in the cultivator’s favor. In Reilly v. 6480 Pickney, LLC, the Reillys complained that their property’s value had decreased due to odor emitted from the cultivator’s property (an unfortunate, if not new, problem in legal cannabis markets) and increased crime in the area. Rather than file a state based standard nuisance claim, however, the Reillys filed claims under the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”).
 
RICO was originally enacted in the 1970s to give law enforcement another tool to fight organized crime. Civil RICO lawsuits provide remedies where plaintiffs allege they have been harmed by “racketeering activity,” which, arguably, includes cultivating marijuana (because it remains illegal to do so under federal law). 
 
Last year, a ruling from the Tenth Circuit Court of Appeals allowed the Reillys to take their civil RICO case to trial, though the court noted that they still had to prove that the cultivator’s activity caused their property value to be diminished. In a landmark victory for the cannabis cultivator, though, the jury found that the Reillys did not make those required nuisance related showings. The jury’s verdict comes after a federal district court in Oregon refused to allow a civil RICO claim to proceed.
 
RICO suits are attractive to plaintiffs because, if they succeed, the plaintiffs can obtain treble damages and attorney fees. Perhaps that is why there appears to be a dedicated effort to use RICO in cannabis-related litigation. Given the increased risks associated RICO litigation, coupled with the fact that more of these cases are likely to be filed in the future, cannabis companies should be prepared to vigorously defend against these claims.

On October 11, 2018, the Occupational Health and Safety Administration (OSHA) issued a memorandum clarifying its position regarding safety incentive programs and post-incident drug testing.

Two years ago, in October 2016, OSHA issued a memorandum that prohibited drug testing employees who reported injuries or illness unless there was an “objectively reasonable basis” for doing so. The rationale was that blanket post-accident drug and alcohol testing violated OSHA’s anti-retaliation provisions. OSHA’s prior guidance also implied that safety incentive programs were unlawful and could create a chilling effect and deter employees from reporting work-related injuries and illnesses.

With respect to post-incident drug testing, OSHA’s most recent memorandum clarifies that “most instances of workplace drug testing are permissible.” The memo specifically includes the following as types of drug testing policies that are not violative of OSHA’s anti-retaliation provisions:

  • Random drug testing
  • Drug testing unrelated to the reporting of a work-related injury or illness;
  • Drug testing under a state workers’ compensation law;
  • Drug testing under other federal law, such as a U.S. Department of Transportation rule; and
  • Drug testing to evaluate the root cause of a workplace incident that caused injury or could have caused injury to employees. In this circumstance, employers must test all the employees whose conduct could have contributed to the incident, not just employees who made reports.

With respect to safety incentive programs, OSHA’s recent memorandum acknowledges that many safety programs do, in fact, promote workplace safety and health, including rate-based safety incentive programs focused on reducing the number of work-related injuries and illnesses as well as programs rewarding employees for reporting near-misses or workplace hazards. OSHA now takes the position that safety incentive programs are only retaliatory and unlawful if they seek to “penalize an employee for reporting a work-related injury or illness rather than for the legitimate purpose of promoting workplace safety and health.”

Employers should regularly review and update their safety incentive programs and drug testing policies to ensure compliance with the new OSHA guidance and business objectives, but now can be much more comfortable that legitimate safety incentive programs and post-accident drug testing policies will not result in citations.

Under new federal regulations effective September 21, 2018, employers must now issue updated “Summary of Your Rights” forms mandated by the Fair Credit Reporting Act. In May 2018, Congress responded to several, high-profile data breaches by passing the Economic Growth, Regulatory Relief and Consumer Protection Act (“Act”). The Act adds new language to the Summary of Your Rights Form, explaining that a consumer can obtain a “security freeze” locking his or her account so that a Credit Reporting Agency may not release information on a credit report without the consumer’s authorization. The language is intended to make it more difficult for identity thieves to fraudulently open an account in a consumer’s name. Consumers also have the option of placing an initial or extended fraud alert on their account free of cost.

The new form is effective immediately, and employers should begin using it now to avoid gaps in compliance. However, the new regulations do temporarily permit continued use of the old Summary of Your Rights forms, provided a separate page containing the newly required information (i.e. the security freeze and fraud coverage rights) is provided at the same time.

The National Labor Relations Board (the “Board”) announced today that it will publish a notice of proposed rulemaking tomorrow in the Federal Register regarding its joint employer standard. The Board indicated that its proposed rulemaking would foster “predictability, consistency and stability in the determination of joint employer status.” The Board indicated that an employer could be “found to be a joint employer of another employer’s employees only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner not limited and routine.” The proposed rule seeks to reverse a 2015 decision of the Labor Board in Browning- Ferris Industries, which had vastly expanded the scope of the joint employer definition and overturned decades of Board precedent in this area.

A comment period of 60 days will begin with the publication of the rule in the Federal Register. Chairman Ring and members Kaplan and Emanuel joined in proposing the new joint employer standard, while Board member Lauren McFerran dissented.

One of the strongest trends in human resource management is the dramatic increase in the use of mandatory employment arbitration agreements. In late 2017, a study by the Survey Research Institute at Cornell University determined that the number of private sector, non-union employees subject to mandatory arbitration agreements had dramatically increased in recent years. The study was conducted on a national level and secured responses from more than seven hundred employers. Between 1992 and the early 2000’s, the percentage of employees subject to mandatory arbitration agreements had risen from just over two percent to almost one quarter of the U.S. work force. The study concluded that as of the fall of 2017, the percentage of private sector, non-union employees subject to mandatory arbitration had more than doubled and now exceeded fifty-five percent. Thus, over sixty million American employees are now likely subject to mandatory employment arbitration agreements.

This dramatic growth preceded the landmark decision handed down in May, 2018 by the U.S. Supreme Court in Epic Systems Corp. v. Lewis. In this decision, the Supreme Court held that under the Federal Arbitration Act, an arbitration agreement that provides that an employee waives the right to bring a class action in court must be enforced. This decision is widely expected to increase even further the use of mandatory arbitration agreements by private sector employers. The decision put to rest a potential stumbling block to the enforcement of class action waivers in arbitration agreements that had been created by a decision of the National Labor Relations Board during the Obama administration and by the decisions of several federal Courts of Appeals. Thus, the Supreme Court has made the use of such agreements even more desirable by employers who now can generally be assured that their employees cannot bring class action arbitration or court cases against them. In other words, such agreements are now an even more effective means for employers to cope with the rapid increase in recent years in the numbers, costs and risks posed by employment-related lawsuits.

The advantages that the use of mandatory arbitration agreements offer private sector employers are several and are quite substantial:

  • Generally speaking, these agreements can be used to prohibit covered employees from bringing class actions against their employers
  • These agreements can require employees to waive their right to a jury trial; indeed, this has long been the principal advantage of the use of mandatory arbitration agreements
  • Instead, these agreements typically establish a procedure that permits employers and employees to select a decision maker from a panel of experienced former judges and/or licensed attorneys or other respected neutrals to hear and decide their cases, rather than juries
  • Because these procedures remove the risk of runaway jury awards and reduce the cost of litigation, employers are much more likely to be in a position of declining to agree to unreasonable settlement demands in cases that they believe involve meritless claims
  • Indeed, some studies indicate that employers are somewhat more likely to prevail in arbitration than in court proceedings
  • At the very least, and as alluded to above, the use of arbitration agreements will enable employers and employees to resolve their claims in a less costly manner than in courts; typically such agreements involve limited amounts of discovery and fewer procedural disputes
  • Claims are typically more quickly resolved in arbitration than in courts; faster resolutions benefit both employers and employees – they both avoid the years of discovery and delay that often characterize court proceedings
  • Conventional wisdom and some anecdotal evidence indicate that some plaintiffs’ attorneys are deterred from even pursuing employment-related claims once they become aware that doing so will involve arbitration rather than a potential jury trial
  • As opposed to court trials that are matters of public record and sometimes involve considerable publicity, arbitration procedures are private processes and are not as likely to result in the damage to goodwill, reputation and brand as may public trials
  • While arbitration agreements are indeed contracts, these contracts typically provide that the employees who sign them remain employees at will
The very real and apparent advantages to employers of the use of arbitration agreements is confirmed by the opposition to their use, especially since Epic Systems. Recent writings and publicity have often cast these agreements as vehicles designed to “destroy workers’ rights”. Arbitration agreements are strongly opposed by plaintiffs lawyers groups, civil rights organizations, and some politicians. Some plaintiffs law firms now espouse the filing of hundreds of individual arbitration demands on behalf of employees of an employer in order to pressure such employers to settle rather than having to absorb the costs of defending against large numbers of such claims. Opponents of arbitration agreements have recently argued that claims of sexual discrimination and sexual harassment should not be subject to arbitration. Significant political pressure not to utilize arbitration agreements has been applied against law firms, law schools and some private sector employers. The American Bar Association has adopted a resolution urging legal employers not to require mandatory arbitration of claims of sexual harassment. The State of New York has recently passed legislation that would prohibit private sector employers from requiring arbitration of sexual harassment claims. California will soon follow suit, and other states are considering similar legislation. Such state laws may well be found to be preempted by the Federal Arbitration Act and, thus, unenforceable.

Some courts will find arbitration agreements to be unenforceable if they are both “procedurally and substantively unconscionable”. But the bottom line is that well drafted and carefully implemented arbitration agreements will be enforced, and will provide employers with a much improved context in which to defend against claims. [1] Thus, the surge in the use of arbitration agreements documented by the 2017 Cornell study is likely to continue and indeed to expand rapidly.

[1] For example, well drafted agreements should place most if not all the costs of arbitration fees on employers; the obligation to settle disputes by arbitration should apply to employers as well as employees; the process for selecting an arbitrator must be fair; the waiver of the right to a jury trial must be clear and unambiguous; and so forth. The implementation of an arbitration agreement must be preceded by adequate notice, the ramifications of such agreements must be clearly summarized for employees in some appropriate fashion; the method utilized to secure employee consent to an agreement must be considered; and analysis must be accomplished as to what form of consideration is necessary to render such consent binding.

A federal court of appeals recently ruled that, standing alone, full-time presence at the workplace is not an essential function of a job. In the case, an HR Generalist returned to work part-time while suffering from postpartum depression and separation anxiety. Initially, the employer accommodated the employee by allowing her to work five half-days per week and perform some work from home. However, after the employee sought to extend her part-time work, the employer determined it could no longer accommodate her and discharged the HR Generalist. In response, the former employee filed a lawsuit under the Americans with Disabilities Act (“ADA”).

To prove a disability discrimination case, a plaintiff first must show that he/she is an individual with a disability and is otherwise qualified for him/her job. A plaintiff can demonstrate he/she is otherwise qualified for a job if he/she can perform the position’s essential functions with or without an accommodation. Essential job functions are core job duties which, if removed, would fundamentally alter the position. For most jobs, courts have found that “regular, in-person attendance is an essential function.” However, determining a job’s essential functions is a fact-intensive analysis which may include a review of: the time spent on a function; the employer’s judgment; written job descriptions; and the consequences of not performing a particular function.

Here, the Court concluded that “full-time presence at work” is not an essential job function on its own. According to the Court, the HR Generalist presented sufficient evidence that she could perform the core tasks of her position in a part-time role. In particular: the HR Generalist testified she completed all her work on time; a former colleague confirmed she was effective on a half-time schedule, and she received a “very positive” performance evaluation while working part-time (which made no reference to full-time work). Furthermore, the HR Generalist had not received discipline, written criticism, a performance improvement plan, or complaints about her work. For all these reasons, the Court ruled that an employer must show why an employee needs to work on a full-time schedule.

This case substantively impacts and provides a useful lesson for many employers. Issued by the Sixth Circuit Court of Appeals, the decision directly applies to employers with a presence in Kentucky, Michigan, Ohio, and Tennessee. In addition, the case offers several takeaways. First, documentation is key. An employer should include all of a job’s essential functions in the job description. Employers also should document the need for those functions and an employee’s ability (or inability) to meet them.  Here, the Court placed significant weight on the HR Generalist’s positive performance evaluation.  In another case, the employer documented specific duties that could not be performed remotely and an employee’s failure to complete work in other telework situations. Furthermore, employers should be consistent with providing accommodations. Here, the Court also considered the employer’s decision to initially accommodate the HR Generalist’s part-time work before later changing course. For all these reasons, employers should be prepared to explain why a job function is essential, remain consistent in their decision-making, and contact counsel with questions.

When an employee leaves an organization, one issue the employer often confronts is whether to pay the employee for unused vacation time or other paid time off (PTO). The employer may seek to withhold PTO for myriad reasons: from encouraging employees to use their PTO during employment, to offsetting an employee debt, to encouraging compliance with an obligation (e.g., providing advanced notice of a resignation). But regardless of the reason, the extent of the employer’s ability to withhold PTO  (at least in Ohio) depends on the terms of its PTO policy. This lesson comes harder to some employers than others, as a recent case from the Ohio Court of Appeals for the Seventh District confirms.

In this case, 48 employees sued their employer, an area non-profit Company, after the Company declined to pay out their accrued PTO when their employment ended. The Company’s Handbook contained the following provision:

Any employee with PTO hours to a maximum of 200 hours remaining at December 31, 2011 under the former PTO policy shall have those hours “grandfathered” and banked going forward. The banked PTO hours will be available to those employees for any use that would have been allowable under the old PTO policy. Program and operation requirements will continue to override any request for leave, and the rules for using those banked hours remain the same. At the end of employment with [the Company] unused PTO balance hours will be paid out according to the schedule.

In defense of its position, the Company rightly argued (among other things) that its Handbook contained a disclaimer expressly stating that the Handbook was not a contract; thus, the Company asserted, the PTO policy was not enforceable. Nevertheless, the Court granted summary judgment in favor of the employees.  The Court noted that “although employee handbooks and policy manuals are not in and of themselves contracts of employment, they may define the terms and conditions of an at-will employment relationship if the employer and employee manifest an intention to be bound by them.”  The Court then concluded that by placing the above PTO policy in its Handbook and disseminating that policy to employees with the expectation that they would rely on it, the Company manifested an intent to be bound by it. Therefore, the Court held that the employees had a right to enforce the policy’s terms.

Key Takeaways

This case serves as a good reminder that when it comes to PTO policies, Ohio employers have a lot of flexibility in determining (1) whether to offer PTO; (2) the manner in which PTO time is earned and accrued; (3) the extent to which PTO carries over from year to year; and (4) whether PTO is paid out on termination, and if so, the terms of eligibility for or forfeiture of the payout.  However, employers must practice what they preach by ensuring that the policy accurately conveys its intent.

Multi-state employers should also know that some states are less flexible than Ohio. In California, for example, vacation and other paid time off that can be used for any purpose (as opposed to sick leave) is considered wages, and generally, this time must be paid out upon termination regardless of the employer’s policy. Therefore, it is important to comply with the PTO laws of each state in which the employer operates