Today's General Counsel, Summer 2020 by Today's General Counsel

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TODAY’S GENER AL COUNSEL SUMMER 2020

Editor’s Desk

Institutional investors are conservative by nature. Traditionally, that’s been a good temperamental fit for the corporate boards their votes control, but now the sea-changes that are roiling the culture in general seem to be percolating up to the asset managers who cast votes on behalf of those investors. In her article in this issue of Today’s General Counsel, Hannah Orowitz cites pledges by State Street Global Advisors and BlackRock to vote in favor of shareholder proposals that address environmental and social issues. She advises general counsel to get their companies out in front of this trend. Those same corporations are about to encounter Gen Z, people born in the late 1990s and soon after. Megan Walker and Megan Winter’s article about this latest generation to enter the workforce says they take diversity for granted, and that research shows them to be pessimistic, anxious, and skeptical. Most plan to leave their current employer within three years. With virtually every commercial law dispute now going to non-binding mediation by agreement or court order, David K. Taylor makes the case that mediation advocacy is vital. He discusses mistakes that lawyers make in mediation, and how to remedy them. On the employment and IP front, Steven P. Ragland writes that unauthorized individuals who use, copy, or retain trade secret information fall into broad categories, ranging from conspirators, whose career strategy involves stealing trade secrets, to the employee who simply forgot that he loaded project documents onto a personal cloud account or portable drive before changing jobs. Any of them can be a big problem for your company. Mark B. Wilson discusses how Covid-19 has forced in-house legal departments to reexamine their standard operating procedures. Before the pandemic many of them would never have considered hiring small litigation boutiques to try big cases, but that might be a cost-effective way to address shrinking litigation budgets. He suggests that whoever handles your case law should be required to prepare a comprehensive litigation roadmap and budget as soon as they have reviewed the case, usually within the first 60 days. That allows general counsel to make swift business decisions on whether to proceed with litigation.

Bob Nienhouse, Editor-In-Chief bnienhouse@TodaysGC.com

SUMMER 202 0 TODAY’S GENER AL COUNSEL

Contents 1

Editor’s Desk

6 | Executive Summaries

COLUMNS

36 | Workplace Issues EEOC Compliance and the Covid-19 Pandemic Accommodations for high-risk employees. By Barry A. Hartstein and Therese Waymel

38 | The Antitrust Litigator Who Decides Arbitrability? Arbitrators rule on contracts, courts rule on arbitration clauses. By Jeffery M. Cross 40 | Privilege Place No Communication, No Privilege If you see something, say something. By Todd Presnell 48 Back Page Front Burner Privacy Issues for Communications Service Providers The easier to use, the less secure. By Siobhan Lewis and David Naylor

FEATURES

17 | Cutting Litigation Costs in a Post-Covid World First steps: Analysis and budget. By Mark B. Wilson 42 | A Women-Owned Law Firm’s Perspective No origination credit. By Francine Friedman Griesing and Jessica L. Mazzeo 44 | Ten Mistakes Lawyers Make in Mediation A long day wasted by last minute issues. By David K. Taylor

EDITOR-IN-CHIEF Robert Nienhouse

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Jeffery Cross Francine Friedman Griesing Mike Hamilton Barry Hartstein Zal Kumar Joseph Lazzarotti Siobhan Lewis Jessica L. Mazzeo David Naylor Hannah Orowitz Bradley Presnell

Steve Ragland Marc S. Raspanti Leah Robinson Douglas K. Rosenblum Dan Stein Paul Sutton David K. Taylor Megan Walker Megan Winter Mark B. Wilson

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All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information or retrieval system, witho ut the written permission of the publisher. Articles published in Today’s General Counsel are not to be construed as legal or professional advice, nor unless otherwise stated are they necessarily the views of a writer’s firm or its clients. Today’s General Counsel (ISSN 2326-5000) is published quarterly by Nienhouse Media, Inc., 30 S. Wacker Drive, Suite 2200, Chicago, Illinois 60606 Image source: iStockphoto | Printed by Quad Graphics | Copyright © 2020 Nienhouse Media, Inc. Email submissions to editor@todaysgc.com or go to our website www.todaysgeneralcounsel.com for more information. Postmaster: Send address changes to: Computer Fulfillment, PO Box 185, Lowell, MA 01853-0185 Periodical postage paid at Oak Brook, Illinois, and additional mailing offices.

TODAY’S GENER AL COUNSEL SUMMER 202 0

Contents

L ABOR & EMPLOYMENT

10 | Gen Z Joins the Workforce Anxious, skeptical, and fed up with racism. By Megan E. Walker and Megan C. Winter E-DISCOVERY

12 | Overcoming Budget Hurdles Due to Covid-19 Litigation Adopt technology before the storm. By Mike Hamilton INTELLEC TUAL PROPERT Y

14 | How In-House Counsel Can Protect Trade Secrets The conspirator and the klutz — equally dangerous. By Steven P. Ragland

COMPLIANCE

CYBERSECURIT Y

20 | New York Latest State to Enact Cybersecurity Law Requirements for businesses, not rights for individuals. By Joseph J. Lazzarotti

24 | A Checklist for FCPA Compliance A program that works on paper isn’t enough. By Douglas K. Rosenblum and Marc S. Raspanti 26 | Class Actions Target COBRA Election Notices Courts are allowing discovery. By Nancy G. Ross and Richard E. Nowak

30 | Covid Brings Transfer Pricing Issues Arms-length is the rule. By Paul Sutton 32 | Investors Pushing Environmental and Social Proposals Votes against directors are looming. By Hannah Orowitz

SUMMER 2020 TODAY’S GENER AL COUNSEL

Executive Summaries L ABOR & EMPLOYMENT

E-DISCOVERY

INTELLEC TUAL PROPERT Y

PAGE 10

PAGE 12

PAGE 14

Gen Z Joins the Workforce

Overcoming Budget Hurdles Due to Covid-19 Litigation

How In-House Counsel Can Protect Trade Secrets

By Mike Hamilton Exterro

By Steven P. Ragland Keker, Van Nest & Peters

Three months into the pandemic, expectations about budgeting in legal departments have changed. Survey data shows that only 19 percent of in-house legal departments expected an increase in their budgets as a whole heading into 2020 — but 51 percent acknowledged that litigation ranked as the highest risk for increased legal costs, followed by compliance at 22 percent. The specter of Covid-19-related litigation has, for many, become a full-blown fear. “We have a small lull right now, but I think it’s going to hit with a vengeance,” says Linda Luperchio, Director of Information Lifecycle Governance & E-Discovery at The Hanover Insurance. Heading into 2020, in-house legal departments were looking to reduce risks and costs and increase operational efficiency through technology adoption. Given the reduction in manpower that some departments are facing, technology will play a key role in the many e-discovery and compliance tasks that legal teams must deal with. And given that litigation costs are likely to increase, saving money elsewhere makes sense. For years, technology adoption in legal departments has been a challenge, but that may be changing. According to the Association of Corporate Counsel’s Chief Legal Officer’s Survey, more than half of legal department leaders are planning to adopt a new legal technology or have done so recently. Technology adoption is one of the ways to reduce e-discovery spend, as the survey data shows, and it creates a cascading effect that helps cut costs across the board.

As bring-your-own device policies proliferate, and digital storage become cheaper and more prevalent, it has gotten easier to pilfer trade secrets. A key point in understanding trade secrets is that the law protects information and not necessarily particular things. Any document might contain lots of protectable information along with material that is not protected at all. Trade secrets can include “negative information” — knowing the dead ends a competitor pursued. In-house counsel can do a lot to protect against trade secret problems. Understanding what constitutes protectable trade secret information is key. Best practices for on-boarding and off-boarding employees are crucial, and so are proprietary rights agreements (PRAs). The law of trade secret protection is constantly evolving, and your PRAs need to change as well to remain fully enforceable. Conversations with new hires are a chance to ascertain whether they took any trade secrets from their former employer, are under non-competes, and are familiar with your internal reporting or whistleblower system. Off-boarding should be just as robust, but with extra focus on collecting devices and any media or virtual locations where your proprietary information may reside. The PRA obligations should be reinforced, and access to systems should be immediately terminated. If there are red flags or odd vibes, follow up. There is no one-size-fits-all solution, but through a careful and deliberate process, you can do a lot to protect your own trade secrets and to protect against being a trade secret defendant yourself.

By Megan E. Walker and Megan C. Winter Fisher Phillips

A fresh crop of entry-level workers is about to join the workforce. “Generation Z” is currently the term most accepted to define those born in the late 1990s and after, with the oldest born around 1995. They are expected to account for one fifth of the workforce this year. It is only a matter of time before nearly all employers have an employee from this latest generation. They are the most racially diverse generation in U.S. history. According to a 2018 study by YPulse, they list racism as the biggest problem facing their generation. Over half believe racism is getting worse. Their outlook is framed by major events in their childhood — the dot-com bust, 9/11 and the sub-prime mortgage crisis that led to the 2008 recession. Research shows them to be pessimistic, anxious, and skeptical. A high percentage list honesty and integrity as the most valued characteristics in a boss. Over half will not complete a job application if the recruiting methods are outdated, and 26 percent say that lack of technology throughout the hiring process would deter them from accepting a job offer. When Gen X came of age in the early 1990s, they expressed a desire to influence social values, address global issues and promote racial understanding. Whereas the prior generation values collaboration, Gen Zers tend to be independent and competitive. Over half plan to leave their current employer within three years, and the same percentage aspire to hold management positions.

TODAY’S GENER AL COUNSEL SUMMER 2020

Executive Summaries CYBERSECURIT Y

COMPLIANCE

PAGE 20

PAGE 24

PAGE 26

New York Latest State to Enact a Cybersecurity Law

A Checklist for FCPA Compliance

Class Actions Target COBRA Election Notices

By Joseph J. Lazzarotti Jackson Lewis P.C.

By Douglas K. Rosenblum and Marc S. Raspanti Pietragallo Gordon Alfano Bosick & Raspanti, LLP

New York’s Stop Hacks and Improve Electronic Data Security (SHIELD) Act puts the Empire State among a growing number of states that have enacted cybersecurity mandates. Potentially reaching persons and businesses outside of New York, the SHIELD Act, effective March 2020, seeks to protect New York residents from identity theft and similar crimes. It also applies to small businesses, although the nature and extent of their efforts can be proportionate based on certain factors, such as the size and complexity of the business. Unlike the California Consumer Privacy Act and certain other laws, the SHIELD Act does not create affirmative privacy rights for New York residents, such as the right to request the deletion of their personal information. The SHIELD Act requires covered persons and businesses to develop, implement and maintain reasonable safeguards to protect the security, confidentiality and integrity of private information. Regulated entities can comply by adopting a compliant data security program covering administrative, technical, and physical safeguards. The SHIELD Act does not mandate specific safeguards, but it outlines examples to consider. The SHIELD Act makes it likely that business email compromise and similar attacks will be considered breaches requiring notification. It continues an emerging trend in state laws aimed at strengthening protections for sensitive personal information. Regardless of location, industry or size, organizations should be assessing and reviewing their data breach prevention and response activities, building robust data protection programs and investing in written information security programs.

The Foreign Corrupt Practices Act contains two key provisions: (1) a prohibition on bribery of foreign officials and (2) accounting and reporting provisions for companies registered with the Securities and Exchange Commission. The Department of Justice has made headlines using this powerful law. If your company operates overseas, review the following aspects of your business: Identify the nature of your business and all sectors in which you operate; identify all nations in which you operate and/or engage in commerce; research the Corruptions Perception Index published by Transparency International for each nation in which you operate and/or engage in commerce; identify all public/governmental agencies to whom you market and/or sell products and services; inventory the strengths and weaknesses of your corporate internal controls; identify all executives and employees responsible for compliance with federal statutes and regulations; revisit record keeping and accounting procedures for international transactions to ensure accurate characterization of all expenditures; implement an anonymous hotline for employee concerns with measurable follow-up and accountability; review employee compliance training annually; and develop a relationship and exchange of information with knowledgeable external legal counsel. The fundamental questions prosecutors ask when assessing a corporate compliance program are: Is the corporation’s compliance program well designed? Is the program being applied earnestly and being implemented effectively? Does the corporation’s compliance program work in practice? The points listed above will help you react to potential violations effectively.

By Nancy G. Ross and Richard E. Nowak Mayer Brown

There has been a proliferation of class action lawsuits targeting companies, based on alleged technical deficiencies in their COBRA election notices. In light of the current economic climate, and the recent wave of layoffs and furloughs, the number of lawsuits is certain to grow. In general, the complaints assert that the companies’ COBRA election notices failed to include all the information required by the COBRA notice regulations. In addition, the complaints emphasize that the challenged COBRA election notices deviate from the U.S. Department of Labor’s model election notice. Many defendants are asserting similar arguments in asking courts to dismiss at the outset. Among other arguments, they say that the named plaintiffs’ claims fail because the complaint does not adequately allege a concrete injury-in-fact sufficient to confer standing; fails to explain how to enroll in COBRA coverage; includes conflicting information about deadlines for enrolling, and/or does not include a physical election form; fails to describe the consequences of delayed or non-payment; and/or does not provide the address to which payments should be sent. Employers should keep in mind that challenges to their COBRA election notices, even if without merit, can result in significant litigation costs. Some district courts have denied motions to dismiss and permitted discovery when presented with mostly conclusory allegations about faulty COBRA notices. The article lists several actions employers can take to mitigate their risk of being targeted with a COBRA class action lawsuit.

SUMMER 2020 TODAY’S GENER AL COUNSEL

Executive Summaries COMPLIANCE PAGE 30

PAGE 32

PAGE 17

Covid Brings Transfer Pricing Issues

Investors Pushing Environmental and Social Proposals

Cutting Litigation Costs in a Post-Covid World

By Hannah Orowitz Georgeson

By Mark B. Wilson Klein & Wilson

An increasing number of institutional investors have begun to include environmental and social (E&S) considerations within their established risk-return analysis framework. Pledges by asset managers State Street Global Advisors and BlackRock indicate that these firms may focus more efforts towards taking voting action in favor of shareholder proposals that address material E&S issues. Investors will likely articulate their concerns much more often by voting against specific directors, committee members or entire boards. Vanguard has generally been less vocal on E&S topics, but on April 1 released an update on the 2020 Proxy Season recognizing the impact of Covid-19 and at the same time reminding companies that “climate change presents a pressing and concerning risk to long-term shareholder value.” If a company has not yet assembled an environmental, social and governance (ESG) task force, it may now want to consider its creation. Once the task force is assembled, companies may want to invest time in understanding the company’s shareholder composition, including which reporting standards and frameworks, as well as data providers and ESG rating organizations, their investors use. Consider prior engagement feedback as well as potentially engaging in additional off-season outreach to specifically discuss ESG matters with significant investors or other key stakeholders. With this information in hand, the ESG task force can then be in position to develop investor-focused ESG disclosure and appropriately embed oversight of ESG matters within the board and committee agendas.

Attorneys who do not create litigation analyses and budgets early in the case cost clients’ money in wasted effort and unnecessary tasks. Attorneys are sometimes unwilling to give clients comprehensive budgets that allow general counsel to make business decisions on whether to proceed with litigation. Even when attorneys reluctantly generate budgets, they are often grossly inaccurate. Only lawyers with significant trial experience can prepare meaningful case evaluations and realistic budgets. Require law firms to prepare a comprehensive litigation roadmap and budget as soon as counsel has enough time to review the case, usually within the first 60 days. General counsel should insist that outside counsel understand the client’s goals from the beginning and draft a written case analysis. Once the client is armed with the case analysis and budget, the client can make an informed business decision whether to contest or settle the case. Early and comprehensive case analysis leads to more predictable outcomes, minimizes wasteful discovery and motion expenses, and saves overall legal fees. Covid-19 has forced many in-house legal departments to reexamine standard operating procedures. Before Covid-19, many companies would never have considered hiring smaller litigation boutiques to try big cases. Now, small firms with tremendous trial experience provide a cost-effective solution to shrinking litigation budgets.

By Paul Sutton LCN Legal

FEATURES

As multinational groups respond to the challenges presented by the coronavirus outbreak, many of them need to update their transfer pricing policies and internal supply chains, as well as their outwardfacing business operations. General counsel have a key role to play in ensuring that the legal aspects of these transitions are managed appropriately. A key concept in transfer pricing is the “arm’s length principle.” This requires transfer prices to be determined based on conditions that would be made between independent or unrelated enterprises. In order for a group’s transfer pricing policies to be actually implemented, as opposed to a theoretical statement of intent, the allocation of risk and reward must be reflected in the legal terms of appropriate inter-company agreements. In principle, the legal considerations when reviewing and revising inter-company agreements in response to Covid-19 are no different than any other exercise for reviewing intra-group legal structures in connection with the revision of transfer pricing policies and business restructurings. In-house legal functions have a vital role to play in managing these issues. For the purposes of managing personal liability risks of directors, the process by which legal intra-group arrangements are restructured is as important as the outcome. In order to comply with the principle of informed consent in all but the simplest restructurings, it is important to brief directors on what they are being asked to approve, why, and what the actual and likely implications are.

TODAY’S GENER AL COUNSEL SUMMER 2020

Executive Summaries PAGE 42

PAGE 44

A Women-Owned Law Firm’s Perspective

Ten Mistakes Lawyers Make in Mediation

By Francine Friedman Griesing and Jessica L. Mazzeo Griesing Law, LLC

By David K. Taylor Bradley Arant

The authors, co-founders of a womanowned and operated firm, note that while women-owned businesses comprise almost 40 percent of privately owned businesses in the United States, and more women attend law school than men, the legal industry still has a gender imbalance when it comes to who has a seat at the table. Their goal in founding the firm was to provide high quality legal service where attorneys have the ability to succeed professionally while sustaining a fulfilling personal life and contributing to the community. They decided to forgo origination credit, which they’d observed causing dissension in their former firm. They were early adopters of work-from-home options, which they called “law-on-the-go” and incorporated into their business model. That gave them a head start when the pandemic struck. There are many more women practicing now than when they started, in 2010, but women lawyers are still sometimes subjected to bullying, harassment and aggressive behavior, even from judges. One of their junior associates received so many unwelcome overtures from opposing counsel that she started wearing a costume engagement ring to court to ward off salacious comments. Despite the challenges the authors faced due to gender, they are hopeful looking ahead. Inclusion, diversity and equity are at the forefront, and the overall number of women in the legal profession is rising yearly, both within law firms and in-house departments.

First on the list, not nailing down the deal at the mediation. After a long day of haggling that ends in a tentative agreement, parties may pack up and walk out promising a shot at a draft settlement agreement for next week. Big mistake. Do it now. Second guessing can occur, and failure to write down the basic terms can also increase the likelihood of later disputes. If a fully executed settlement agreement isn’t possible, draft a limited term sheet. Second on the list, treating an unsuccessful mediation as a failure. You have just spent a day discussing the case. Are there are any non-global agreements that can be reached that will lead to a better chance at a later settlement and/or save legal fees? Think before you walk out the door. A long day of mediation can be scuttled with last minute issues, which should have been identified earlier. A good mediator and counsel will have thought these through before the day of mediation. Most mediators want to communicate directly with the decision maker, not the attorney. Clients are paying their lawyers to be tough, to bat down arguments. However, that is often incompatible with meaningful settlement discussions. With virtually every commercial case going to non-binding mediation, whether by agreement or court order, mediation advocacy is vital. Keep the preceding list in mind in order to avoid some common and very serious missteps in the mediation process.

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SUMMER 2020 TODAY’S GENER AL COUNSEL

Labor & Employment

Gen Z Joins the Workforce By Megan E. Walker and Megan C. Winter

fresh crop of entry-level workers is about to join the workforce. However, these new workers — aged 24 and younger — do not belong to the overly analyzed and frequently maligned millennial generation. Rather, they represent the dawn of Generation Z’s coming of age. And with this new generation (which has never known a world without search engines), employers may need to readjust much of what they think they know about the youngest adult workers. To start with the basics, “Generation Z” is currently the term most accepted to define those born in the late 1990s and after, with the oldest born around 1995. There are approximately 60 million members of Gen Z, and while most are still minors at this point, they are expected to account for one fifth of the workforce this year. It is only a matter of time before nearly all employers have an employee from this latest generation. Generation Z is defined by its commitment to diversity and inclusion. They are the most racially diverse generation in U.S. history, and, according to a 2018 study by YPulse, they list racism as the biggest problem facing their generation. Over half believe racism is getting worse. They also have greater diversity in gender. In a survey of teens in California by the Williams Institute at UCLA, 27 percent identified as gender non-conforming, a term that includes those who identify as non-binary as well as those who otherwise do not identify with certain characteristics associated with their sex assigned at birth. As with each generation, the outlook of Gen Z is framed by major events that

occurred in their childhood. The early 2000s brought the dot-com bust, 9/11 and the sub-prime mortgage crisis that led to 2008 recession. Moreover, these events occurred as online media surged. Given those events and the greater access to reports on the same, it is perhaps not surprising that research shows Gen Zers tend to be pessimistic, anxious and

skeptical. And stressed. In an analysis of four studies covering seven million people in the United States, Jean Twenge, professor of psychology at San Diego State University, noted that they report a higher likelihood of seeking professional treatment for mental health, higher rates of trouble sleeping and a greater struggle to remember things, compared with previous generations. Technology is one of the primary factors that has defined this latest genera-

tion. Facebook came on the scene when the oldest were still in elementary school, and approximately 90 percent of Gen Zers have a digital footprint. However, although one might assume that Generation Z prefers communicating through digital means, a recent survey by talent acquisition platform Yello found that 51 percent prefer face-to-face interactions and only 25 percent prefer digital communication. This contradicts managers’ expectations, 41 percent of whom reported in a national survey by APPrise Mobile that they believe smartphones and tablets will be the most effective means of communication. The challenges in communicating with Gen Z may not arise from the method, but rather the content. Gen Z is known to be less focused, but better at multitasking. The key to communicating with them is to get to the point. They can spot an Instagram Valencia filter in the blink of an eye, and they want their managers to give it to them straight so that they can be better set up for success. Specifically, in a study published by Robert Half, 38 percent of Gen Z workers list honesty and integrity as the most valued characteristics in a boss, followed by mentoring ability (21 percent). Similarly, 75 percent of Gen Z workers surveyed by InsideOut Development say they want a boss who can coach them. Overall, Gen Zers value frequent feedback and manager consistency. Employers should consider Gen Z’s preferences if they wish to stay competitive and attract the newest workers. Generation Z workers want real connections, even with their recruiters. In fact, in the Yello survey, they rank the recruiters

TODAY’S GENER AL COUNSEL SUMMER 2020

Labor & Employment they worked with as the number one factor that influenced whether they accepted a job — five times higher than technology and nearly four times higher than a speedy interview process. That said, outdated technology can be a turnoff to potential Gen Z appli-

mental health, however, it may be worthwhile for employers to revisit benefits plans to make sure their mental health coverage is sufficient. Over half of Gen Zers plan to leave their current employer within three years, but they may stick around if they have an opportunity to grow within the company. Over half aspire to hold management positions. Financial security is also a priority, particularly since only 30 percent told InsideOut Development they are confident they will be able to repay their student loans. If some of these themes sound familiar, they are. When Gen X came of age in the early 1990s, they expressed a desire to influence social values, address global issues and promote racial understanding. Just a few years ago, a study by Cone Communications showed that a majority of millennials would take a pay cut to work for a responsible company. But employers would be remiss to proceed as if Gen Z workers are similar to millennials, because there are key distinctions. Gen Zers are more independent and competitive, whereas the prior generation values collaboration. But mostly they’re just extra —that is, they are extra diverse, extra accepting, extra stressed and extra ambitious. The newest generation to join the workforce is accustomed to being sold a bill of goods. From Snapchat filters to #fakenews, they are hyperaware that nearly everything they consume has already been “spun” at best, and they are inherently skeptical. And perhaps because of that, they say they place a high value on honesty and transparency.

The newest generation to join the workforce is accustomed to being sold a bill of goods. cants. Over half of Gen Zers will not even complete a job application if the recruiting methods are outdated, and 26 percent say that lack of technology throughout the hiring process would deter them from accepting a job offer. To appeal to Gen Z applicants, employers should consider mobile-friendly job application sites and applications. It may even be worthwhile to consider using text messaging as part of the interview process to appeal to their desire for expediency and efficiency. After successfully hiring Gen Z candidates, employers should consider how best to retain them. Like millennials, members of Generation Z are global citizens interested in opportunities and companies that follow sustainable business practices, give back to their communities and know how their work is making an impact. And although they agree with millennials in that they rank salary and work-life balance as the top two considerations when deciding on whether to accept a job offer, their third highest priority is meaningful work. The respondents to the Yello survey reported that they care more about their duties and projects and the impact thereof than they care about growth opportunity. In the same vein, Gen Z also places a high value on company culture. But that doesn’t necessarily mean employers need to break out the cornhole sets and electronic scooters around the office. Rather, they want to work for companies that treat their employees like people and provide opportunities for growth. Given Gen Zers’ high stress levels and greater propensity to seek out treatment for their

TIPS FOR WORKING WITH GEN Z EMPLOYEES

Because 79 percent of managers told APPrise Mobile that they do not plan to change their management style to meet the next generation of workers, there is opportunity for those willing to attract and maintain the newest generation of ambitious, critically thinking

workers. Here are the top 10 tips you need to know for hiring and working with Gen Zers: 1. Use recruiters who can connect with candidates. 2. Ensure you have up-to-date hiring technology. 3. Provide face-to-face, personalized communication. 4. Be a straight shooter and deliver your message efficiently. 5. Provide frequent feedback and mentoring. 6. Offer meaningful work. 7. Promote a positive work culture with opportunities to grow. 8. Provide mental health coverage. 9. Give independence and autonomy once earned. 10. Be honest and transparent. None of these suggestions mean employers need to radically change their way of doing business, nor will adopting them require valuing the younger generation over other workers. Rather, these simple adjustments will help create a more flexible work environment suited for the 21st century.

Megan E. Walker is an associate with labor and employment law firm Fisher Phillips in San Diego, CA. She represents employers in litigation matters, including wage and hour litigation, harassment and discrimination, and regulatory compliance. mewalker@fisherphillips.com Megan C. Winter is a partner with Fisher Phillips in San Diego. She defends employers in many industries and assists in developing workplace policies and procedures. mwinter@fisherphillips.com

SUMMER 2020 TODAY’S GENER AL COUNSEL

E-Discovery

Overcoming Budget Hurdles Due to Covid-19 Litigation By Mike Hamilton

ack in March — prior to the proliferation of widespread Covid-19 preventative measures — Exterro took a closer look at how in-house legal departments are planning to manage their spend over the next year. The 4th Annual Study of Effective Legal Spend Management identified a number of budgetary plans and hurdles that in-house departments are working to reconcile, which reflected their strategies and expectations for 2020. Now three months into a global pandemic, it’s fair to say that expectations for many organizations have changed. “I absolutely think budgets change now,” says Linda Luperchio, Director of Information Lifecycle Governance &

E-Discovery at The Hanover Insurance. Luperchio expects litigation expenses to increase globally due to Covid-19 and the disruptions it is causing with employee movement — not to mention potential class-action suits. “We have a small [litigation] lull right now, but I think it’s going to hit with a vengeance,” says Luperchio. “There’s going to be worker’s comp [suits], there’s going to be all sorts of different claims that no one has ever experienced before, and there’s just no way around it, it’s going to hit e-discovery, because e-discovery fits with just about every lawsuit now.” Survey data from the Legal Spend Management report showed that only 19 percent of in-house legal departments

expected an increase in their budgets as a whole heading into 2020 — but 51 percent acknowledged that litigation ranked as the highest risk for increased legal costs, followed by compliance at 22 percent. The specter of increased litigation has, for many, become a fullblown fear. “I don’t think it’s avoidable,” adds Luperchio. “I think we’re going to see an uptick that we couldn’t have planned for when we did the budgets because nobody knew Covid-19 was coming our way.” Heading into 2020, in-house legal departments were, by and large, already looking to reduce risks and costs, and increase operational efficiency through

TODAY’S GENER AL COUNSEL SUMMER 2020

E-Discovery technology adoption. Given the reduction in manpower that some departments are facing, technology will play a key role in the many e-discovery and regulatory compliance tasks that legal teams must deal with. And given that litigation costs are likely to increase, saving money elsewhere makes sense. Technology adoption is just one of the ways to reduce e-discovery spend, as the survey data shows, and it creates a cascading effect that helps cut costs across the board: • using e-discovery technology to create time and cost savings, which allows … • … in-house teams to utilize that technology to do more work in-house, which cuts costs for … • … third-party services, for which in-house teams are now relying on single preferred providers to complete (if the work is outsourced at all). For years, technology adoption in legal departments has been a challenge — in part due to the learning curve involved — but that may be changing as well. According to the Association of Corporate Counsel’s Chief Legal

“We have a small litigation lull right now, but I think it’s going to hit with a vengeance.” Officer’s Survey, more than half of legal department leaders are planning to adopt a new legal technology or have done so recently. Data from Exterro’s 2020 E-Discovery Maturity Analysis, which surveyed more than 600 businesses of all sizes across more than 20 different industries, indicates that in-house e-discovery training is improving as well — meaning that legal associates involved in the regular preservation, collection and review steps are doing their part to adopt better, more efficient processes.

Overall organizational e-discovery training maturity scores increased from 2019 to 2020, from 2.55 (out of 5) to a score of 2.73, according to the E-Discovery Maturity Analysis. It’s an improvement that may seem marginal, but continually building on process maturity year over year generally means more efficient operations and technology use. “You need to have top-notch people on your team,” says Connie Brenton, Senior Director of Legal Operations for NetApp, about the importance of ensuring that legal associates are well trained for their positions. “Then process — you have to redesign your process — and then you can generally throw any technology over the process. If you have a lousy process, and you throw a technology over the top, you will just have a very fast lousy process.” Given the advantages that some enterprises have over others, it’s likely to be a longer road to recovery for some in-house legal teams; but there are ways to work around tighter budgets to ensure better collaboration and teamwork. “The need to reduce spend is acute right now,” says Brad Blickstein, principal of the Blickstein Group. Blickstein says a comprehensive legal spend strategy that spans organizational units reporting to the general GC/CLO, and that includes any outside vendors, is another way to keep day-to-day operations strong. “Such a strategic approach will be much more effective in the long term. It also may be easier than it seems to implement, if you work with firms that have bought in.”

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LATEST LEGAL NEWS Mike Hamilton is the Director of Marketing at Exterro. He works with legal departments to identify cost-effective solutions for e-discovery and privacy practices. He is a 2010 graduate of the University of Oregon School of Law. michael.hamilton@exterro.com

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SUMMER 2020 TODAY’S GENER AL COUNSEL

Intellectual Property

How In-House Counsel Can Protect Trade Secrets By Steven P. Ragland

t’s a scenario that strikes fear in the hearts of general counsel everywhere. A new hire brings gigabytes of data over from a prior company and infects your systems. It could be as blatant as plugging a thumb drive into a workissued laptop and copying formulas, semiconductor recipes or product roadmaps onto the laptop — or, even worse, onto a shared network drive. Similarly terrifying is a call from an anonymous tipster revealing that your former employee has been using your trade secret information at your chief competitor for years — finally explaining how that arch-rival leapfrogged past you in the market and took a huge bite out of your sales. Now you need to find actionable evidence, select outside counsel and pray that the expense of pursuing major litigation is worth it. In nearly two decades of litigating cases in Silicon Valley, I have seen these nightmares become reality time and again. As bring-your-own device policies proliferated, and digital storage became cheaper and more prevalent, it has only gotten easier to pilfer trade secrets … or to simply forget where data was socked away during a vacation or work-fromhome stint. Each case is different, but the individuals who improperly use, copy or retain trade secret information tend to fall into four broad categories. The Conspirator: A newly-hired executive downloads key information from a prior employer on her way out the door and aims to build a team at your company to compete head-on with the former employer. She is sophisticated, attempts to cover her tracks and will likely infect your company by incorporating stolen information in whatever she does. She often solicits former coworkers. This is the willful misappropriator, who can present the most danger to your company.

The Gunner: Retains important material from prior employer and intends to use it to get ahead at your company. Does not think he’s doing anything “really illegal,” even if he knows it could be wrong, because he helped develop the information he pilfered. Keeps misappropriated data on home computer or personal storage devices to refer to privately as needed. Still very dangerous because your company may be responsible for everything he does in the course of his work.

Problems often are not discovered until years later, when you discover that your secret sauce has been incorporated into the competitor’s product. The Pack-Rat: Retains everything related to anything she ever worked on at a prior employer, or downloads it all right before leaving. May or may not ever look at, refer to or otherwise use the material, but feels better having it socked away just in case. The digital equivalent of a hoarder. Presents a significant risk because it will be very hard — maybe impossible — to prove she never used the retained information for your benefit if the improper downloads or retention are discovered. The Oopsy-daisy: No intent here, just a bit of absent-mindedness. This is the guy who forgot that he had loaded project documents onto a personal cloud

account or portable drive. Still a potential problem for your company, unless you can prove he never accessed the stuff in any way since leaving his old job. In any of these scenarios, the infection might be caught quickly, the unwelcome data isolated, and the issue solved with minimal disruption and expense. Or the problem could metastasize and create enormous exposure for the receiving company and a major competitive threat for the victim of the theft. Either way, even a single employee’s indiscretion can become a multi-year headache, require huge legal spend and put your company at risk. In-house counsel can do a lot to protect against these problems. First, understanding what constitutes legally protectable trade secret information is key. Second, best practices for on-boarding and off-boarding employees will do much to avoid sleepless nights worrying about what-ifs and, even worse, “whatthe-heck-just-happeneds.” INFORMATION, NOT THINGS

A trade secret is any information or know-how not generally known in the industry that is kept confidential with reasonable protective measures and derives value because of its secrecy. One key point in understanding trade secrets is that the law protects information and not necessarily particular things. This means that any given document might contain lots of protectable information, along with plenty of material that is not protected at all. Additionally, trade secrets can include “negative information” — knowing the dead ends a competitor pursued. For example, if your company is creating a robotic vacuum cleaner and one of your engineers has access to all of Roomba’s design and testing information, your timeline could be shortened and your R&D expense less-

TODAY’S GENER AL COUNSEL SUMMER 2020

Intellectual Property

ened by knowing all the things Roomba tried that didn’t work. Both state and federal statutes protect against trade secret theft. Although they differ, they generally prohibit any unauthorized use, copying or disclosure of trade secret information — all of which falls under the general rubric of “misappropriation.” The secret ingredient does not actually have to make its way into your product for your com-

pany to be liable for misappropriation. Absence of use, however, may mean there are no actual damages from the misappropriation, and makes it far easier to remedy and avoid litigation. So catching things early is key. ON AND OFF-BOARDING

Creating a standard system that is consistent across all departments for on-boarding employees is crucial.

Proprietary rights agreements (PRAs) that define trade secret information and certify compliance are commonplace for good reason. First, the law of trade secret protection, employee mobility, and data protection is constantly evolving, and your PRAs need to change with the times to remain fully enforceable. Second, since your business and IT systems are evolving, your forms should reflect that. continued on page 16

SUMMER 2020 TODAY’S GENER AL COUNSEL

Intellectual Property And, third, PRAs should be paired with well-crafted employment agreements, offer letters, or other paperwork clarifying responsibilities and expectations. Additionally, your IT system needs to be protected. What that looks like will depend on the size and complexity of your business, but generally it is good to limit access to trade secret information to only those employees who have need to use it; include an alert system for suspicious activity, e.g., mass downloading; ensure that trails are left so you can trace back as needed when things go wrong; and facilitate

us? Are you familiar with our internal reporting or whistleblower system? Due diligence is worth the effort. I recall one instance where my client had an otherwise great case against a competitor stealing key information, but they had not taken the steps needed to protect their information. Therefore, they had no remedy. There was no PRA and no caution against blabbing about innovations over beers with friends. Off-boarding should be just as robust as the on-boarding process, but with an extra focus on collecting devices and any media or virtual locations where

worth the expense and hassle. Problems often are not discovered until years later when a whistleblower sounds the alarm that someone is using your information at a competitor, or when you discover that your secret sauce has been incorporated into the competitor’s product. If you need the computer hardware for other folks, you can create a forensic image for minimal expense. But make sure it’s done right. If you need assistance to ensure the image is forensically sound, work with a trusted vendor, or consult with experienced outside counsel.

Trade secrets can include “negative information” — knowing the dead ends a competitor pursued.

remote work within your IT ecosystem to reduce the use of personal storage devices, unsecured cloud accounts and emails attaching sensitive documents. Training is essential. It should be mandatory and frequent enough to reach everyone. In addition to the specialized training, e.g., how to use the virtual private network, generalized training on trade secret protection is worth the time. Not only will it help create the right culture, but it’s a great thing for litigators like me to point to if we someday have to represent your company in court. And here’s a secret: Outside counsel are usually happy to come in and give these trainings for free. Your legal department may even get continuing legal education (CLE) credit. Finally, there is no substitute for having a one-on-one conversation with every new hire that explains your company’s information protection policies and procedures. With a one-on-one, not only can you watch the employee read and sign the PRA and similar paperwork, but you can also ask the key questions: Do you still have anything from your old company? Do you understand that you may be terminated if you use anyone else’s information? Do you have any ongoing obligations to your prior employer, e.g., non-solicit or non-competition covenants? Do you appreciate that anything you work on here belongs to

your proprietary information may reside. The PRA obligations should be reinforced, the individual ideally should sign a further acknowledgment and agreement to respect his or her soon-to-be former employer’s intellectual property rights, and access to systems should be immediately terminated. Here, the interview is just as important as it is for new hires. What is every device he or she has ever used for work? Did she or he ever email documents to his personal email account? Does she or he have a home computer or tablet that might have some old work material on it? Are there any thumb drives, SD cards, or external hard drives? If there are red flags, or even just odd vibes, follow up and close the loop. I am surprised at how many times a client reports that something concerning came up in the exit interview but was never followed up on — and now we have to seek a temporary restraining order or move for a preliminary injunction to protect crucial intellectual property. Finally, keep a record of these offboarding procedures and protect the digital trail. It is tempting to have IT simply wipe a former employee’s laptop, reconfigure it and give it to a new hire. But especially for departing employees with access to key information — or who you know, or suspect will be taking a job at a competitor — preservation is

There is no one-size-fits-all solution, but through a careful and deliberate process, you can do a lot to protect your own crown jewels — and to protect against being a trade secret defendant yourself.

Steven Ragland is a partner at Keker, Van Nest & Peters. He focuses on civil and criminal matters in trade secret misappropriation, legal malpractice, cryptocurrency matters and criminal intellectual property issues in the technology, health care and venture capital sectors. sragland@keker.com

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the client’s goals from the beginning and draft a written case analysis. This should (a) confirm the client’s goals and present a path to achieve them; (b) identify the facts at issue and the legal issues raised by those facts; (c) opine on a resolution of those issues to the extent possible; (d) identify case strengths and weaknesses; (e) prepare a meaningful and concise discovery plan (e.g., identify the witnesses the firm anticipates will be deposed and the reasons why); (f) identify expert issues; (g) evaluate damages; (h) identify anticipated motions; (i) develop case themes; (j) predict a likely trial outcome; and (k) present a thorough litigation budget based on known facts and reasonable assumptions. The budget should identify (a) the timekeepers assigned to the case; (b) the specific tasks they are expected to perform; (c) how many hours they will spend on the tasks; (d) the hourly rate of the timekeepers; (e) the expected number of trial days; (f) who will attend trial; and (g) a detailed presentation of anticipated costs the client will incur, such as expert witness fees, deposition expenses, travel expenses, and so forth. Once the client is armed with the case analysis and budget, then the client can make an informed business decision whether to contest or settle the case. Early and comprehensive case analysis leads to more predictable outcomes, minimizes wasteful discovery and motion expenses, and saves overall legal fees. RETAINING LITIGATION BOUTIQUES WITH TRIAL EXPERIENCE

As litigation stakes get higher in terms of outcomes and fees — and litigation budgets get smaller — more companies are hiring trial boutiques with proven trial experience. Even so, many companies still hire law firms in which litigation partners have little or no trial experience. Such decisions can lead to poor trial results. Lawyers

without trial experience frequently overstaff cases believing more is better. Bloated trial teams lead to extra costs and confusion. Inexperienced trial attorneys focus on issues jurors find unimportant and miss the issues that will decide a case. Attorneys without trial experience do not know how to capture key admissions during videotaped depositions that make the difference between winning and losing trial. Attorneys who have never presented an opening statement to a jury don’t know which facts are case dispositive and which ones can be ignored. As the trial date gets closer, “litigators” without trial experience get cold feet and recommend unjustified settlements, fearful they will lose the case and the client. An attorney’s first trial should not be a jury trial where millions of dollars are at stake. When economic times were better, general counsel felt compelled to retain “blue chip” law firms that provided cover for bad results. But in a Covid-19 world where every dollar counts, hiring expensive blue chip firms without trial experience, when the case demands trial experience, is a luxury few companies can afford. Covid-19 has forced many businesses and in-house legal departments to reexamine standard operating procedures. As we head into troubling economic times, in-house lawyers are faced with the responsibility of controlling legal spending while at the same time preventing disastrous litigation outcomes. It is not a simple task. But the task is easier if you spend time and money in the beginning of the case to ensure that you have a comprehensive strategy and the right team in place to execute the strategy in a cost-effective manner. Before Covid-19, many companies would never have considered hiring smaller litigation boutiques to try big

cases. Now, small firms with tremendous trial experience provide a cost-effective solution to shrinking litigation budgets. And as companies begin embracing retention of experienced trial counsel and see the benefits, small trial boutiques representing the largest companies in the United States may become the new normal.

MARK B. WILSON is a partner and co-founder of Klein & Wilson. He represents clients in business litigation and legal malpractice cases. In 2019, the Orange County Trial Lawyers Association named him “Trial Lawyer of the Year.” Mr. Wilson has been on the SuperLawyers Top 50 list for Orange County since 2017 and last year was listed on the SuperLawyers Top 100 list for Southern California. wilson@kleinandwilson.com

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SUMMER 2020 TODAY’S GENER AL COUNSEL

Cybersecurity

New York Latest State to Enact Cybersecurity Law By Joseph J. Lazzarotti

ew York’s Stop Hacks and Improve Electronic Data Security (SHIELD) Act puts the Empire State among a growing number of states that have enacted broadly applicable cybersecurity mandates. Potentially reaching persons and businesses outside of New York, the SHIELD Act, effective March 21, 2020, seeks to protect New York residents from rampant identity theft and similar crimes. The new law obligates persons and

businesses that own personal information to safeguard it, and strengthens the state’s existing data breach notification law. As compliance obligations reach beyond IT and technology, legal departments have a critical role to play. The SHIELD Act’s obligations apply to any person or business that owns or licenses computerized data that includes private information of a resident of New York. Thus, persons and businesses located outside of New York

that maintain private information of New York residents will need to think carefully about whether they have SHIELD Act obligations. The SHIELD Act also applies to small businesses, although the nature and extent of their efforts can be proportionate based on certain factors, such as the size and complexity of the business. Small businesses under the SHIELD Act include any person or business with fewer than 50 employees; less than three

TODAY’S GENER AL COUNSEL SUMMER 2020

Cybersecurity million dollars in gross annual revenue in each of the last three fiscal years; or less than five million dollars in year-end total assets, calculated in accordance with generally accepted accounting principles. A first step toward compliance requires understanding the data the law is intended to protect. The law protects “private information,” when combined

SHIELD Act does not create affirmative privacy rights for New York residents, such as the right to request the deletion of their personal information. The SHIELD Act requires covered persons and businesses to develop, implement and maintain reasonable safeguards to protect the security, confidentiality and integrity of private information — an obligation that could be satisfied in

are assessing the risks of information storage and disposal; protecting against unauthorized access/use of private information during or after collection, transportation, and destruction/disposal of that information; and disposing of private information within a reasonable time after it is no longer needed. Additionally, there should be technical safeguards in place, including assessing

Changes made by the SHIELD Act make it more likely that business email compromises will be considered breaches requiring notification. with “personal information.” Personal information is defined as any information concerning a natural person that, because of name, number, personal mark or other identifier, can be used to identify that person. Private information is either (1) personal information consisting of any information in combination with any one or more of the data elements below — when the data element or the combination of personal information plus the data element is not encrypted, or is encrypted with an encryption key that has also been accessed or acquired — or (2) a username or e-mail address in combination with a password, or security question and answer, that would permit access to an online account. The data elements are as follows: • Social security number; • Driver’s license number or non-driver identification card number; • Account number, or credit or debit card number, in combination with any required security code, access code, password or other information that would permit access to an individual’s financial account; • Account number, or credit or debit card number, if that number could be used to access an individual’s financial account without additional information; or • Biometric information. DATA SECURITY, NOT PRIVACY

Unlike the California Consumer Privacy Act (CCPA) and certain other laws, the

one of two ways. Covered persons and businesses can meet this obligation by being a “compliant regulated entity,” that is, a person or entity subject to and in compliance with a designated data security regulatory framework such as the Health Insurance Portability and Accountability Act (HIPAA) or the Gramm-Leach-Bliley Act. A health care provider that fully complies with HIPAA will satisfy the data security requirements. However, HIPAA only applies to “protected health information” of certain individuals. In the case of a health care providers, that means patients. Such an entity still would need to comply with the SHIELD Act with respect to private information concerning its employees and other individuals who are New York residents. Covered persons or businesses that are not compliant regulated entities can comply with the SHIELD Act by adopting a compliant data security program covering administrative, technical and physical safeguards. The SHIELD Act does not mandate specific safeguards, but it outlines examples that covered persons or businesses should be considering. These include designating individuals responsible for security programs; conducting risk assessments and assessing the safeguards in place to control those risks; training and managing employees in security program procedures; selecting capable service providers and requiring appropriate safeguards by contract; and adjusting programs in light of new circumstances. Some examples of physical safeguards

risks in network and software design; assessing risks in information processing, transmission, and storage; detecting, preventing and responding to attacks or system failures; and testing and monitoring key controls, systems, and procedures. BREACH NOTIFICATION RULE CHANGES

A particularly troubling form of cyberattack on organizations is business email compromise (BEC). Attackers gain access to a company-provided email account, often through phishing, and search for wire transfer information or tax documents. Changes made by the SHIELD Act make it more likely that BEC and similar attacks will be considered breaches requiring notification. Under previous law, only unauthorized “acquisitions” of private information could trigger a notification requirement. Under the SHIELD Act, unauthorized “access” to private information has the same effect. The law also adds several factors for determining whether there has been unauthorized access, including “indications that the information was viewed, communicated with, used, or altered by a person without valid authorization or by an unauthorized person.” Thus, in BEC matters, even if the attacker has not removed any data or was not successful in executing a fraudulent wire transfer, mere access to private information in a compromised email account’s inbox or sent items could trigger a notification requirement. Another change to the breach notification rule under the SHIELD Act, sometimes called the “risk of harm”

SUMMER 2020 TODAY’S GENER AL COUNSEL

Cybersecurity

exception, may reduce the number of breaches reported. Under this exception, notice to affected persons is not required if the exposure of private information was an inadvertent disclosure by persons authorized to access private information,

provide information on security breach response, and identity theft prevention and protection. Also, notices to state agencies, including the Attorney General, must include a copy of the template of the notice to be sent to affected persons.

The law protects “private information,” when combined with “personal information.”

and the person or business determines that exposure likely will not result in misuse, financial harm or emotional harm in the case of unknown disclosure of online credentials. If a person or business believes this exception applies, it must document that determination in writing and retain it for at least five years. If the incident affects more than 500 residents of New York, the person or business also must provide the written determination to the Attorney General’s office within 10 days. If notification is required under the SHIELD Act, it must include the telephone numbers and websites of the relevant state and federal agencies that

The SHIELD Act does not create a private right of action. An individual might be able to sue on other grounds, such as negligence or breach of contract. The Attorney General may bring an action to enjoin violations of the law and obtain civil penalties. For data breach notification violations that are not reckless or knowing, a court may award damages for actual costs or losses incurred by a person entitled to notice, including consequential financial losses. For knowing and reckless violations, a court may impose penalties of the greater of $5,000 or up to $20 per instance, with a cap of $250,000. For reasonable safeguard requirement violations, a court

may impose penalties of not more than $5,000 per violation. The SHIELD Act continues an emerging trend in state laws aimed at strengthening protections for sensitive personal information. Regardless of location, industry or size, organizations should be assessing and reviewing their data breach prevention and response activities, building robust data protection programs, and investing in written information security programs.

Joseph J. Lazzarotti is a Principal of Jackson Lewis P.C. He founded and currently leads the firm’s Privacy, Data and Cybersecurity Practice Group. He also is a member of the firm’s Employee Benefits Practice Group. Joseph.Lazzarotti@jacksonlewis.com

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SUMMER 2020 TODAY’S GENER AL COUNSEL

Compliance

A Checklist for FCPA Compliance By Douglas K. Rosenblum and Marc S. Raspanti

n today’s international marketplace, it is critical to keep in mind the reach of American federal statutes that have significant impact on foreign jurisdictions. The Foreign Corrupt Practices Act (FCPA) contains two key provisions: (1) a prohibition on bribery of foreign officials and (2) accounting and reporting provisions for companies registered with the Securities and Exchange Commission (SEC). The U.S. Department of Justice (DOJ) has made headlines using this powerful law.

The anti-bribery provision of the FCPA criminalizes the “offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value” to foreign officials for the purpose of obtaining or retaining business. There is an exception for payments or gifts made “to expedite or secure the performance of a routine governmental action.” The statute also provides two interesting affirmative defenses. Defendants may

be excused from liability if (1) the payment was legal under the written laws of the recipient’s country or (2) the payment was a “reasonable and bona fide expenditure” toward specific, enumerated ends. Prosecutions of FCPA matters generally run on parallel tracks. The DOJ investigates individuals and corporations for potential criminal violations, while the SEC investigates and pursues those same individuals and entities for civil remedies including monetary fines, debarment and disgorgement.

TODAY’S GENER AL COUNSEL SUMMER 2020

Compliance AN FCPA CHECKLIST

If your company operates overseas, it is time well spent to review the following aspects of your business: (1) Identify the nature of your business and all sectors in which you operate. (2) Identify all nations in which you operate and/or engage in commerce. (3) Research the Corruptions Perception Index published by Transparency International — a global coalition with a mission to stop corruption and promote transparency — for each nation in which you operate and/or engage in commerce (available at www. transparency.org).

“issuers” as well as “domestic concerns.” Issuers are companies publicly traded on any of the American exchanges. Domestic concerns are not traded publicly but are American citizens, entities, nationals, residents of the United States, entities organized under the laws of the United States, or entities with a principal place of business in the United States. Regardless of whether an alleged act in furtherance of a corrupt payment occurred within the United States or abroad, issuers and domestic concerns are subject to the FCPA. Foreign nationals are also subject to the FCPA in certain circumstances. Foreign citizens or entities organized under the laws of another country are subject to the jurisdiction of the FCPA if they commit acts in the United States

of isolated, minimal expenditures on meals, taxi fares or promotional materials. However, some facts will raise red flags: gift of vehicles, furs and expensive trips, for example. Repeated gifts and/ or secret gifts add to the circumstantial evidence that those items were transferred with an illicit purpose or were, at the very least, more than just a token demonstration of respect or gratitude that is permissible under the law. HEIGHTENED EXPOSURE FOR PUBLIC COMPANIES

The accounting and reporting prong of the FCPA applies to issuers, their subsidiaries and affiliates. The statute applies both civil and criminal liability to entities that misstate financial records, falsely certify books and records, and/or fail to

In the Yates memo, the DOJ required that corporations identify all individuals involved in any aspect of alleged misconduct. (4) Identify all public/governmental agencies to which you market and/or sell products and services. (5) Inventory the strengths and weaknesses of your corporate internal controls. (6) Identify all executives and employees responsible for compliance with federal statutes and regulations. (7) Revisit record keeping and accounting procedures for all international transactions to ensure accurate characterization of all expenditures. (8) Implement an anonymous hotline for employee concerns with measurable follow-up and accountability for addressing each call in a timely manner. (9) Revisit the content of employee compliance training on an annual basis. (10) Develop an ongoing relationship and exchange of information with knowledgeable external legal counsel. The FCPA has gained notoriety because of its expansive jurisdiction. The anti-bribery provisions apply to

in furtherance of a corrupt payment. Although jurisdiction in these cases is clear, it can be difficult for the United States to satisfy a monetary judgment or extradite responsible corporate officers. The FCPA is powerful in its scope and jurisdiction, but it is not a strict liability statute. The government must prove that the defendant paid, offered to pay or promised to pay corruptly. The statute itself does not define this state of mind. A Resource Guide to the United States Foreign Corrupt Practices Act published by the Criminal Division of the DOJ and the Enforcement Division of the SEC in 2012 provides guidance. The government makes clear that in passing the FCPA, Congress adopted the meaning of “corruptly” ascribed to the term in the domestic bribery statute found at 18 U.S.C. § 201: “an intent or desire to wrongfully influence the recipient.” The government must prove this mental state of the defendant beyond a reasonable doubt in order to secure a criminal conviction under the FCPA. The analysis of potential FCPA violations is highly fact specific. The government will not prosecute cases

implement properly designed internal controls. Many of these requirements are the same as those found in the SarbanesOxley Act and related regulations. The distinction, however, between civil and criminal liability under this prong is the intent requirement of “willfulness.” Publicly traded companies file financial statements each year that are audited by independent accounting firms. Companies that blindly rely on those auditors, and believe additional scrutiny is not needed, should think again. Generally, the Exchange Act requires external auditors to report any perceived illegalities to the appropriate levels of management within the subject company. However, if the company does not take appropriate steps to investigate and/or correct those issues, the auditor must notify the SEC. Revisiting the above checklist on a routine basis could prove to be a useful tool to avoid such situations. The DOJ showed no signs of slowing down its FCPA enforcement in 2019. Notable 2019 FCPA cases include: Walmart, Inc.: The SEC charged Walmart with failing to operate a sufficient anti-corruption compliance continued on page 29

SUMMER 2020 TODAY’S GENER AL COUNSEL

Compliance

Class Actions Target COBRA Election Notices By Nancy G. Ross and Richard E. Nowak

hen an employee loses coverage under a group health plan as a result of a termination or a reduction in hours for reasons other than gross misconduct, or as a result of some other “qualifying event,” the employee and/or the employee’s qualified beneficiaries may be entitled to continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation

Act of 1985 (COBRA). Under the Employee Retirement Income Security Act of 1974 (ERISA), if there is a qualifying event that triggers COBRA coverage, most employer-sponsored group health plans are required to send out election notices to the affected employees and/or qualified beneficiaries offering temporary continuation of their group health coverage.

There has been a proliferation of class action lawsuits (mostly filed in Florida) targeting companies based on alleged technical deficiencies in their COBRA election notices, largely spearheaded by a single plaintiff’s law firm. In light of the current economic climate, and the recent wave of layoffs and furloughs, the number of lawsuits is certain to grow. In general, the complaints in these

TODAY’S GENER AL COUNSEL SUMMER 2020

Compliance cases assert that the companies’ COBRA election notices failed to include all of the information required by the COBRA notice regulations. In addition, the complaints emphasize that the challenged COBRA election notices deviate from the U.S. Department of Labor’s (DOL’s) model election notice. Based on our review of these lawsuits, the complaints primarily allege that the notice: • Was not written in a manner calculated to be understood by the average plan participant. • Fails to provide the name, address and telephone number of the party responsible for administering the continuation of coverage benefits. • Fails to explain how to enroll in COBRA coverage, includes conflicting information about deadlines for enrolling, and/or does not include a physical election form. • Does not provide all of the required “explanatory information” about coverage, including that a qualified beneficiary’s decision on COBRA election will affect the future rights of qualified beneficiaries to portability of group health coverage, guaranteed access to individual health coverage and special enrollment. • Does not explain the continuation coverage termination date. • Fails to describe the consequences of delayed or non-payment, and/ or does not provide the address to which payments should be sent. In addition, some lawsuits have alleged that, even if COBRA election notices include all of the required information, they are unlawful because the information was provided in multiple notices rather than a single notice, or the notice included additional language referencing potential criminal and civil penalties for making false statements on the form. Although each complaint has certain unique characteristics, the premise behind these lawsuits is the argument that, to cut costs, companies are deliberately choosing to disregard the DOL’s model COBRA notice in order to confuse or scare their employees into

not obtaining COBRA continuation coverage. COMMON DEFENSES

Though the majority of the lawsuits filed in the last year are in the early stages, many defendants are asserting similar arguments in asking courts to dismiss at the outset. Although the efficacy of these arguments remains to be seen, some plaintiffs have obtained early success

mere technical violation of the COBRA notice requirements is insufficient to state a valid legal claim under ERISA. DOL Model Notice Is Not Mandatory: As noted above, the plaintiffs in these lawsuits spend a lot of time focusing on variations between the employer’s COBRA election notice and the DOL’s model notice. The COBRA notice regulations, however, make clear that the “[u]se of the model notice is not mandatory” and that administrators “must supplement the model notice to reflect applicable plan provisions.” Because each employer and plan is different, the defendants argue that any evaluation of an employer’s COBRA election notice should be based on the COBRA notice regulations, not the DOL’s model notice. Class Certification: In an effort to increase their prospective damages and assert more leverage over employers, recent COBRA election notice lawsuits have been filed as putative class actions seeking attorneys’ fees, statutory penalties and other damages on a class-wide basis. However, in an attempt to avoid a standing challenge and draw more sympathy from the court, the named plaintiffs often allege that they were actually injured because the deficiencies with their employer’s COBRA election notice caused them not to obtain continuation coverage. Although such allegations are intended to help the named plaintiff survive a motion to dismiss, in order to certify a class he or she must satisfy the commonality requirements of Federal Rule of Civil Procedure 23. This becomes much more difficult when a plaintiff must rely on individualized proof to establish that each putative class member suffered a similar injury-in-fact.

The premise behind these lawsuits is the argument that, to cut costs, companies are deliberately choosing to disregard the Department of Labor’s model COBRA notice. in fending off these arguments at the motion to dismiss stage. Lack of Standing: Defendants argue that the named plaintiffs’ claims fail because the complaint does not adequately allege a concrete injury-in-fact sufficient to confer standing. This is because the alleged deficiencies in the COBRA election notice are merely an “informational” or “technical” injury that does not establish an injury-in-fact that is traceable to the plan sponsor or plan administrator. The defendants further argue that the plaintiffs fail to allege any causal connection between the alleged deficiencies in the notice and their failure to elect COBRA continuation coverage. Substantial Compliance: As the DOL explains in its rules, the notice requirements are intended to assist participants and beneficiaries in understanding how to exercise their COBRA rights and elect coverage. Faced with technical arguments about the content of their election notices, defendants have invoked the substantial compliance doctrine to argue that their notices are drafted to be understandable to the average participant and therefore substantially comply. They argue that a

ADDITIONAL RISKS TO CONSIDER

It is common for employers to engage a third-party administrator to handle COBRA administration and compliance, including the election process. However, even if an employer uses a third-party COBRA administrator, it could still be subject to statutory penal-

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ties of up to $110 per day as the plan administrator if the COBRA election process is not handled properly or if there are deficiencies with the COBRA election notices. In addition, courts have discretion to grant other relief, awarding medical expenses incurred by a qualified beneficiary, actual COBRA coverage, and attorneys’ fees and costs. Subject to certain limitations, the Internal Revenue Service can also impose an excise tax of $100 per person up to $200 per family per day for a non-compliant COBRA election notice. Such penalties grow exponentially if a deficient COBRA notice or process involves multiple participants and beneficiaries. Employers should also keep in mind that challenges to their COBRA election notices, even if without merit, can result in significant litigation costs. As noted, some district courts have denied motions to dismiss and permitted discovery when presented with mostly conclusory allegations about faulty COBRA notices. Even if an employer is confident that it will ultimately prevail on summary judgment, it may have to incur substantial litigation costs to achieve that result. Consequently, a number of large companies have chosen to settle rather than litigate. As Lockheed Martin stated in its filed settlement agreement, it agreed to pay $1.25 million “solely to purchase peace and in recognition of the substantial expense and burden of continued litigation.” On May 1, 2020, the DOL revised its model COBRA notice forms and issued a corresponding set of Frequently Asked Questions to help employers better understand and comply with COBRA’s notice requirements. They address COBRA’s interaction with Medicare and explain, among other things, that there may be advantages if a participant enrolls in Medicare before, or instead of, electing COBRA. Because the plaintiffs’ bar has focused on differences between an employer’s COBRA election notice and the DOL’s model notice, employers should closely review the DOL’s revised model notice. TIPS TO MITIGATE RISK

Employers can take actions to mitigate their risk of being targeted with a COBRA

class action lawsuit. In consultation with their benefits counsel, those actions include: • Periodically reviewing their COBRA election notices to ensure they are sufficiently detailed to comply with the requirements and inform participants how to continue their health care coverage. • Comparing their COBRA election notices to the DOL’s model notice and evaluating, to the extent there are any material differences, the reasons for those differences. • Evaluating the propriety and necessity of including any information in the COBRA election notices beyond what is required by the COBRA notice requirements. • Timely notifying the group health plan of any qualifying events to ensure all eligible group health plan participants are also timely apprised of their COBRA rights. • Providing timely notice of COBRA eligibility, enrollment forms, duration of coverage and terms of payment after a qualifying event has occurred. • Considering whether to supply appropriate notices to participants if COBRA premiums are not received. • Providing timely notices when COBRA coverage ends before the expected duration and responding to individuals seeking coverage who are not eligible for COBRA. • For employers that use third-party COBRA administrators, periodically reviewing their service agreements and ensuring that the vendor has agreed to adequately indemnify the employer for any acts of negligence or contractual breaches with respect to compliance. Also, periodically check in with third-party administrators to ensure they are aware of recent legal developments. These are trying times for many employers and reviewing the content of their COBRA election notices may not be a high priority. However, given the recent wave of COBRA class action lawsuits, the growing number of layoffs nationwide, the DOL’s updates to its

model COBRA notices, and the willingness of some courts to allow such lawsuits to proceed to discovery, employers should take appropriate steps to evaluate their COBRA compliance, whether or not they use a third-party COBRA administrator.

Nancy G. Ross is a partner in Mayer Brown’s Chicago office and co-chair of the ERISA Litigation practice. She focuses her practice primarily on the area of employee benefits class action litigation and counseling under the ERISA. Richard E. Nowak is a Litigation & Dispute Resolution partner in Mayer Brown’s Chicago office. He is an experienced trial attorney in state and federal court and also represents clients in arbitrations, mediations, and governmental and internal investigations.

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Compliance FCPA Compliance continued from page 25

program for over 10 years. Agreeing to pay over $144 million to settle the SEC’s charges and over $138 million to settle the DOJ’s charges, Walmart paid a combined total of over $282 million. Fresenius Medical Care AG & Co.: This products and services provider agreed to pay the SEC and DOJ over $231 million to resolve FCPA violations in numerous countries over almost 10 years. Mobile TeleSystems PJSC: After violating FCPA provisions in Uzbekistan, this telecommunications provider agreed to pay a settlement of $850 million. INDIVIDUALS FACE THE POSSIBILITY OF IMPRISONMENT

Debarment and hefty fines can serve as powerful deterrents for business organizations. However, organizations act through their directors, executives and responsible corporate officers, and those individuals are also subject to the jurisdiction of the FCPA. In September of 2015, former Deputy Attorney General Sally Quillian Yates published a memo detailing a shift in DOJ policy. In that memo, the DOJ required that corporations identify all individuals involved in any aspect of alleged misconduct, regardless of their status or

corporations. Those days are done according to the now famous “Yates Memo.” Not too long after, in December 2015, the government announced the prosecution of Vicente Garcia. Mr. Garcia is a United States citizen and former head of Latin American sales for technology giant SAP. The case included an SEC administrative cease and desist action, coupled with a criminal information filed by the DOJ alleging conspiracy to violate the FCPA. Garcia received a 22-month prison sentence after pleading guilty to one count of conspiracy to violate the FCPA. He admitted to conspiring with others to bribe three Panamanian government officials, and he personally received over $85,000 in kickbacks for arranging the bribes. Prior to that plea, Garcia also entered into a settlement with the SEC to pay $85,965 plus prejudgment interest. Garcia’s prosecution was only the beginning of the Yates Memo aftermath. The year 2015 featured only 11 individual FCPA prosecutions, but that number jumped to 27 in 2016. Despite a slight decrease in 2017, it increased once again in 2018. In April 2019, the DOJ continued to emphasize corporate compliance by releasing new guidance on the effectiveness of corporate compliance programs. This updated guidance is available online at https://www.justice.gov/criminalfraud/page/file/937501/download.

The analysis of potential FCPA violations is highly fact specific, and some facts will raise red flags. seniority, in order for the corporation to receive any credit for its cooperation with the government. Previously, the government resolved criminal investigations of corporate entities all too often with a corporate plea or deferred prosecution agreement, a civil settlement agreement, a stiff fine, and perhaps the installment of a compliance monitor within the company. The civil settlement agreements often included releases of owners, officers, directors and employees of the same

The fundamental questions prosecutors ask when assessing a corporate compliance program are: Is the corporation’s compliance program well designed? Is the program being applied earnestly and being implemented effectively? Does the corporation’s compliance program work in practice? Adherence to the points listed above will not guarantee a pass by the DOJ and SEC, but it will provide you and your organization with the knowledge base necessary to react to potential

violations effectively and efficiently, with minimal disruption of your operations.

Douglas K. Rosenblum is the Co-Chair of the Government Enforcement, Compliance and White Collar Litigation Practice Group of Pietragallo Gordon Alfano Bosick & Raspanti, LLP. He served as both a state and federal prosecutor prior to joining the firm. He represents individuals and institutional clients in a wide variety of investigations and litigation. DKR@Pietragallo.com Marc S. Raspanti is a name partner of Pietragallo Gordon Alfano Bosick & Raspanti, LLP and is nationally recognized for his career in representing individuals and entities in white collar criminal matters. Mr. Raspanti is a former criminal prosecutor in Philadelphia and a Fellow of the American College of Trial Lawyers. MSR@Pietragallo.com

SUMMER 2020â&#x20AC;&#x201A; TODAYâ&#x20AC;&#x2122;S GENER AL COUNSEL

Compliance

Covid Brings Transfer Pricing Issues By Paul Sutton

s multinational groups respond to the challenges and opportunities presented by the coronavirus outbreak, many of them need to update their transfer pricing policies and internal supply chains, as well as their outwardfacing business operations. General coun-

sel have a key role to play in ensuring that the legal aspects of these transitions are managed appropriately. This article provides a brief recap on the essential role of inter-company agreements in transfer pricing compliance. Transfer pricing relates to the charges

made between associated entities such as companies within a group. Tax authorities may challenge the amounts of those charges, and this may give rise to a risk of double or multiple taxation of the same profits. Legal agreements between those entities â&#x20AC;&#x201D; often referred to as inter-

TODAY’S GENER AL COUNSEL SUMMER 2020

Compliance company agreements (ICAs) or transfer pricing agreements — form an essential part of the documentation required for transfer pricing compliance. If intercompany agreements are missing, or don’t match the group’s stated transfer pricing policies, then the group can be exposed to time-consuming and costly tax audits, fines, and penalties in multiple jurisdictions. A key concept in transfer pricing is the “arm’s length principle.” In essence,

erty rights in the software may be held by a group entity in the United States. Local subsidiaries in various countries may act as principals in licensing the software to customers in the local markets, and may also act as principals in providing consulting services relating to the implementation of the software. From a transfer pricing perspective, the subsidiaries may be regarded as performing “routine” functions in

how to make the transition from the current to the future state in a manner consistent with both the arm’s length principle and the legal duties of directors. ACTIONS GENERAL COUNSEL SHOULD TAKE

General counsel should engage proactively with their tax and transfer pricing colleagues to ensure that the process of revising transfer pricing policies accounts

The disruption caused by the coronavirus outbreak is causing many multinational groups to revise their transfer pricing policies. this requires transfer prices to be determined based on conditions (including with respect to risk allocation) that would be made between independent or unrelated enterprises. In order for a group’s transfer pricing policies to be actually implemented, as opposed to being a theoretical statement of intent, the allocation of risk and reward described in the transfer pricing policies must be reflected in the legal terms of appropriate inter-company agreements. The Organization for Economic Cooperation and Development’s (OECD’s) Transfer Pricing Guidelines are very clear that contractual allocation of risk cannot be backdated. Therefore, agreements should be put in place in advance, or as contemporaneously as possible, and kept up to date so that they reflect the group’s actual operations and corporate structure. ADAPTING IN RESPONSE TO THE PANDEMIC

As has been extensively documented elsewhere, the disruption caused by the coronavirus outbreak is causing many multinational groups to adapt their business models and revise their transfer pricing policies. The following is a simplified case study for a group in the software sector. A U.S.-headquartered group may provide software-as-a-service (SaaS) to customers worldwide and may also provide consulting support to those customers to help them implement the relevant software. The intellectual prop-

their distribution role, on the basis that strategic management and control over the marketing activities takes place in the United States, and the relevant U.S. intellectual property holder also assumes the commercial risks inherent in the distribution activities. On that basis, each distributor may receive a modest but guaranteed return from its activities (e.g., a net operating margin of five percent). This arrangement would be reflected in the existing inter-company agreements. The contractual allocation of risk and reward is a key element of the transfer pricing analysis, based on the OECD’s Transfer Pricing Guidelines. However, in the current economic environment, the group as a whole may be incurring losses — perhaps because its customers are in a sector heavily affected by the coronavirus, such as tourism or travel. In such a situation, it may not be appropriate for local distributors within the group to be making taxable profits, even based on a low margin. The group may therefore want to revise its transfer pricing policies and its inter-company charges to reflect the overall loss-making position of the group. Clearly, updating transfer pricing policies is not simply a matter of reviewing the economic analysis and comparables and replacing the existing policy documents. It also involves considering the current legal structure of the group and its inter-company agreements, designing an appropriate future structure (whether this is intended to be temporary or ongoing as the new normal), and considering

for the wider needs of the group, such as intellectual property protection and asset protection. As with any other group restructuring project, the fundamental task is to: A. Identify the current state of affairs, including current transfer pricing policies and the terms of the intercompany agreements currently in force. B. Design the intended state of affairs following the restructuring of the relevant entities and supply chains. C. Create a plan for transitioning from A to B. The assessment in A includes reviewing the impact of any force majeure clauses contained in inter-company agreements, as well as the other legal rights of the relevant associated entities. However, the question of whether one party, or group entity, has a unilateral right to terminate or suspend performance of a contract is just one factor in the process for planning a transition in legal arrangements. As between unconnected parties — even where no such right exists and the parties are locked into a long-term contract — it may be in both parties’ interests to renegotiate or restructure the business relationship. The OECD’s Transfer Pricing Guidelines recognize this. For example, the 2017 edition of the Guidelines states that “business restructurings may be needed to preserve profitability or limit losses, continued on page 35

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Compliance

Investors Pushing Environmental and Social Proposals By Hannah Orowitz

nvironmental and social (E&S) considerations have dominated the shareholder proposal landscape for several years. Historically, many of the largest asset managers declined to vote in support of such proposals, preferring instead to attempt to influence corporations’ actions by engaging shareholders and the board through ongoing dialogue. Now, an increasing number of institutional investors have begun to include E&S considerations within their established risk-return analysis framework. Additionally, evolving expectations placed upon the more than 2,600 investors that are signatory to the UN Principles for Responsible Investment, and pressure from asset owners such as pension funds and special interest groups, looks to be reshaping this landscape. In January of this year, pledges by two of the three largest U.S. asset managers, State Street Global Advisors (SSGA) and BlackRock, indicate that these firms have reached an inflection point. These two funds may diversify

owners’ broader voting decisions surrounding director elections. That, too, now appears to be ripe for change. We expect investors will likely articulate their concerns much more often by voting against specific directors, committee members or entire boards. Concerns surrounding the evolving Covid-19 pandemic that have developed subsequent to investors’ articulation of expectations and priorities may mean that some investors are more likely to be more lenient on E&S topics this season. Glass Lewis, one of the two leading proxy advisors in the United States, recently noted this possibility in a statement to its clients regarding the current corporate governance environment. However, to the extent this leniency occurs in 2020, companies would be well advised to understand that any reprieve is temporary and unlikely to carry into 2021. Covid-19 has also brought to the forefront certain E&S topics such as human capital and supply chain management, and has illustrated the all-encompassing and immediate shocks that systemic risks, albeit from a black swan event, can have on asset valuations. Ultimately, the global pandemic may increase investors’ sense of conviction about the urgent need for companies to address risks like climate change. Vanguard, which manages the second greatest volume of assets in the United States, has generally been less vocal on E&S topics, but on April 1 it released an update on the 2020 Proxy Season, recognizing the impact of Covid-19 on corporate decision making. At the same time, it reminded companies to keep long-term shareholder interests in mind, noting in

Covid-19 has brought to the forefront certain E&S topics such as human capital and supply chain management. their practices of using assessment and engagement as the primary tools to influence portfolio companies, and focus more efforts towards taking voting action in favor of shareholder proposals that address material E&S issues. In all but the most egregious cases in the past few years, E&S considerations — even if they did lead an investor to vote in favor of a shareholder proposal — did not factor into most asset managers’ and

particular that “climate change presents a pressing and concerning risk to long-term shareholder value.” Vanguard’s statement does not specify any policy change, but it articulates an intention to continue to address climate risk through voting and engagement, and states that Vanguard “will raise [its] expectations for the companies that our funds invest in.” Accordingly, to avoid adverse voting activity in the future, companies should view 2020 as a year of preparation and an opportunity to engage with investors regarding their expectations. Companies can be positioned to act on feedback received to improve E&S disclosures and practices. SUSTAINABILITY-RELATED DISCLOSURE

In January 2020, BlackRock CEO Larry Fink released his annual letter to portfolio companies’ CEOs, predicting a near-term reallocation of capital as investors broadly incorporate the impact of sustainability on investment returns. In conjunction with those expectations, BlackRock published updates to its global and U.S. proxy voting guidelines in February. They significantly expand the E&S section to call upon companies to improve their sustainability-related disclosures in compliance with industryspecific Sustainability Accounting Standards Board (SASB) standards applicable to companies, and the Task Force for Climate-Related Financial Disclosure’s (TCFD) recommendations. To the extent that companies do not effectively disclose and manage material sustainability matters, BlackRock warns that it will be “increasingly disposed to vote against management and board directors” and in favor of sustainabilityrelated proposals. The guidelines also say that even if BlackRock declines to support a given climate-focused proposal, if it believes that a portfo-

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Compliance

lio company has not made sufficient progress in its disclosures, it may vote against the election of relevant directors. These policy changes follow on the heels of BlackRock’s January 2020 announcement that it has signed on to Climate Action 100+. In January, SSGA’s CEO, Cyrus Taraporevala, announced to directors in his annual letter that the company intends to use proxy voting to press

companies to improve E&S disclosure and practices. Specifically, for 2020, SSGA will be taking action against board members at companies within the S&P 500 that are categorized as laggards under its proprietary R-Factor analysis and cannot articulate how they plan to improve their score. R-Factor is SSGA’s environmental, social and governance (ESG) rating system, which leverages SASB standards.

R-Factor scores classify companies as laggards based on their percentile ranking compared to industry peers as defined by the Sustainable Industry Classification System designed by SASB. Currently, laggards appear to be companies within the bottom 10th percentile of their industry. Beginning on January 1, 2022, SSGA will likely expand this approach beyond the S&P 500 to its entire portfolio. Accordingly, it could vote against directors

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at all companies that have consistently underperformed peers on their R-Factor score unless SSGA sees “meaningful change.” Following the release of his letter amid the development of the Covid-19 pandemic, Taraporevala issued a letter on March 31 recognizing that engagement conversations in 2020 may shift to immediate ESG issues raised by the pandemic. However, he urged that companies “refrain from undertaking undue risks that are beneficial in the short term but harm longer-term financial stability.” There was no indication that SSGA would be delaying the voting actions regarding “laggards,” as previously announced. Data regarding investors’ voting decisions for the current proxy season, including SSGA’s and Vanguard’s, are generally not available until August 31. However, recent voting bulletins released by BlackRock on select annual meetings illustrate how these E&S convictions are beginning to play out in its voting process. For example, at National Fuel Gas Company’s March 11, 2020, annual meeting, BlackRock voted against a director’s re-election in light of what it viewed to be insufficient progress on the company’s climate-related reporting. In reaching this decision, the bulletin explained that BlackRock assessed both the company’s current disclosure as well as its engagements with the company on climate-related issues over time. In BlackRock’s view, climate change poses significant material operational, physical, reputation and regulatory risks. On that basis, BlackRock would have expected the company to have developed more robust reporting. In particular, the BlackRock bulletin noted that National Fuel provides limited disclosure that aligns with neither SASB nor TCFD and has not set any greenhouse gas or methane-related reduction targets. Although BlackRock views climate as an oversight responsibility of the full board, National Fuel maintains a staggered board. Accordingly, BlackRock elected to hold the audit committee chair accountable as the longest tenured director up for election. Separately, BlackRock also voted in favor of a shareholder proposal requesting the de-

classification of National Fuel’s board. On the other hand, BlackRock’s engagements with Sanderson Farms, Inc., leading up to that company’s February 2020 annual shareholder meeting, swayed BlackRock to vote in accordance with management’s recommendations on two E&S-related shareholder proposals. BlackRock indicated that it discussed a range of E&S issues with the company, including energy conservation efforts, waste management, greenhouse gas emissions management, water stewardship and human rights. Although Sanderson Farms’ existing disclosure addresses a range of E&S matters, it does not provide SASB-aligned disclosure. Ultimately, BlackRock determined not to support the shareholder proposals that addressed water resource risks and human rights concerns, respectively, citing the company’s “willingness to improve its reporting by aligning reporting with the SASB framework, as discussed in our engagement with the company prior to the annual meeting.” These examples reveal that companies should make meaningful and concrete commitments to improve their management of material E&S matters, including producing disclosures aligned with SASB and/or TCFD, to avoid negative voting consequences from BlackRock. Fink’s letter indicates that it expects companies to develop this disclosure by year’s end. SSGA’s Taraporevala indicates that E&S-driven voting action in United States 2020 annual meetings will be limited to roughly 50 “laggards” within the S&P 500. For most companies, shifts in voting behavior will likely not begin to be felt in earnest until 2021. Companies can use the remainder of 2020 to improve their oversight and communication of E&S matters. CONSIDERATIONS FOR RIGHT NOW

If a company has not yet assembled an ESG task force, it may now want to consider its creation, as well as which colleagues and external advisors will form its membership. Oversight structures and disclosure are best developed when companies break through existing silos to involve all relevant subject-

matter experts across the organization. While this may vary from company to company, common participants include individuals across the legal, human resources, risk management, investor relations, finance, facilities — and, if applicable, health and safety — and sustainability functions. Once the task force is assembled, companies may want to invest time in understanding the company’s shareholder composition, including which reporting standards and frameworks, as well as data providers and ESG rating organizations, their investors use. Consider prior engagement feedback, as well as potentially engaging in additional off-season outreach, to specifically discuss ESG matters with significant investors or other key stakeholders. With this information in hand, the ESG task force can then be in a position to develop investor-focused ESG disclosure and appropriately embed oversight of ESG matters within the board and committee agendas.

Hannah Orowitz is a managing director on Georgeson’s corporate governance advisory team. A former in-house counsel, she is a member of the National Investor Relations Institute, the Sustainability Accounting Standards Board, and the Society for Corporate Governance and its Sustainability Practices Committee. horowitz@georgeson.com

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Compliance Transfer Pricing

continued from page 31 e.g., in the event of an over-capacity situation or in a downturn economy.” In this respect, there is a substantial convergence between transfer pricing considerations, such as the “options realistically available to the parties,” and considerations arising from principles of corporate governance and the legal duties of the directors of the individual legal entities concerned.

may instead involve a more fundamental restructuring of the terms of the inter-company relationships. 2. If the existing inter-company agreements need to be revised, which will often be the case, consider which party is seeking to terminate, suspend or renegotiate the agreement or, importantly, would be seeking to do so if the parties were not related parties. This is usually the party that is considered to be paying too much or receiving too little for the goods, services or intangibles (intellectual property rights) in question.

SUGGESTED LEGAL FRAMEWORK

The following points are suggested as a framework for considering the revision of inter-company agreements from a legal perspective. 1. Identify which legal entity or entities within the group need to be restructured (e.g., because they are accruing inappropriate profits or losses within the internal supply chain). 2. In relation to each such entity, identify which are the key inter-company transactions that contribute to the unintended and inappropriate result. 3. For each such inter-company transaction type, identify the terms of the inter-company agreements in place, whether express or implied. 4. Consider how the relevant terms operate in the current environment. This includes pricing clauses, the presence or absence of contractually guaranteed returns, and contractual allocation of risks such as inventory risks and credit risks. For example, in cost-plus arrangements for the provision of services by local entities to the parent or entrepreneur, a key question is whether the definition of “cost” is such that additional costs relating to the coronavirus are included in the costs recharged, or are outside the recharge mechanism and therefore borne by the service provider. 1. Consider the proposed transfer pricing policy that is intended to apply going forward. This may merely involve a change in the pricing provisions or

General counsel should engage with their tax and transfer pricing colleagues to take into account intellectual property and asset protection. 3. Identify what legal grounds exist which that party may rely on to terminate or renegotiate the arrangements. 4. Consider whether the termination of contractual arrangements may entitle one party to compensation or indemnity, whether from a legal perspective or from an economic (transfer pricing) perspective. 5. Consider whether the proposed restructuring of contractual arrangements entails or implies a movement of people or assets. From a legal perspective, implementing such actions without proper consideration of third-party elements (e.g., the potential impact on defined benefits pension schemes) may trigger statutory liabilities that are far in excess of the value of the assets involved. In principle, the legal considerations when reviewing and revising inter-company agreements in response to Covid-19 are no different than any other exercise for reviewing intra-group legal structures in connection with the

revision of transfer pricing policies and business restructurings. As always, intragroup agreements need to be considered from a holistic perspective — including considerations of regulatory compliance, VAT, customs duties, intellectual property licensing, and other asset protection — in addition to governance and transfer pricing. In-house legal functions have a vital role to play in managing these issues. Finally, it should be remembered that for the purposes of managing personal liability risks of directors, the process by which legal intra-group arrangements are restructured is as important as the outcome. For this reason, and in order to comply with the principle of informed consent in all but the simplest restructurings, it is important to brief directors on what they are being asked to approve, why, and what the actual and likely implications are.

Paul Sutton is the co-founder of LCN Legal, an independent law firm specializing in advising clients on the legal design and implementation of corporate structures. Prior to establishing LCN Legal, he held positions as a director at KPMG’s UK law firm and as a corporate partner in the London offices of McGrigors and of Pinsent Masons. paul.sutton@lcnlegal.com

SUMMER 202 0 TODAY’S GENER AL COUNSEL

WORKPLACE ISSUES

EEOC Compliance and the Covid-19 Pandemic By Barry A. Hartstein and Therese Waymel

T 36

he Equal Employment Opportunity Commission (EEOC) has established new rules and guidance to help employers navigate the Covid-19 pandemic. There are limits, however, to employers’ conduct to stem the spread of the virus, and Covid-19’s crippling economic effects also increase the risk of discrimination claims against employers. EEOC first issued guidance on pandemic preparedness in the workplace and the Americans with Disabilities Act (ADA) in October 2009, after President Obama declared a National Emergency in response to the H1N1 influenza pandemic. However, less drastic steps were approved because the virus was not as widespread, and it was less contagious and less deadly.

Barry A. Hartstein is a shareholder with Littler Mendelson and co-chair of the firm’s EEO & Diversity Practice Group. He has more than 40 years of experience counseling employers on EEOC matters on a local and national level. bharstein@littler.com M. Therese Waymel is an associate with Littler. She represents companies in labor and employment litigation, including disputes involving wrongful termination, unlawful discrimination and retaliation. twaymel@littler.com

On March 19, 2020, the EEOC “re-issued” the guidance after Covid-19 was declared a pandemic by the World Health Organization, and additional input was provided by the Centers for Disease Control and Prevention (CDC). This finding has resulted in the EEOC permitting employers far more leeway in developing infection control strategies without violating federal discrimination laws. As employers have developed infection control strategies, the EEOC’s primary focus has been on the ADA, but the EEOC also cautioned against certain conduct that may run afoul of the Age Discrimination in Employment Act, Pregnancy

Discrimination Act and other discrimination laws. The EEOC also has reminded employers of practical tools available to address potential workplace harassment stemming from Covid-19. ADA COMPLIANCE

Based on the view of the EEOC at the time of this writing, it is unclear whether Covid-19 is or could be a disability under the ADA. Regardless, in relying on the findings of the CDC and other public health authorities, the EEOC has determined that the pandemic meets the “direct threat” standard under the ADA. This determination has resulted in per-

TODAY’S GENER AL COUNSEL SUMMER 2020

mitting employers to develop infection control strategies without violating the ADA, which would not be permitted in the absence of a pandemic. Aside from the Pandemic Preparedness issued in March, the EEOC provided additional guidance during a March 27, 2020, webinar coupled with Technical Assistance Questions and Answers, which were updated in early May 2020. These temporary new rules apply to day-to-day employment for both current employees and applicants, and allow employers to take actions that are normally not permitted, including: • Asking questions to employees who report feeling ill at work or who call in sick about their symptoms to determine if they have or may have Covid-19 (e.g., fever, chills, cough, shortness of breath, sore throat, loss of smell or taste), and barring them from the workplace for refusing to answer. • Requiring employees to stay home if they have symptoms of Covid-19. • Measuring an employee’s body temperature and barring employees if they refuse to have their temperature taken. • Administering a Covid-19 test — ensuring that the tests are “accurate and reliable” — to detect the presence of the virus before permitting employees to enter the workplace. Employers are permitted to apply the same procedures to applicants after making a conditional job offer so long as those procedures are applied for all employees in the same type of job. Employers can also delay a start date for an applicant who has Covid-19 or symptoms associated with it, and even withdraw a job offer when it needs an applicant to start immediately. The primary caveat based on the above protocols for applicants and employees is that employers are required to maintain the confidentiality of such records separate from an employee’s personnel file. The two major exceptions to confidentiality are (1) an employer

may disclose the employee’s name to a public health official when it learns that the employee has Covid-19 and (2) a temporary staffing agency or contractor may notify the employer if it learns that one if its employees has Covid-19. An employer’s obligation to make reasonable accommodations and engage in the interactive process remain in place based on EEOC guidance. In early May 2020, the agency highlighted that an employee with a medical condition that the CDC says may put him or her at “higher risk for severe illness from Covid-19” may seek accommodations to eliminate or reduce the direct threat. Per the EEOC, employers may forgo or shorten the required interactive process and even place an end date on the accommodation. The EEOC’s guidance also suggests that the threshold for “undue hardship” may be lower, taking into account the financial pressures on many employers today. INFECTION CONTROL LIMITS

The EEOC has placed limits on infection control to the extent that an employer’s actions unfairly discriminate against a protected group. As an example, merely because the CDC has identified those 65 years of age and older as being at a higher risk of severe illness if they contract Covid 19 does not justify excluding such workers from the workplace. Similarly, despite the fact that women who are pregnant also face a higher risk for severe illness does not justify the layoff or furlough of such workers. EEOC Chair Janet Dhillon has cautioned against mistreatment or harassment of Asian Americans, which most likely stems from backlash due to the virus. Finally, record levels of unemployment most likely will contribute to a significant spike in the number of discrimination charges for those who are left without work. Employers must take care to focus on job-related reasons when selecting employees for return to work in scaledback operations to minimize the risk of discrimination claims.

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SUMMER 202 0 TODAY’S GENER AL COUNSEL

THE ANTITRUST LITIGATOR

Who Decides Arbitrability? By Jeffery M. Cross

ore and more contracts contain arbitration clauses, as parties realize that arbitration can be an efficient and cost-saving way to resolve disputes. Furthermore, arbitration allows for a dispute to be resolved confidentially, which is valuable when there is sensitive information that could be exposed in litigation. In addition, recent Supreme Court cases have held that an arbitration clause can bar class actions. Such decisions have spurred the use of arbitration clauses in contracts with large numbers of parties on one side, such as consumer cell phone contracts and bank credit card agreements. However, sometimes the two sides to an agreement do not see eye-to-eye on the desirability or scope of arbitration. In such a situation, one or the other party seeks help from a court to compel arbitration, define the scope of arbitration or resist the demand for arbitration. Thus, it is important that the parties to contracts with arbitration clauses understand the rules regarding a court’s involvement in initially resolving whether a dispute must proceed to arbitration. In 1925, Congress passed the Federal Arbitration Act (FAA). It was reenacted and codified in 1947. The purpose of

Jeffery Cross is a columnist for Today’s General Counsel and a member of the Editorial Advisory Board. He is a partner in the Litigation Practice Group of Freeborn and Peters LLP and a member of the firm’s Antitrust and Trade Regulation Group. jcross@freeborn.com

the FAA was to reverse long-standing judicial hostility to arbitration agreements existing in English common law and adopted by American courts. The Supreme Court has stated that Congress accomplished this purpose by placing arbitration agreements on the same footing as other contracts. The Supreme Court has held that the FAA created a body of federal substantive law that is applicable to both state and federal courts. The Court has also held that the FAA applies to the enforcement of not only contract rights, but statutory rights.

The key provisions of the FAA in terms of the initial involvement of a court are Sections 2, 3, and 4. Section 3 permits a court to stay litigation involving an issue that is referable to arbitration. Section 4 permits a court to compel arbitration. Section 2 is the centerpiece provision of the FAA. It establishes that a written agreement to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” This is the so-called “savings clause.” It is Section 2 that places a written agreement to arbitrate on the same footing as any

TODAY’S GENER AL COUNSEL SUMMER 2020

other contract. Significantly, the Court has held that this provision manifests a “liberal federal policy favoring arbitration agreements,” which requires courts to rigorously enforce agreements to arbitrate, and that the savings clause permits agreements to be invalidated only by generally applicable contract defenses, not by defenses applicable only to arbitration.

cide arbitrability unless there is clear and any doubts concerning the scope of arbiunmistakable evidence that they did so. trable issues in favor of arbitration. Significantly, several appellate courts In deciding the question of whether have held that a reference to arbitration the parties have lawfully agreed to arbirules granting the arbitrator the authortrate, a court can consider the “savings” ity to rule on arbitrability is clear and clause defenses that the agreement is not unmistakable evidence that the parties valid or enforceable on grounds in law intended that the arbitrator decide the or equity for the revocation of any conquestion. An example of such rules is tract. However, once again, the Supreme the American Arbitration Association Court has limited a lower court’s analyCommercial Rules. sis of such defenses. The Court has held Rule 7(a) expressly that a lower court can only consider THE SUPREME COURT HAS states that “the arbichallenges to the validity and enforcetrator shall have the ability of the arbitration clause and not HELD THAT THE SAVINGS power to rule on his challenges to the contract as a whole. The CLAUSE PERMITS AGREEMENTS or her own jurisdicCourt has held that the arbitration clause TO BE INVALIDATED ONLY tion, including any is severable from the rest of the contract, objections with reand therefore the defenses set forth in BY GENERALLY APPLICABLE spect to the existence, the savings clause must be directed to CONTRACT DEFENSES. scope, or validity of the arbitration clause specifically. If the the arbitration agreeparty opposing arbitration is challenging A court considering an arbitration ment or to the arbitrability of any claim the validity or enforceability of the entire clause must apply state law principles or counterclaim.” contract, such challenge is for the arbitraof contract interpretation. Generally, Several courts of appeal have held tor, not the court. this means that the parties’ intentions that a statement in the arbitration clause The Court has also limited the lower control as those intentions are reflected that these rules will be followed is clear court to considering only the two narin the written agreement. and unmistakable evidence of intent row questions of arbitrability, not other There are generally two questions for the arbitrator to decide questions potentially dispositive “gateway” issues. that are referred to as “questions of arof arbitrability. The Court has held that potentially bitrability”: (1) whether the parties have As to the question whether a particu- dispositive procedural questions, such agreed to arbitrate and (2) whether the lar merits-related dispute is arbitrable as whether the statute of limitations agreement to arbitrate covers a particular because it is within the scope of a valid has been met or whether conditions controversy. These are the two questions arbitration agreement (in contrast to precedent to arbitrability have been that are at issue in the initial determinathe requirement that there be clear and fulfilled, are questions for the arbitration of who decides arbitrability — the unmistakable evidence), the Supreme tor, not the judge. court or the arbitrator. Court has held that a court is to resolve As a matter of contract, the parties can agree that the arbitrator will decide these two questions. When one or both parties have injected a court into the arbitration process, the court must initially decide if the parties have in fact agreed to have the arbitrator decide these quesSUBSCRIBE NOW tions. The Supreme Court has held that a I REFER TO court making that decision must generTHE MAGAZINE ally apply ordinary state law principles OFTEN AND THE that govern contract formation, such as INFORMATION whether the intent of the parties has been IS USEFUL IN MY DAILY WORK.” objectively revealed in the written agreement. However, the Court has imposed a major qualification to this test. It has held that courts should not assume that the TODAYSGENERALCOUNSEL.COM/SUBSCRIBE parties agreed to have the arbitrator de-

SUMMER 202 0 TODAY’S GENER AL COUNSEL

PRIVILEGE PLACE

No Communication, No Privilege By Todd Presnell

eorge Bernard Shaw once remarked that the “single biggest problem in communication is the illusion that it has taken place.” And so it is with the attorney–client privilege. Of the corporate attorney–client privilege’s primary elements, most focus on confidentiality and distinguishing between business and legal advice. Corporate counsel should not forget, however, that the privilege protects only communications. And, unfortunately, some lawyers lose privilege arguments because of an illusion that a communication has taken place. The Merriam-Webster dictionary defines “communicate” as “to convey knowledge or information.” It similarly defines “communication” as “a process by which information is exchanged between individuals.” The difference, of course, is that a communication is not information but the conveyance of information. The Model Rules of Professional Responsibility recognize a comparable distinction. Rule 1.6 obligates lawyers to keep their clients’ information confidential. The Rule’s comments identify the attorney–client privilege as a “related body of law” and clarify that the confidentiality obligation applies “not only

Todd Presnell is a trial lawyer in Bradley’s Nashville office. He is the creator and author of the legal blog Presnell on Privileges, presnellonprivileges. com, and provides internal investigation and privilege consulting services to in-house legal departments. tpresnell@bradley.com

to matters communicated in confidence but also to all information relating to the representation.” Despite the definition and ethical rule distinctions, many lawyers conflate the two and assume that the privilege protects all client-related information. Not so. The communication conundrum has historical roots. An issue that lingered for decades, but now appears settled, was whether the attorney–client privilege protected lawyer-to-client communications in addition to client-to-lawyer communications. In the early 1800s, many states codified the developing common law attorney-client privilege in a manner that limited its scope to client-to-lawyer communications while remaining silent on lawyer-to-client communications. For example, in 1821 Tennessee, likely the first state in the Union to codify the privilege, enacted a statute (signed

by future President James K. Polk as the Clerk of the Senate) prohibiting lawyers from disclosing “any communication made to the attorney.” The Volunteer State did not statutorily prohibit disclosure of a lawyer’s communications to a client. Yet by the mid-1800s, Tennessee courts began interpreting the statutory privilege to include derivative protections. Under this derivative concept, the privilege covers an attorney’s communications that would directly or indirectly reveal the client’s prior communications. The attorney-to-client communication issue is not an historical footnote. It is only within the last decade that one state, Pennsylvania, conclusively applied the privilege to attorney-to-client communications. In 2011, the Pennsylvania Supreme Court analyzed whether its privilege statute protected a lawyer’s communications with the client. The

TODAY’S GENER AL COUNSEL SUMMER 2020

statute, first enacted in 1881, mimicked Tennessee’s privilege statutes (and that of other states) by preventing disclosure of client-to-attorney confidential communications, but remained silent on lawyerto-client communications. The Supreme Court eschewed the limiting derivative approach and, despite the statute’s plain language, held that the privilege operates in a “two-way fashion” to protect attorney-to-client communications, regardless of whether it discloses client communications. Some states model their evidence rules after either the 1974 or the 1999 version of the Uniform Rules of Evidence. These rules contain an attorney– client privilege rule that protects communications between a client and her or his attorney rather than focusing on whether the client or the attorney initiated the communication. The Restatement (Third) of the Law Governing Lawyers § 69 defines a communication as an expression that a client or a lawyer undertakes to convey information. The Restatement specifically rejects the derivative approach followed by some states because determining whether a lawyer’s communication discloses the client’s prior communications is difficult. Some federal courts follow the derivative approach. Others favor the Restatement’s and Uniform Rules’ broader approach. The communication enigma did not subside after the decades long, one-waystreet versus two-way-street privilege debate. Courts also scrutinize whether the item for which a party seeks privilege protection was a communication rather than simply information. In other words, did the client (or the lawyer) convey the putatively privileged material to the other? An in-house legal department confronted this communication hurdle in an Arizona lawsuit. In this environmental liability case, the defendant company’s legal department, which at one time totaled 35 attorneys, found agreement and reimbursement submission forms in its files that were responsive to the

plaintiff’s discovery requests. The agreement and forms contained handwritten notations in the margins. The company produced the documents but redacted the notations, claiming that legal department lawyers wrote the notations and, therefore, the privilege protected them from compelled disclosure. The plaintiff challenged the privilege assertion over the notations. The defendant company’s assistant general counsel explained that he found these documents in the legal department’s file room, which he claimed was called “the Vault,” apparently due to its indestructible confidentiality barrier. And because he located the documents in the Vault, it was clear that an in-house attorney wrote her or his thoughts on them. Yet, the assistant general counsel could not determine which lawyer created the notations, likely because the author did not identify herself or himself and the legal department had 35 lawyers. The court gave the defendant company the benefit of the doubt that an in-house lawyer created the notations, but nevertheless rejected the privilege assertion. Noting that the attorney– client privilege “protects communications,” the court found that the assistant general counsel failed to provide evidence that “the notations were ever communicated to anyone.” And without evidence that information (here, a lawyer’s notations on documents) was communicated (meaning conveyed), the privilege did not apply. A similar communication breakdown — and loss of privilege — occurred in a deposition-preparation setting. In a Pennsylvania professional negligence case against an anesthesia group and a certified registered nurse anesthetist (CRNA), the CRNA reviewed the plaintiff patient’s medical chart to prepare for his upcoming deposition. During that self-preparation process, he made several notations on the chart. At his deposition, the CRNA admitted that he reviewed the medical chart to prepare for his deposition and disclosed

that he made notes on the chart. When the inquiring lawyer later requested production of those notes, the defense team claimed that the attorney–client privilege protected them from disclosure. The Pennsylvania court reminded the parties that an actual communication “is the very essence of the attorney–client privilege.” And here, the CRNA presented no evidence that he transmitted these notes to his lawyer. Nor was there any evidence that his notes reflected information that his lawyer conveyed to him, or that his lawyer directed him to create those notes. Without a transmission or a conveyance of those notes, the privilege did not apply. A question that immediately arises is whether, regardless of the privilege’s application, the work-product doctrine protects the Arizona in-house lawyer’s written comments on a contract or the Pennsylvania CRNA’s medical-chart annotations. In the Arizona case, it does not appear that the unknown lawyer created those notes in anticipation of litigation (a requirement) and the company did not assert the doctrine. In the Pennsylvania case, the court held that, under that state’s law, the work-product doctrine belongs to the attorney, not the client, and therefore protects only the attorney’s mental impressions and opinions. And because the CRNA’s notes did not reflect his lawyer’s work product, the doctrine did not preclude their disclosure. If “facts are stubborn things,” as John Adams posited, then communications are delicate things. Although the privilege certainly protects a client’s communication to his or her lawyer, the reverse has not always been true, and some states still do not apply a blanket protection. Written notes, whether on contracts or simply in a journal, do not become privileged communications until conveyed to a client or lawyer. The work-product doctrine may provide protection, but that too may be elusive. So, let’s proactively create a communication, and not fall under the illusion that one has taken place.

A Women-- Owned Law Firmâ&#x20AC;&#x2122;s Perspective By Francine Friedman Griesing and Jessica L. Mazzeo

hile women-owned businesses comprise almost 40 percent of privately owned businesses in the United States, and more women attend law school than men, the legal industry still has a gender imbalance when it comes to who has a seat at the table. As two working mothers who came from Big Law, the two of us shared experiences that held us back from achieving our fullest potential. So, when we started our firm, we had a common goal: to rewrite the narrative for women in the law. Although history showed that it was not possible for women to achieve their fullest potential professionally and personally while working in the legal industry, we set out to change that. We wanted to create a firm that provided high quality legal service where attorneys had the ability to succeed professionally while sustaining a fulfilling personal life and contributing to the community.

TODAY’S GENER AL COUNSEL SUMMER 2020

Our team has encountered bullying and bias from adversaries, and sometimes even from judges. Being up against an industry that is resistant to change has forced us to work even harder to preserve the values and culture within our law firm. Although unheard of in 2010 when we opened our firm, we decided to forgo origination credit — something that has become a favorite among progressive firms. Almost all readers of this article will be familiar with that term, but for those who aren’t, “origination credit” means that partners who originate business from new clients receive compensation for all work performed for that client as long as that client remains a client of the firm. Having worked at many firms where origination credit was the source of bitter internal battles among otherwise collegial colleagues, we decided that origination would not factor into compensation. Doing away with this practice has allowed for greater collaboration and less office competition.

EARLY ADOPTION OF WORK FROM HOME

We also knew that in order to support the shifting needs of today’s workforce, we would make our business model revolve around “law on the go.” Our team (both lawyers and support) have the ability to work wherever they are. We were fully remote capable long before the recent pandemic. Operating virtually has allowed us to attract and retain top talent while providing the flexibility to best serve our clients no matter where we are.

Today, our firm has lawyers licensed to practice in several jurisdictions with offices in three (and soon to be five) states. Reflecting on where we were at the outset and where we are now reminds us of one of the first obstacles as a small, women-owned law firm. When we opened our doors, we did so after securing a multi-year sublease of office space inside another law firm. Things went great … until they didn’t. After less than two months, our Big Law landlord acquired a new group of lawyers and wanted their space back. Just as we had new stationery and business cards printed and notified our network of our launch, our sublease was terminated. We expected to spend that first year getting our name out there, serving new clients and building our business. Instead, we had to quickly relocate. Given our experience, we wanted the security and the presence of our own space despite the increased expense. To show our heft as a small but mighty women-owned firm, we did not feel we could occupy anything less than firstclass office space. So, we went from paying a modest sublease to a five-figure monthly rent payment. Although it was a considerable risk and expense, it gave us the opportunity to be innovative in our new offices. We decided to launch the Philadelphia Artists Series, hosting 15-plus local talents to showcase their artwork in our enhanced space. Our investment paid off as clients, referral sources and friends

crowded our art openings, and invitations became highly sought after. Our approach reflected our desire to be an inclusive and welcoming firm, and our space rivalled (in our view, surpassed) that of larger, better known firms. After many fruitful years in that office, two years ago we decided to pivot and reduce our office footprint considerably, as our team members were geographically dispersed and desired the flexibility to work remotely. That move has been critical to our ability to serve clients effectively during current shelter-in-place orders.

BIAS AND BULLYING FROM THE BENCH

Although much has changed in the last decade when it comes to diversity in the law, some things unfortunately remain the same. For one thing, there are many more women practicing, but they still do not practice as long, or reach partnership at the rates of their male peers. One reason for this is that women lawyers are more likely to be subjected to bullying, harassment and aggressive behavior. Our team has encountered bullying and bias from adversaries, and sometimes even from judges. For example, as a litigator with almost 40 years of experience, Fran has been called profane names and told to “shut up” by a number of male adversaries, even though she is senior to many of them. In addition, one of our junior associates received so many unwelcome overtures from continued on page 47

SUMMER 2020 TODAY’S GENER AL COUNSEL

Ten Mistakes Law yers Make in Mediation By David K. Taylor

This article is a listing of the most horrible, “bang your head against the door” mistakes lawyers, both in-house and outside counsel, make before, during and after mediation.

NOT NAILING DOWN THE DEAL AT THE MEDIATION You get a deal done after an exhausting day when your client is still upset. The mediator announces the deal. I have had parties pack up and walk out with this comment: “We will take a shot at a draft settlement agreement and send it to the other side this week.” No! Now, not later! Especially in emotionally charged mediations where both sides are very unhappy, clients can change their minds. Second guessing can occur. The failure to write down even the basic terms can also increase the likelihood of later disputes, good faith or not, about key clauses (e.g., indemnification, scope of the release, who is released, confidentiality, non-disparagement). Take the time and start working on a fully executed settlement agreement while everyone is still at the mediation. If that is not possible, at least draft a limited term sheet that lays out the basic parameters of the deal and is conditioned on counsel working together to get to a more formal settlement agreement.

A long day of mediation can be scuttled with last minute issues that should have been identified early in the day.

DON’T MAKE A FAILED MEDIATION A FAILURE Not all disputes get to a global settlement. However, if your mediation “fails,” don’t throw your documents into your briefcase and complain that the other side did not act in good faith. Evaluate carefully what you learned. You have just spent an entire day reviewing and discussing the pros and cons of your case and the positions of the other side. Are there are any nonglobal agreements that can be reached that will lead to a better chance at a later settlement and/or save legal fees? Can there be discovery, formal or informal, on the key issues? What about partial settlement of some of the disputed issues? Think before you walk out the door.

TODAY’S GENER AL COUNSEL SUMMER 2020

NOT LISTENING TO THE MEDIATOR Lawyers and their clients frequently fail to listen to what the mediator has to say. What’s the temperature in the other room? Is the client in that room listening to her lawyer and the mediator? Is it really all about money? What are the stumbling blocks to a true global resolution? The only way to vet those issues is to listen and communicate with the mediator. You can learn a lot more about the strengths and weaknesses of your case that way. You can walk out, even if no deal is done, armed with information that may help with your case. All the great mediation advocacy in a caucus room is useless without shutting up and listening sometimes.

Don’t insult the mediator’s intelligence and knowledge about the subject matter of the dispute and the law.

NOT LETTING THE CLIENT AND MEDIATOR TALK Most mediators want to communicate directly with the decision maker, not the attorney. Jettison your ego! Direct conversations with the client are immensely helpful for the mediator to determine the key factors to get to a deal. Often non-legal factors that wouldn’t get into court determine if a deal can be done. A mediator must establish a position of trust and confidence with the key client decision makers. That cannot happen when the lawyer does all the talking.

NOT IDENTIFYING KEY ISSUES IN ADVANCE A long day of mediation can be scuttled with last minute issues that should have been identified early in the day. If money will change hands, when and how? What about those indemnification, non-disparagement or confidentiality clauses? Last minute pleas of financial instability? Withdrawal of a social media post? Allowing such issues to fester until late in the mediation can be a deal breaker. A good mediator and counsel will have thought through these issues well before the day of mediation.

FAILING TO BE INTELLECTUALLY HONEST WITH THE MEDIATOR All mediators know there is a game to be played if a settlement is to be reached. Clients are paying their lawyers to be tough, to bat down arguments. However, that is often incompatible with meaningful settlement discussions, which require a realistic assessment of the issues. Mediators expect tough representation, but don’t insult the mediator’s intelligence and knowledge about the subject matter of the dispute and the law. Mediators want candid discussion of the case. Good lawyers want straight talk from the mediator, even in front of their client. No matter how many times a lawyer may have told a client about the weaknesses in a case, there is something about having an experienced mediator explain, face-to-face, that all the great lawyering in the world cannot change the facts or the law. Your job is to see if there is a way to reach your client’s goal of getting the case resolved efficiently.

SUMMER 2020 TODAY’S GENER AL COUNSEL

NOT DOING YOUR HOMEWORK David Taylor is a partner with Bradley Arant and chairs the construction group in Bradley’s Nashville, Tennessee office. He speaks and writes to legal and business groups on construction and dispute resolution issues, and he serves as an arbitrator/mediator. dtaylor@bradley.com

FAILING TO PREPARE THE CLIENT, NOT HAVING A PLAN 46

How experienced is your client representative? She must have the authority to settle but must fully understand the dispute and the issues. If this is a “bet the business” case, counsel must spend time in person, not via email or calls, to explain the process and manage the client’s expectations. The concept of “settlement” means no one is happy. The goal of any mediation is not to win, but to resolve the dispute. Have a plan, but anticipate the need for flexibility in case something new is revealed, such as the client telling the lawyer at the mediation — it’s happened more than once — “by the way, I forgot to tell you that I fired our primary fact witness last week for theft, and she hates us.”

You must know your case thoroughly to represent a client properly in mediation. You may not be able to look under every single rock that can derail a mediation — or even know how many rocks are out there — but you had better identify in advance the key factors that will impact settlement. This homework must include a frank evaluation of future legal fees and costs. Use the draft mediation statement as a guide, even if you carve off some parts before you send it to the mediator. Does the company really want its key employees spending hundreds of hours with the lawyers or trying to sort through project documents (and dealing with e-discovery production)?

NOT HAVING A PRE-MEDIATION CALL WITH THE OTHER LAWYER AND THE MEDIATOR You have a mediator and an agreed date for mediation. Do you then just send in the confidential mediation statement and show up on the date? No. Set up a call with the mediator and opposing counsel. Talk through the issues that can derail a mediation. It can infuriate mediators when, in the middle of a mediation, they hear one side use the excuse that it does not have some information or document, and the other side claim that it does not have immediate access to such information or documents. If insurance is involved, will the insurance adjuster (where the money will be coming from) be present or available by phone three time zones away?

MEDIATING TOO EARLY OR TOO LATE There are no firm rules as to when mediation should be considered. If the parties have a history and the legal fees/expenses will be substantial, it may make sense to try to set up an early mediation, even prior to the filing of a lawsuit. Sometimes the contract’s alternative dispute resolution (ADR) clause requires mediation prior to litigation/arbitration. The issue is always whether the parties/counsel have enough information about the dispute to make good business decisions about settlement. Early mediation is more likely to work if there is a good working relationship between the lawyers who, with an experienced mediator, can help manage the process to get an acceptable settlement early in the dispute.

What about mediations just prior to trial? Will the parties agree to postpone a trial and stop the preparation process for a late mediation? There are practical issues such as finding a capable mediator at the last second and setting aside a full day or longer for mediation with trial counsel who have been furiously prepping for trial, and probably believe that the request is a stall tactic. With virtually every commercial case going to non-binding mediation, whether by agreement or court order, mediation advocacy is vital. Keep the preceding list in mind in order to avoid some common and very serious missteps in the mediation process.

TODAY’S GENER AL COUNSEL SUMMER 2020

Women-Owned Law Firm continued from page 43

opposing counsel that she started wearing a costume engagement ring to depositions and court to ward off salacious comments. Particularly disappointing are incidents of bullying by judicial officers. One of our seasoned litigators, who had been a partner at several Big Law firms

Our investment paid off as clients, referral sources and friends crowded our art openings. before joining us, had multiple encounters with a male judge last year that left her speechless. When she approached counsel table to argue a motion, the judge directed her to move from counsel table because that seat “is for the lawyers.” This same judge also mocked her in the presence of other counsel and her client. When she sought an adjournment due to a previously scheduled proceeding in another jurisdiction, the judge not only called her a liar (even when she presented proof of the conflict) but also said in a high pitched voice, “Oh Judgy-poo . . . I’d like an adjournment because I’m too busy,” implying that she could not handle her responsibilities. Similarly, one of our lawyers of color has been mistaken for a paralegal and

a court reporter several times by both judges and opposing counsel. Recently, after finishing an oral argument, the judge asked her if her firm did not think the matter was “important enough to send someone else” to handle it. Unfortunately, it’s not only adversaries and judicial leaders who treat our female colleagues less civilly or respectfully. Sometimes male clients, frequently lawyers themselves, agree to our fees and then make attempts to threaten us into reducing them. We encounter similar tactics from some majority-owned firms with whom we are contracted to serve as diverse co-counsel at client request. Despite contractually mandated percentages of work that we are committed to provide, some firms seek to shortchange us from our share, or cut us out entirely. Other firms resort to hiding from us that work was assigned or telling the client that we are unable or have declined to do the work. When these instances come to light, we look to our clients, who have sought that involvement, to ensure that co-counsel honor the agreed terms. Despite the challenges we have faced due to our gender, we are hopeful looking ahead. Inclusion, diversity and equity are now at the forefront of the legal profession. With the overall number of women lawyers rising year after year, the industry will become more equitable within law firms as well as in-house departments. As our profession continues to respond to client expectations for a more inclusive environment, we won’t need to add more seats at the table. The table will already reflect diversity.

Francine Friedman Griesing, Founder and Managing Member of Griesing Law, LLC, a woman-owned and operated firm based in Philadelphia. She represents clients in business transactions, commercial litigation, employment matters, and alternative dispute resolution. She is a published author on legal and business ethics, and is recognized as a leading expert on discrimination, harassment and bullying in the law. fgriesing@ griesinglaw.com

Jessica L. Mazzeo is co-founder and Chief Operating Officer of Griesing Law, LLC. She oversees and implements all of the firm’s business operations while establishing policies that promote and retain its culture and strategic vision. She is the incoming 2020 Chair of the Committee on Inclusion, Diversity and Equity of the Association of Legal Administrators. jmazzeo@ griesinglaw.com

SUMMER 202 0 TODAY’S GENER AL COUNSEL

BACK PAGE FRONT BURNER

Privacy Issues for Communications Service Providers By Siobhan Lewis and David Naylor

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he implementation of social distancing measures around the world in the first quarter of 2020 resulted in a rapid increase in demand for communications platforms, which have been used for everything from government cabinet meetings to wedding and funeral ceremonies. Despite the surge in demand and widespread use of these platforms, many of them have failed to pass muster when it comes to privacy compliance. Zoom Video Communications, Inc., was hit with a class action suit by one of its shareholders, accusing the videoconferencing app of overstating its privacy standards and failing to disclose that its service was not endto-end encrypted. Protecting personal data is a key obligation under data protection legislation, and breaches often attract significant penalties. From a reputation management perspective, security issues also notoriously make headlines. Reports of security breaches, even where no real evidence of the breach has materialized, can quickly result in users cancelling their accounts due to a loss of trust. To implement tight security, platform providers should be conducting data protection impact assessments to consider risk; implementing technical measures appropriate to the risk; continuously monitoring their security framework; and considering the requirement for passwords and the type of encryption necessary, especially for platforms intended for corporate use. As a legal requirement under General Data Protection Regulation (GDPR), privacy should be deeply ingrained at each stage of platform development, taking design and presentation into account. The UK government exemplified the risks here when its Zoom conference ID was accidentally shared online in a cabinet meeting screenshot. Educating users and drafting terms of service that prohibit the unauthorized sharing of screenshots and recording of video calls are other preventative measures. To further ensure privacy by design, platform providers should limit data collection, set geolocation tracking

to “off” by default, and carefully consider the appropriateness of features that allow users to track other users’ use of platforms. As controllers of personal data, transparency is key for communications service providers. Users must be told what information is held about them, who the personal data is shared with, and why it is shared, in a clearly drafted privacy policy. If a provider shares users’ data to enable targeted advertising, for example, it must be done legitimately, which includes telling the user. In Europe, at least, it will generally require their consent. Platforms are also likely to receive inforUsers must mation requests from be told what data subjects. Platforms information can limit their exposure is held about by being aware of the subject’s rights in relathem, who tion to such requests; the personal the relevant time periods data is shared in which to respond; with, and why and by developing and it is shared. implementing efficient data collection, segregation, retention, and deletion policies. Information requests from law enforcement authorities are also steadily growing. Given that different legal frameworks apply in this context, platforms should ensure they understand what they can and cannot disclose. Ultimately, there is a balance to be struck between security and accessibility, as the easier a platform is to use, the less secure it tends to be. Providers of communications platforms should think about this when determining their target audience and the evolution of the platform. Nonetheless, protecting users’ data and ensuring their privacy are non-negotiable obligations and will underpin a platform’s success.

Siobhan Lewis is an Associate at Wiggin LLP. She advises clients in the media and technology sector on commercial, regulatory and data protection matters. siobhan.lewis@ wiggin.co.uk

David Naylor is a partner in Wiggin LLP’s technology transactions group and head of the data protection practice. He works with technology, media and IP-focused businesses, and has significant experience working with U.S. and European companies on international business expansion and cross-border, multi-jurisdictional transactions and projects. david.naylor@ wiggin.co.uk

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Today's General Counsel, Summer 2020

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