Federal Trade Commission To Evaluate Endorsements and Testimonials in Advertising

On February 12, 2020, the Federal Trade Commission (“FTC”) announced that it is seeking public comment regarding endorsements and testimonials in advertising, including those on consumer review websites. The FTC is interested in learning about the connections between the endorser, reviewer, the underlying business, and the medium in which the endorsement is posted.

The FTC is charged with enforcing the Endorsement Guides, as enacted in 1980 and amended in 2009. The Guides provide rules for businesses and other organizations to follow when using endorsement and testimonial advertising, including a requirement to disclose material connections of the endorser. The intent is to ensure that the consumer understands the connections in order to properly evaluate the credibility of the endorsement and testimonial. Based on the evolution of technology, the FTC is particularly concerned with the use of consumer review websites and whether they properly disclose the various connections and incentives.

The FTC is accepting comment from the public regarding these rules and, based on statements from commissioners on the rise of influencers and fake reviews, this could be an area that the FTC decides to revise rules and have stricter enforcement. For businesses and organizations that use consumer reviews and endorsements as a form of advertising, this is the time to ensure that the advertising and marketing efforts comply with the Guides.

VW Contributor: Alex Rainville
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Technology Vendor Due Diligence; Protecting your Brand

Most companies in the modern economy utilize technology to compete in an increasingly competitive marketplace. In order to utilize third-party technology, a business has to obtain a license from the technology vendor or reseller, otherwise risk intellectual property infringement. Even when using open-source software, the use is subject to licensing restrictions and other limitations. While getting the licensing correct is critical to ensuring your business obtains the most value from the technology, an often over-looked element of procuring technology is the due diligence phase.

Technology due diligence is similar to diligence performed on any vendor, such as ensuring the technology will fit your needs and obtaining favorable pricing, but the due diligence should be far more extensive in the modern technological world. By way of example, in the healthcare industry, over 25 million health records have been breached to date in 2019, many of which as a result of a third party technology provider failing to protect the health information. This means that businesses, especially those in a regulated industry where the technology vendor has access to personal information, need to perform additional diligence on third-party technology providers.

The additional diligence should focus on what the vendor is doing with the data and personal information, ensure that the vendor has protections and controls that meet the various, and often overlapping, state, federal, and international data protection rules, and ensure that their technical protections meet industry standards. Although this will likely require obtaining additional expertise from outside your organization, taking these additional steps during the diligence phase will protect your brand from a potential disruptive data breach at a vendor that results in your business being harmed.

 

VW Contributor: Alex Rainville
© 2019 Vandenack Weaver LLC
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Preventing Third Party Harassment

By Matthew G. Dunning

While most employers are aware of their legal obligation to protect employees from harassment by co-workers, supervisors, and managers, a recent case from Mississippi highlights the need to prevent harassment by third parties, including patients and customers. Previous cases have involved harassment by customers at restaurants and casinos, with differing results based on the specific facts.

The plaintiff from the case in Mississippi worked as a CNA for an assisted living center, and was assigned to care for a patient with dementia who had a history of violent and sexual behavior toward patients and employees. The plaintiff alleged that the patient repeatedly made sexual comments and requests, and that he would physically grab her. Management was aware of the behavior based on employee complaints, documentation in the patient’s chart, and firsthand observation. The plaintiff was ultimately terminated for allegedly taking a swing at the patient in a particularly abusive incident during which she was groped and punched repeatedly. Following another incident with a fellow resident, the patient was moved to a nearby all-male facility. Based on affidavits, deposition testimony, and other documentation, the lower court granted summary judgment to the assisted living center, and dismissed the case.

On appeal, the Fifth Circuit noted that Title VII does not prohibit all harassment; a plaintiff must subjectively believe there is severe and pervasive harassment, and the plaintiff’s belief must be objectively reasonable. Previous cases involving repeated verbal sexual harassment by home health and nursing home patients were determined not to be sufficiently severe and pervasive when the conduct was not “physically threatening or humiliating, and did not pervade the work experience of a reasonable nursing home employee.”  That is, potential liability must be considered in light of the specific environment, and the “unique circumstances involved in caring for mentally diseased elderly patients.”  The appeals court held that, contrary to the lower court’s opinion, the allegations of persistent and often physical harassment in this case were sufficient to send the case to a jury.  “The ultimate focus of Title VII liability is on the employer’s conduct; in the case of alleged harassment by a third party, “a plaintiff needs to show that the employer knew or should have known about the hostile work environment, yet allowed it to persist.”

Regardless of potential legal liability, employers should take care to protect employees from this type of behavior. Mandatory training regarding sexual and other harassment should be provided to all employees, and a clear and effective policy and complaint mechanism should be in place so an employee has the opportunity to make allegations, and have them addressed. Supervisory and management personnel should receive separate training on how to recognize harassment and other discrimination, and human resources personnel should be trained on conducting investigations and recommending action by management that will prevent the harassment from continuing.

© 2018 Vandenack Weaver LLC

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Consumer Financial Protection Bureau Prohibits Certain Arbitration Clauses

The Consumer Financial Protection Bureau (“CFPB”) released a final rule that prohibits certain financial service companies from blocking class action lawsuits with pre-dispute arbitration clauses and class action waiver clauses in consumer financial services contracts. The final rule requires arbitration clauses to contain a provision that explains that the arbitration clause cannot be invoked in a class action proceeding and requires parties to submit certain arbitration records to the CFPB whenever an arbitration claim is filed in relation to a consumer that entered a pre-dispute arbitration agreement after the rule’s compliance date.

 

The rule is a consequence of the Dodd-Frank Act of 2010, in which Congress authorized the CFPB to issues regulations that limit or prohibit the use of arbitration agreements in the financial industry.  However, it is unclear whether the broad scope may adversely impact smaller entities that cannot afford to defend themselves against a class action lawsuit.

 

The rule is set to become effective on September 17, 2017 and applies to consumer financial services contracts that are entered into 180 days after September 17, 2017.  Thus, the rule does not affect existing contracts, except when a new financial services entity becomes a party to an older contract. Institutions should prepare to review and update their contract provisions to comply with the final rule.

 

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Department of Labor Clarifies Stance on Still-Pending Overtime Rule

By James Pieper

In 2016, a dramatic overhaul of the rules for eligibility and payment of overtime under the Fair Labor Standards Act (FLSA) was on the verge of taking effect before being halted by an injunction issued by a federal judge.

With a new administration taking over the Department of Labor, the status of the overtime revisions has been uncertain.  Nor was it known whether the Department would defend its authority to revise the rules in the subject litigation.

In a brief filed on June 30, the Department’s new leadership finally provided some clarity.  The Department defended its legal authority to adopt a new rule (as had been challenged by the plaintiffs), but did not defend the actual changes proposed by the prior administration.

Accordingly, although the rule remains in legal and administrative limbo, it is clear that it will not take effect in the form proposed in 2016.  Should the courts conclude that the Department does have authority to set the earning threshold (under which overtime must be paid to non-exempt employees) by administrative rule, then the new Department leadership will adopt a threshold lower than the amount of $47,476 that was set prior to the injunction.

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The Defend Trade Secrets Act

Last summer, Congress enacted the Defend Trade Secrets Act (“DTSA”), which created a federal civil cause of action for misappropriation of trade secrets. Recently, various courts have started to interpret the DTSA, and determined that it does not preempt existing state law, but gives trade secret owners the option to enforce their claims and receive more consistent outcomes than they would in state court. Prior to the DTSA’s enactment, manufacturers and sellers had to bring trade secret misappropriation claims in state court, unless the parties could establish diversity jurisdiction or an independent federal cause of action.  Because state interpretations of the Uniform Trade Secrets Act vary in every state, consistent relief was not always possible.  For example, the definition of “trade secret” and the types of remedies differ across states. However, the DTSA applies nationwide and provides a uniform statute for trade secret owners to rely on in federal court.

The DTSA has important features that will impact trade secret owners.  Notably, it defines “misappropriation” and “trade secret”, which aids in consistent enforcement across state lines.  Additionally, it creates a civil seizure mechanism, which allows courts to order the seizure of property to prevent the propagation or dissemination of the trade secret, even before a formal finding of misappropriation is established and without notice to the alleged wrongdoer.  Last, a whistleblower provision provides immunity to employees from criminal or civil liability under federal or state laws for disclosing a trade secret to an attorney or government official for purposes of reporting or investigating a suspected violation of the law or filing a lawsuit made under seal.

Most controversial is the civil seizure provision, and courts are reluctant to permit seizures unless the plaintiff establishes necessity. Also controversial, federal courts are turning to state courts for guidance in interpreting the DTSA, thus, defeating its underlying purpose of providing uniformity. However, these issues are likely to be resolved over time. Since its enactment, it is estimated that less than seventy cases have been brought under the DTSA, but the law provides an important option for those pursuing trade secret claims.

© 2017 Vandenack Weaver LLC
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A Business Entity on the Rise: The Public Benefit Corporation

Until recently, many entrepreneurs were struggling to use their businesses to create a positive social change, mainly because traditional corporate laws require a corporation’s purpose to focus on maximizing shareholder value. However, the public benefit corporation is a newer business structure that is legally required to consider how its decisions will affect the general public, in addition to how its decisions will maximize shareholder profits. Thus, public benefit corporations can serve the best interests of society while creating value for stockholders.

Approximately thirty-two states recognize benefit corporations. In 2013, Delaware adopted legislation that recognizes the public benefit corporation as an entity and it is currently one of the most popular states for incorporation. Delaware corporation laws require a public benefit corporation to have the corporate purpose of operating in a responsible and sustainable manner. Further, the benefit corporation must identify one or more public benefit purposes. Last, Delaware benefit corporations must report biennially to shareholders about the corporation’s overall impact on the shareholders’ financial interests and on the interest of those identified in the public benefit corporate purpose.

In 2014, Nebraska joined the ranks of the other states that recognize benefit corporations as a legal entity. Nebraska benefit corporations have the purpose of creating general public benefits and may also have specific public benefit purposes, such as the purpose of promoting the arts and sciences. Additionally, the benefit corporation must prepare an annual report for the corporation’s shareholders that identifies the ways in which the benefit corporation pursued a general public benefit during the year and any circumstances that hindered the creation of a general or specific public benefit.

Ultimately, lawmakers hope public benefit corporations will create jobs, improve communities, and use innovative approaches to solve society’s most challenging problems.

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