News Type: Blogs

In the world of international disputes, U.S. discovery processes have long been a double-edged sword. On the one hand, they offer an expansive toolkit for fact-finding; on the other, they present significant challenges for arbitration, a mechanism designed for efficiency and privacy. With the recent narrowing of 28 U.S.C. Section 1782-once a powerful tool for parties seeking discovery in aid of arbitration-the landscape for resolving international disputes is evolving rapidly.

For arbitrators, litigants, and practitioners, understanding these changes is critical to navigating discovery in a post-ZF Automotive era.

U.S. Discovery 101

The U.S. discovery process is markedly broader and more expansive compared to other countries, making it a unique feature of its civil litigation system. Unlike many jurisdictions where judges oversee and control evidence-gathering, U.S. lawyers conduct discovery with significant autonomy, including taking oral depositions and requesting extensive document production. The scope of discovery is broad, allowing parties to request any information that might lead to admissible evidence, even if it establishes liability against the producing party-a concept often restricted in other systems. For instance, while U.S. lawyers can compel the opposing party to produce incriminating documents, many civil law countries limit discovery to evidence supporting a party’s own case and assign judges a gatekeeping role. Additionally, the U.S. heavily incorporates electronic discovery (e-discovery), requiring the production of electronically stored information like emails and metadata, a process less common or developed abroad. While this liberal approach promotes transparency and thorough preparation, it also significantly increases costs and complexity, contrasting with the more streamlined, judge-controlled discovery processes in other jurisdictions, which prioritize efficiency and cost reduction.

The Power-and Limits-of U.S. Discovery in International Disputes

U.S. discovery is renowned for its breadth and reach, allowing parties to compel testimony, request documents, and unearth evidence that can make or break a case. This expansive approach stands in stark contrast to the narrower discovery mechanisms found in many other legal systems, making U.S. courts an attractive venue for obtaining information, even for disputes rooted outside their borders.

Section 1782 of the U.S. Code historically facilitated this by allowing litigants in foreign or international proceedings to petition U.S. federal courts for discovery. Its appeal lay in the ability to access U.S.-based evidence without the cumbersome procedures of diplomatic letters rogatory. Over time, it became a favored tool for international arbitrations as well.

But the U.S. Supreme Court’s 2022 decision in ZF Automotive US v. Luxshare, Ltd. marked a pivotal shift. By ruling that Section 1782 only applies to tribunals “imbued with governmental authority,” the Court excluded private arbitration panels from its scope. This decision left many questions about where discovery for international arbitration stands now.

The Arbitration Conundrum Post-ZF Automotive

Arbitration thrives on principles of efficiency, confidentiality, and party autonomy. The decision in ZF Automotive reinforced the idea that arbitration, as a private dispute resolution mechanism, should not be subject to the broad, court-supervised discovery processes typically reserved for public tribunals. While this aligns with arbitration’s ethos, it presents challenges for parties who rely on U.S. evidence to support their claims.

For example, multinational companies often hold critical evidence within U.S. jurisdictions-documents, financial records, or emails crucial to the outcome of an arbitration. The narrowing of Section 1782 means parties must now look elsewhere to access such evidence.

The State Court Solution: New York and California Leading the Way

Although federal courts have restricted the use of Section 1782, state courts in New York and California provide alternative avenues for discovery. Both states allow pre-complaint discovery in aid of arbitration, albeit under stricter conditions than federal courts once offered.

  • New York: Rule 3102(c) of the Civil Practice Law and Rules permits pre-complaint discovery to aid arbitration when a party can demonstrate necessity or “extraordinary circumstances.” For example, New York courts have ordered discovery to preserve evidence critical to an overseas arbitration, recognizing its potential impact on the arbitral process.
  • California: The state’s Civil Procedure Code under Title 9.3 allows parties to request discovery assistance from state courts, provided the arbitral tribunal approves. This process ensures that state courts complement, rather than interfere with, arbitration proceedings.

For parties who can satisfy these requirements, state court discovery provides a valuable lifeline.

Despite these options, discovery in aid of arbitration remains inconsistent across the U.S. Most states lack explicit provisions allowing courts to assist with arbitration discovery. In some cases, statutes have been repealed or intentionally exclude arbitration. For example:

  • Pennsylvania: Repealed its discovery provision for foreign tribunals, including arbitrations, in 2012.
  • Texas and Florida: Allow pre-complaint discovery to preserve testimony for court cases but make no mention of arbitration, reflecting a broader reluctance to intervene in private dispute mechanisms.

This patchwork of rules may cause uncertainty for international litigants, underscoring the importance of understanding jurisdiction-specific discovery laws.

The Way Forward for International Arbitration

As parties adapt to the post-ZF Automotive landscape, strategic solutions are essential for overcoming discovery challenges. Here’s how arbitration practitioners can navigate this evolving terrain:

Leverage State Courts Where Possible

Familiarity with state-specific rules, particularly in arbitration-friendly jurisdictions like New York and California, is crucial for accessing U.S.-based evidence. Both states allow pre-complaint discovery in support of arbitration under specific circumstances, offering a valuable alternative when federal courts are unavailable.

Draft Tailored Arbitration Agreements

Parties should proactively address discovery needs during contract negotiations by including tailored provisions for evidence gathering. For example, specifying mechanisms for document production or interim relief can prevent uncertainty and reliance on judicial interpretation.

Explore Parallel Litigation Applications

Parallel litigation can be a powerful tool for parties seeking interim relief or addressing discovery challenges in arbitration. Courts can provide remedies that arbitral tribunals may lack the authority to enforce, offering a practical solution for preserving rights and securing compliance. For instance:

Preliminary Injunctions: These orders can prevent the destruction of evidence or ensure that critical information remains available for arbitration proceedings.

Attachments and Freezing Orders: These measures secure assets or preserve evidence at risk of being hidden or dissipated before a tribunal can act.

Pursue Alternative Evidence Sources

When U.S.-based discovery is unavailable or restricted, parties should explore other avenues, such as:

  • Letters Rogatory: Requesting judicial assistance through diplomatic channels to obtain evidence from foreign jurisdictions.
  • Arbitral Tribunal Orders: Seeking evidence directly under the procedural rules of the arbitration institution or tribunal.

These methods may require careful navigation of cross-border legal systems but can yield critical results when local discovery options are insufficient.

Monitor Evolving Case Law

The interpretation of Section 1782 and related discovery rules continues to evolve. For example, courts are clarifying the boundaries of what constitutes a “tribunal imbued with governmental authority.” Staying informed about these developments is essential to identify emerging opportunities or mitigate risks.

Conclusion

The restrictions imposed by ZF Automotive have reshaped the discovery landscape for international arbitration, but they also invite innovative strategies. By leveraging state courts, drafting robust arbitration agreements, employing parallel litigation for interim relief, and exploring alternative evidence sources, parties can adapt effectively to these challenges.

The key to success lies in a proactive and adaptable approach. International arbitration remains a cornerstone of global dispute resolution, and practitioners who navigate these evolving dynamics skillfully will ensure that their clients are well-positioned in any forum.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

Every year, tons of unwanted garments end up in landfills across the United States. This waste problem continues to escalate, driven largely by the rise of “fast fashion,” which prioritizes speed over sustainability and produces garments meant to be worn only a few times. This practice is at odds with the fashion industry’s stated sustainability goals, which encourage designs that facilitate reuse, repair, and recycling.

The Rise of Fast Fashion and Sustainability Efforts

For both fashion brands and consumers, focus has increasingly shifted to sustainability and circularity, which has become a ‘make-or-break’ factor for fashion brands. New York Fashion Week illustrated this shift clearly, serving as a platform for designers to showcase eco-friendly innovations that seek to marry style and environmental consciousness. For example, Christian Siriano showcased two pieces-a trench coat and a wide-leg pant set-made from Circ Lyocell, a fabric made using 40 percent recycled textile waste. Siriano’s choice not only underscored his commitment to integrating sustainability into fashion, but also showed that eco-friendly materials can deliver the same elegance as traditional fabrics.

For its part, Coach also transformed used leather jackets, chinos, and discarded pajamas into trendy, streetwear-inspired looks. By turning what could have been waste into fashion pieces, Coach tapped into Gen Z’s desire for both individuality and environmental responsibility. And in a fitting commentary on fashion’s waste problem, British performance artist Jeremy Hutchison took to the streets with his ‘Clothing Zombie,’ designed to portray the 92 million tons of textile waste produced globally each year. Hutchison, dressed as an eight-foot-tall ‘zombie’ made of discarded clothing, is still making daily appearances in New York to symbolize the fashion industry waste problem ‘zombie in the room’.

The Economic Challenges of Sustainability

Solving this waste problem and fostering sustainability through the use of natural materials to supplant synthetics is a daunting task. Two brands that had strong followings-New York’s Mara Hoffman and Australia’s Kit X-succumbed to the increased cost of natural materials, with the competitive fashion industry not shifting significantly enough to prioritize sustainability over the fast pace of production and staying ahead of trends. In addition to grappling with the increased cost of producing garments and getting them to market, fashion brands may have to deal with additional costs at the back end of a product’s useful life.

The Responsible Textile Recovery Act of 2024

Enter the Responsible Textile Recovery Act of 2024 (the “Textile Recovery Act”), a bill approved by both houses of the California legislature earlier this month. This first-of-its-kind bill, now awaiting Governor Newsom’s signature by September 30, calls for the creation of an Extended Producer Responsibility Organization (EPRO) for apparel and other textile products, designed to manage the collection, sortation, and recycling of discarded products.

The proposed Textile Recovery Act requires companies that make clothing and other textiles sold in California to create a non-profit organization by 2026 that would set up hundreds of collection sites at thrift stores, begin mail-back programs, and implement additional recovery and recycling measures for discarded products. Clothing producers and retailers doing business in California will have to pay fees to the EPRO to finance the plan for collection, transportation, repair, sorting, and recycling of used garments. Similar programs already exist in California for the disposal of mattresses, carpets, and pharmaceuticals. For example, California’s Used Mattress Recovery and Recycling Act requires that mattress retailers take back customers’ used mattresses at no additional cost and then arrange and pay for recycling.

Industry Pushback and Revisions

It is no surprise that the Textile Recovery Act has met with significant pushback from various fashion industry trade groups, especially concerning who will be responsible for the costs of the EPRO. One contentious issue has been whether large third-party vendors like Amazon, Temu, and Shein-who sell substantial volumes of garments in California-would be required to contribute financially. In response to this, the bill was revised to include brands, retailers, and importers in the definition of “producers,” ensuring these large third-party platforms are held accountable.

Industry players also expressed concern over the types of recycling deemed acceptable. Fashion brands with existing take-back programs, resale, and reuse efforts wanted these initiatives recognized as valid recycling measures. The bill was adjusted to address some of these concerns, allowing advanced textile recycling to be included as an acceptable channel for the disposal of waste.

Compliance and Enforcement

California’s Department of Resources Recycling and Recovery (CalRecycle) will oversee the implementation of the Textile Recovery Act, which includes approving the EPRO and monitoring compliance. Clothing manufacturers, retailers, and third-party sellers who make over $1 million per year selling covered goods in California will be required to participate in the EPRO. Failure to comply could result in fines of up to $10,000 per day, or up to $50,000 per day for willful non-compliance.
Looking Ahead: Will the Textile Recovery Act Move the Needle?

Whether Governor Newsom signs the Textile Recovery Act by the end of the month remains to be seen. Should it pass, the legislation could have profound implications for an industry already grappling with the costs of sustainability.

On the one hand, the proposed law may spur further innovation, much like the creative recycling efforts showcased at New York Fashion Week by Christian Soriano and Coach. Designers and brands could be incentivized to adopt sustainable materials or explore ways to reuse second-hand goods, potentially reducing the volume of discarded garments. The rise of second-hand fashion, as seen in events like the Council of Fashion Designers of America’s “Pre-Loved Fashion Week,” could become a permanent fixture in the industry.

Conversely, the added costs of compliance could disproportionately burden smaller fashion brands, which already struggle to compete in a market dominated by fast fashion and larger players. These smaller companies may face the same fate as Mara Hoffman and Kit X or become targets for acquisition as the industry consolidates further.

One thing is certain: fashion industry players should monitor Governor Newsom’s decision closely. If signed into law, the Textile Recovery Act will necessitate significant adjustments to business models, and brands will need to prepare to shoulder the financial and logistical burdens that come with compliance.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

On August 5, 2024, U.S. District Judge Amit P. Mehta ruled that Alphabet’s Google violated U.S. antitrust laws through its search business practices. This landmark decision represents a significant victory for the Department of Justice and a coalition of state attorneys general seeking to curtail the market power of Big Tech.

In his 286-page opinion, Judge Mehta declared, “Google is a monopolist, and it has acted as one to maintain its monopoly.” The court found that Google had abused its dominant position in the online search market, commanding approximately 90% of web searches and 95% on mobile devices.

The Court’s Key Findings

  1. Sherman Act Violation: Google violated Section 2 of the Sherman Antitrust Act by maintaining its monopoly in online search and search advertising markets.
  2. Anticompetitive Agreements: Google’s exclusive contracts with OEMs like Apple and Samsung to be the default search engine were deemed anticompetitive. In 2021, Google paid Apple approximately $18 billion for default status.
  3. Foreclosure of Competition: These practices hindered competitors like Microsoft’s Bing and DuckDuckGo from gaining market share.
  4. Monopoly Pricing: Google’s pricing in search advertising exceeded rates that would prevail in a competitive market.

This antitrust case, initiated in 2020, marks the most significant digital age antitrust decision since the Microsoft case of the late 1990s. It sets a precedent that could influence pending actions against other tech giants including Apple, Amazon, and Meta.

Next Steps and Potential Outcomes

  1. Appeal Process: Google is expected to appeal to the U.S. Court of Appeals for the D.C. Circuit, which could take several months to a year.
  2. Remedy Hearing: Judge Mehta will likely schedule a remedy hearing to determine injunctive relief, potentially including:
    • Prohibiting exclusive default search agreements
    • Mandating equal access for competing search engines on devices
    • Potential divestiture of certain Google business units
  3. Stay of Remedies: Google may request a stay of imposed remedies pending appeal.

Google’s Potential Strategies

  1. Legal Arguments: On appeal, Google may challenge the court’s market definition, argue that its practices enhance consumer welfare, and assert that the ruling stifles innovation.
  2. Compliance Measures: Google might proactively modify contractual arrangements, increase transparency in search algorithms, and enhance user options for default search engines.
  3. Public Relations: Google is likely to highlight its contributions to technological innovation and economic growth.
  4. Legislative Engagement: The company may seek to influence potential antitrust reform legislation.

The Potential Supreme Court Outlook

If the case reaches the U.S. Supreme Court, several factors could influence the outcome:

  1. Conservative Majority: The current Court’s conservative majority has shown skepticism towards broad interpretations of antitrust law.
  2. Evolving Antitrust Doctrine: The Court may update antitrust doctrine for the digital age, considering factors beyond consumer pricing.
  3. Precedent Considerations: The Court’s decision in Ohio v. American Express Co. (2018), dealing with two-sided markets, could influence their view of Google’s business model.
  4. Economic Impact: The Court may consider the broader economic implications of altering Google’s business model.

Global Implications

The U.S. ruling against Google’s search practices could have global repercussions, particularly in Europe and other regions with growing tech regulation:

In the European Union

  • Reinforce Existing Stance: This ruling may reinforce the EU’s aggressive approach and accelerate ongoing investigations into Google.
  • Digital Markets Act (DMA) Implementation: The ruling could influence DMA implementation, aimed at ensuring fair competition in digital markets.

In the United Kingdom

  • Post-Brexit Regulatory Alignment: The UK’s Competition and Markets Authority (CMA) may align with this ruling in their own investigations.

In Asia-Pacific

  • Japan and South Korea may pursue their own antitrust actions.
  • China might use this ruling to justify regulatory actions against both domestic and foreign tech giants.

In the Global South

  • Developing nations may model their digital market regulations on this case.
  • Countries negotiating with Google for market access may leverage this ruling for more favorable terms.

Conclusion

This landmark case underscores the complex interplay between technological innovation, market dynamics, and regulatory frameworks in the digital age. As it progresses through the judicial system, it will shape the future of antitrust enforcement in the tech sector. The Supreme Court’s stance could set a precedent for applying antitrust laws to digital platforms and tech giants, with far-reaching implications for the tech industry and broader economy.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

California’s recent reforms to the Private Attorneys General Act (PAGA) have introduced new limits on penalties for employers that can demonstrate they have taken “all reasonable steps” to comply with the law. These penalty caps-discounting PAGA claims up to 85%-are crucial, especially considering that PAGA claims can sometimes amount to seven-figure penalties. To be sure, employers operating in California should consider conducting a privileged wage-and-hour audit to leverage these new rules and mitigate potential financial liabilities.

What Are “All Reasonable Steps”?

To qualify for the penalty caps, employers must take “all reasonable steps,” which can include

  • Performing regular payroll audits and addressing any discrepancies found.
  • Distributing lawful written policies to employees that comply with relevant labor laws (and ensuring these policies are regularly updated).
  • Training supervisors on Labor Code and wage order compliance to ensure they understand and follow the rules.
  • Correcting supervisor actions when necessary to maintain compliance

The assessment of these actions’ reasonableness takes into account the overall context, including an employer’s size, resources, and the nature of any potential violations. Even if an employer takes all reasonable steps, there may still be evidence of violations, and often are, given the breadth of the Labor Code.

It’s important to note that these penalty caps do not apply if a court finds that the employer acted maliciously, fraudulently, or oppressively, or if the employer has been found guilty of similar unlawful practices by a court or the Labor Commissioner within the past five years

Applicable Penalty Caps: Discounts from 70% to 85

  • 15% Cap: This cap applies if the employer can demonstrate that they took all reasonable steps before receiving a PAGA notice or a request for personnel records.
  • 30% Cap: This cap applies if the employer takes all reasonable steps within 60 days after receiving a PAGA notice

For example, an employer facing potential penalties of $500,000 for violations across 20,000 pay periods could see a significant reduction. Demonstrating compliance before a PAGA notice could reduce the penalties to $75,000 (15%), while taking corrective actions within 60 days of receiving the notice could cap the penalties at $150,000 (30%)

The Importance of Attorney-Client Privileg

Conducting wage-and-hour audits under the protection of attorney-client privilege is critical. This privilege shields sensitive communications from discovery, protecting employers from having their internal discussions exposed to plaintiffs. Without legal counsel’s involvement, any findings from an audit, such as incorrect wage rates, could become accessible to plaintiffs’ attorneys, potentially leading to further legal complications

Final Thoughts

Employers in California should act promptly to conduct a wage-and-hour audits, update their policies and ensure that management training is occurring on a regular basis. By doing so, employers can take advantage of the recent PAGA reforms, which offer a substantial reduction in potential penalties to 15% or 30%. This proactive approach not only helps mitigate the risk of substantial financial penalties but also safeguards against individual wage-and-hour lawsuits and state investigations.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

The rapid advancement of generative artificial intelligence (GAI) technologies presents both opportunities and challenges for the lawyers. Given the speed with which GAI is being leveraged among law firms, the American Bar Association (ABA) just issued Formal Opinion 512, providing critical guidance on the ethical use of these tools in legal practice. No doubt about it, GAI can enhance efficiencies and accuracy in tasks such as legal research, contract review, and predictive analytics. But with the good come significant ethical concerns-many of which are discussed here-along with some insight into how legal professionals can circumvent the ethical pitfalls associated with ChatGPT and the like.

Competence: Mastering the New Tools 

One of the foundational principles in the ABA’s guidance is the duty of competence. Lawyers must ensure they have a reasonable understanding of the GAI tools they rely upon, including capabilities and limitations. This does not mean that attorneys need to become AI experts. Instead, they must be aware of how the technology works, what data it relies on, and the potential risks associated with its use.

Competence also involves staying updated with technological advancements. As GAI evolves at an extraordinary pace, lawyers must continuously educate themselves about new features, risks, and ethical considerations. This ongoing education can be achieved through self-study, attending continuing legal education (CLE) programs, or consulting with experts in the field.

Importantly, lawyers should not rely solely on the substantive work product of ChatGPT or similar platforms without independent verification. The ABA highlights the risks of “hallucinations” in GAI-situations where the AI generates plausible-sounding but inaccurate or fabricated information. For this reason, attorneys must carefully evaluate and verify AI-generated content before relying on it in legal documents, client communications, or court submissions. Failing to do so could result in inaccurate legal advice or misleading representations, potentially violating the duty of competence.

Confidentiality: Safeguarding Client Information 

Confidentiality is a cornerstone of the attorney-client relationship, and the use of GAI tools introduces certain red flags in this area. Consequently, lawyers must be mindful of the risks of disclosing confidential client information when using GAI. This is especially the case when employing self-learning AI systems that could potentially store and reuse information from multiple sources.

By virtue of the confidentiality conundrum, the ABA emphasizes the importance of informed consent in situations where client information might be disclosed. This means legal professionals should explain to clients the potential hazards and benefits of using GAI tools, including any privacy concerns. As a practical matter, the discussion between attorney and client must be thorough and tailored to the specific circumstances of the case and the technology in question.

It is important to note that general boilerplate language in engagement letters may not suffice. Clients need to understand the specific risks associated with the use of GAI, such as the potential for inadvertent disclosure of sensitive information. Likewise, clients must be assured that appropriate safeguards are in place to protect their data, which may involve consulting with IT professionals or cybersecurity experts.

Communication: Transparency with Clients

Effective communication is vital in maintaining trust and ensuring that clients are fully informed about their legal representation. According to the ABA, lawyers must consider whether their use of GAI tools should be disclosed to clients under Model Rule 1.4, which covers the duty to communicate, even in the absence of privacy concerns.

Of course, the necessity of disclosure depends on various factors, including the significance of the GAI tool’s output in the representation and the potential impact on the client’s decision-making. For example, if a GAI tool is used to generate an analysis that significantly influences a case strategy, the client should be informed. Similarly, if the use of GAI affects the reasonableness of legal fees, this should be communicated to the client as well.

Bottom line, even when not required, voluntary disclosure about the use of GAI tools can foster transparency and trust. Including information about GAI use in engagement agreements can help set clear expectations and ensure clients are comfortable with the technology being employed.

Meritorious Claims and Candor: Upholding Integrity

In litigation, the use of GAI tools must align with ethical standards, particularly concerning meritorious claims and candor toward the tribunal. Attorneys are responsible for ensuring that any AI-generated content used in court filings or communications is accurate and truthful. This includes verifying citations, ensuring that legal arguments are well-founded, and avoiding the submission of misleading or false information.

The ABA warns against relying on GAI tools without proper oversight, as doing so could lead to violations of ethical duties. For instance, if ChatGPT generates an inaccurate legal analysis or cites non-existent case law, the lawyer must correct these errors before submitting any documents to the court. The responsibility for accuracy ultimately rests with the lawyer, not the AI tool.

Supervisory Responsibilities: Ensuring Compliance 

Legal professionals in supervisory roles have a duty to ensure that all lawyers and non-lawyers in their firm adhere to ethical standards when using GAI. This includes establishing clear policies on the permissible use of such tools, providing necessary training, and appropriately supervising work.

Training should cover the ethical and practical aspects of GAI and hit upon the technology’s capabilities and limitations. Attorneys should also be aware of any and all security measures in place to protect client information and the potential risks associated with GAI use.

Fees: Transparency and Reasonableness 

The ABA’s guidance also addresses the issue of billing for the use of GAI tools. Lawyers must ensure that fees charged for GAI-related work are reasonable and transparent. This includes clearly communicating the basis for any charges related to GAI and ensuring that clients are not overcharged for the efficiency gains provided by these tools.

For example, if a GAI tool enables a lawyer to complete a task more quickly than traditional methods, it may be unreasonable to charge the same fee as if the work had been done manually. Attorneys should also avoid billing clients for general overhead costs associated with GAI tools, such as subscriptions or software maintenance, unless explicitly agreed upon.

Final Thoughts 

The ABA’s Formal Opinion 512 makes clear that lawyers must navigate the evolving landscape of AI technology with a commitment to competence, confidentiality, transparency, and integrity. By doing so, they can harness the benefits of GAI tools while upholding the highest ethical standards in their professional conduct.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

In the face of a potential ballot measure threatening the elimination of Private Attorneys’ General Act (PAGA) actions, Governor Gavin Newsom signed Assembly Bill 2288 and Senate Bill 92 into law yesterday (July 1), both of which take effect immediately.

Under the amended laws, employers are expected to finally have some relief from the extreme financial burdens imposed by PAGA. While PAGA will continue to be an avenue for employees and former employees to bring representative actions, these actions and the related penalties will be far more limited. Some of the key changes built into the amended laws are summarized as follows:

1. Plaintiffs must experience a given violation themselves, within the applicable statute of limitations, to bring a PAGA claim. To date, Plaintiffs have been able to bring claims on behalf of others, even if they did not experience the violation personally.

2. Certain penalties will be capped where employers have taken all reasonable steps toward compliance. This incentivizes employers to cure and allows an opportunity to reduce penalties where policies and practice are no longer violative. For example, there will be a 15% cap on penalties for employers who took all reasonable steps toward compliance before receiving a PAGA notice and a 30% cap on penalties for employers who took all reasonable steps toward compliance within 60 days after receiving a PAGA notice. This will be particularly beneficial to help reduce serial litigation against the same employer. There will also be reduced penalties for wage statement violations and violations that only occurred within a limited time period.

3. In addition to civil penalties, Plaintiffs will now be able to seek injunctive relief under PAGA.

4. Courts will now be specifically empowered to rule on manageability concerns which includes limiting evidence at trial and limiting the scope of PAGA claims in a given case. This is particularly important given the dearth of procedural mechanisms to combat these cases.

The amended laws also provide clarification on when larger penalties are permissible and creates other limitations, including on derivative claims. All of these changes should be carefully reviewed, as they will certainly impact future litigation.

While the reform will only apply to civil actions filed after June 19, 2024, we expect that courts may find this action persuasive and consider this change when awarding PAGA penalties with respect to currently pending litigation. That being said, employers should leverage this legal update and the related legislative history to argue for reduced penalties, as possible.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

As a means to regulate modeling and creative agencies and provide basic labor protections to the creative workforce behind the fashion industry-models, influencers, artists, and stylists-the New York Fashion Workers Act (FWA) was introduced by Senator Brad Hoylman-Sigal and Assemblymember Karines Reyes back in March 2022. Recently, legislators in New York amended the bill to require fashion companies to obtain written consent to use a model’s digital replica, as more designers and brands leverage artificial intelligence to supplement traditional photography. The amendment aside, it has been more than two years since the introduction of the FWA and progress toward the legislation becoming law remains slow. Yet for those who are the literal faces of the fashion industry, passage of the FYA cannot come soon enough.

Closing a Loophole

The FWA seeks to address the current treatment of models, influencers, artists, and stylists as “independent contractors” under the terms of the Fair Labor Standards Act. Unlike talent agencies, modeling and creative agencies are considered “management companies” under New York State General Business Law §171(8)-commonly known as the “incidental booking exception,” which allows these entities to escape licensing and regulation. As a result, fashion creatives are generally deprived of basic labor protections.

Along with Paris, Milan and London, New York City is one of the four global fashion capitals of the world, a distinction highlighted every year during the semiannual New York Fashion Week that pumps hundreds of millions of dollars into the local economy. Adding to its stature as a fashion mecca, New York is also home to three of the most prominent fashion design schools in the country: the Fashion Institute of Technology, Parsons School of Design, and Pratt Institute.

By virtue of the importance of the fashion industry to the state, Senator Hoylman-Sigal continues to fight for passage of the FWA, making clear that New York must ensure that models and other creative workers are not exploited and instead are afforded workplace protections that guarantee fair compensation and treatment.

Fairness for Models in Particular

The exploitation of models has been a hot-button topic for years. This is because modeling agencies generally have power of attorney as part of their agreements with models. Consequently, they can accept payments on behalf of models, deposit checks, deduct expenses, book jobs, negotiate rates of pay, and give third parties permission to use a model’s image. This leaves models unprotected outside the terms of their individual contracts that tend to be agency friendly.

For their part, models often wait months to get paid for jobs, and only after commissions (up to 20%) and various other fees are deducted. To make matters worse, young models are frequently crowded into apartments and charged monthly rents that exceed market value-this on top of them being held to exclusive, multi-year contracts without any promise of work or timely payment.

In response, the FWA would, among other things, require modeling agencies to provide models with copies of contracts and agreements, notify formerly represented models when royalties are collected on their behalf, and protect models’ health and safety, including by establishing a zero-tolerance policy for abuse. Bigger picture, the bill, as proposed, would impose a fiduciary duty on these agencies to act in the best interests of the talent.

Affirmative Obligations

The FWA would also force the discontinuation of certain offensive existing practices; among them, imposing powers of attorney as a necessary condition for models to obtain contracts, collecting signing fees or deposits from models and interest on their earnings, charging more than fair market rates for rent, deducting fees or expenses beyond agreed upon commissions, renewing contracts without a model’s affirmative consent, insisting on commissions greater than 20% of a model’s compensation, taking retaliatory actions against models for filing complaints, and engaging in discrimination or harassment of any kind.

Likewise, the FWA would require clients hiring models to provide overtime pay and meal breaks for work that exceeds eight consecutive hours and liability insurance to cover the health and safety of models. Pursuant to the FWA, clients additionally would be compelled to allow models on the job to be accompanied by chaperones and otherwise adhere to zero-tolerance policies in terms of abuse.

The Clock Is Ticking

Just last month, the New York Senate Labor Committee passed the FWA for the third year in a row. Now, the Model Alliance, which co-sponsored the bill, is urging state lawmakers to pass the FWA in both chambers before the legislative session ends in June. While ambitious in timing, it seems that there is room for optimism. Indeed, the FWA, like the New York Fashion Sustainability and Social Accountability Act, is gaining momentum as lawmakers in New York are poised to reshape the fashion industry.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

The New York Fashion Sustainability and Social Accountability Act (Fashion Act) is back on the agenda of the New York State Legislature. Introduced in 2022, and then reintroduced in 2023, the bill seeks to level the playing field among fashion companies by requiring improved due diligence on both environmental and human rights issues. The Fashion Act would not only govern companies based in New York, but also those that sell product in New York. In essence then, every major fashion company would be affected by its passage. Suffice to say the legislation is no small matter to the $2.5 trillion fashion industry.

If the Fashion Act is ultimately signed into law, apparel, footwear, and handbag companies with global revenue of $100 million or more would have to map out their entire supply chain, undertake mandatory due diligence, commit to science-based targets to reduce greenhouse gas emissions, and publish details on their management of chemical usage.

The Justification for Legislative Action

Sponsors of the Fashion Act stress the fashion industry has an enormous environmental and social footprint as a leading greenhouse gas emitter, user of industrial chemicals, and exploiter of global labor. Specifically, they cite that the sector is responsible for up to 8% of the world’s greenhouse gas footprint, and project this to increase dramatically as new “fast fashion” industry players like Shein continue to thrive. So too, they cite that the fashion space is a significant user of chemicals, with manufacturing processes in textile mills resulting in toxic waste. That waste, if mismanaged, can not only impact textile workers’ health but can also be released to local waterways impacting surrounding communities. Finally, backers point to the fashion industry’s heavy reliance on cheap labor to produce goods leads to exploitation ranging from underpayment to poor working conditions to physical abuse of the child or predominantly female workforce.

Those supporting the bill also stress that it is needed to “level the playing field,” as those fashion companies who are voluntarily acting responsibly as environmental and social stewards are at a significant competitive disadvantage. Their operational and production costs are necessarily higher than those fashion companies that emphasize the bottom line over the environment, sustainability goals, and labor impacts. A case in point is the rapid success of new fast fashion players like Shein, which is taking over market share as it doubled profits last year to more than $2 billion by offering products to an impulsive consumer base at rock bottom prices and nearly instantaneous production which largely remains unchecked.

Compliance & Enforcement

The New York Department of State, working alongside relevant state agencies, would be tasked with developing regulations to guide fashion company compliance with the Fashion Act and enforcement would fall to the New York Attorney General, or the Attorney General’s designated administrator. Companies found to be out of compliance, and which do not remedy that non-compliance within three months of notice, could be fined up to 2% of annual revenues. The revenue generated by such fines would go toward environmental benefit or worker protection programs.

Gathering Momentum

The Fashion Act, which has been languishing in the New York State Legislature for two years, seems to be gaining steam. Indeed, backers say the legislation has renewed momentum, but still faces a battle to compete for attention with other pressing issues during this busy 2024 election year. The momentum is calculable as fashion brands and celebrities alike throw support to passage of the Fashion Act.  For example, Angelina Jolie’s fashion label, Atelier Jolie, has recently joined the ever-growing list of companies supporting passage. Other leading companies that would themselves be regulated by the Fashion Act but are nevertheless behind it include Stella McCartney, Patagonia, Eileen Fisher, Ganni, Mara Hoffman, Reformation, Thrilling, Another Tomorrow, L’Estrange, and Everlane. Celebrity support is driven by the likes of Leonardo DiCaprio, Rosario Dawson, Jane Fonda, Cameron Diaz, Andie MacDowell, Ciara, Russell Wilson, and Zooey Deschanel, all of whom are lending their endorsement to the Fashion Act.

Is Now the Time That New York Regulates Fashion?

The short answer: this remains to be seen.

Many claim the Fashion Act seeks to impose a heavy burden on fashion companies, particularly smaller ones. The legislation’s extensive supply chain due diligence requirements, under which fashion companies would be required to identify, cease, prevent, mitigate, and account for actual and potential adverse impacts to human rights and the environment in their own operations and supply chain, are significant. Likewise, the requirement to perform mandatory due diligence, coupled with independently verified disclosure, around wages is viewed as a daunting task.

At the same time, some critics claim that the bill does not go far enough. They assert that the Fashion Act in its current form does not provide a means to hold fashion companies accountable for the damages they cause. These critics highlight that the legislation only requires the disclosure of information on supply chains, not actual improvement of their sustainability. Accordingly, naysayers suggest that the Fashion Act is too focused on how a fashion company communicates its targets and operations, rather than on how it will actually achieve remedial goals.

In addition, critics note it is unclear how the science-based targets to reduce greenhouse gas emissions would be monitored, as the Fashion Act does not obligate fashion companies to act on the targets or attempt to hit them. And finally, those critical of the bill state that while it asks companies to disclose 50 percent of their supply chain, the legislation does not specify which part of the chain they should detail, allowing room for interpretation and the ability to be selective in what information fashion companies actually share-giving rise to concerns that the Fashion Act is weaker than similar measures being undertaken in France and other countries.

A Reason for Optimism

While passage of the Fashion Act continues to be stalled by a busy New York State legislative agenda and concerns about whether there is too much or not enough teeth in the bill, winds are blowing in a favorable direction. Indeed, momentum seems to be growing for New York to reshape the fashion industry with the passage of the Fashion Act in an effort to foster a more sustainable, ethical, and socially responsible fashion ecosystem.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations. 

On December 14, 2023, a significant stride was made in the battle against global corruption when the U.S. Congress passed the Foreign Extortion Prevention Act (FEPA). This landmark legislation addresses a critical gap that has long existed within the framework of the U.S. Foreign Corrupt Practices Act (FCPA).

The FCPA, a cornerstone in the fight against corruption, prohibited U.S. companies and individuals from engaging in the act of offering bribes to foreign officials. Despite its broad scope, a glaring omission was evident: it did not tackle the demand side of bribery, leaving a loophole that could be exploited. This contrasts sharply with the anti-corruption laws of other nations such as the UK, France, Germany, and Switzerland, which address both sides of the bribery equation.

FEPA has now boldly stepped in to criminalize the demand side of bribery, marking a watershed moment in legal and ethical standards for international business operations.

The Jurisdictional Reach of FEPA

FEPA extends its jurisdictional arm to cover bribery demands made by foreign officials directly to issuers of U.S. securities, U.S. domestic concerns, or any person on U.S. soil. These demands could be in exchange for any act or omission in their official capacity that confers a business-related benefit. This broad reach ensures that FEPA has the muscle to tackle corruption head-on, regardless of where it occurs.

Who Counts as a Foreign Official?

Under FEPA, the definition of a ‘foreign official’ is both detailed and expansive, building on the foundation laid by the FCPA. It includes not just officials of foreign governments and public international organizations, but also individuals acting in any official capacity on their behalf. Furthermore, it encompasses senior foreign political figures, their family members, executives of government-owned businesses, and even those acting unofficially for or on behalf of foreign entities. Despite certain challenges due to diplomatic and other immunities, this broad definition is a crucial tool in the U.S. prosecutors’ arsenal, allowing them to address a wide range of corrupt practices.

The Consequences of Violating FEPA

The stakes for violating FEPA are high, with the law imposing severe penalties. Individuals found guilty of breaching its provisions face up to 15 years in prison, alongside a hefty fine that could reach $250,000 or three times the value of the bribe involved. These stringent consequences underscore the U.S. government’s fight against international corruption.

Implications for Businesses

The enactment of FEPA signifies a clear commitment to combating international corruption. This development necessitates that companies revisit and, if necessary, update their FCPA compliance programs to align with the new legal landscape. It is imperative that businesses educate their employees about FEPA’s provisions to ensure full compliance and avoid the severe repercussions of law breaches.

A New Chapter in the Fight Against Corruption

FEPA represents a bold step forward in the global fight against corruption. By closing a critical loophole in existing legislation, it strengthens the hand of those working to maintain integrity in international business practices and foster a corruption-free world.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

The world’s top 100 luxury goods companies experienced substantial growth in 2023, recording a 13.5 percent year-over-year increase in composite sales, reinforcing their prominence and profitability. This coincides with an industry-wide push to promote environmentally responsible practices within the fashion space, according to the Global Powers of Luxury Goods 2023 report published by Deloitte this past January-a report that underscores the growing integration of digital technology and artificial intelligence as catalysts for sustainability.

Indeed, major luxury brands are actively embracing the circular economy and prioritizing sustainability in their core strategies and Environmental, Social, and Governance (ESG) criteria. Notably, Prada recently joined the Sustainable Markets Initiative’s Fashion Task Force, alongside other industry giants like Burberry, Brunello Cucinelli, and Giorgio Armani. This coalition is dedicated to advancing sustainability initiatives in fashion, including the development of the Digital Product Passport, which provides consumers with transparency regarding a product’s origin, sustainability credentials, ownership history, and recycling information.

To their credit, luxury companies are diligently monitoring their sustainability commitments and objectives such as net-zero targets and supply chain traceability are being increasingly driven by consumer awareness of ESG matters. This heightened sensitivity is influencing product offerings, prompting luxury brands to explore environmentally friendly materials and adopt sustainable practices throughout the product lifecycle, epitomizing the concept of “sustainable by design.”

Government regulations and reporting requirements are also shaping the sector’s transition to environmental responsibility. The proposed New York Fashion Sustainability and Social Accountability Act, for instance, would mandate companies with annual revenues exceeding $100 million disclose global supply chain maps and chemical management details, with non-compliance subject to penalties.

Challenges Persist

The fashion industry has long been criticized for the environmental impact of its production processes and consumption practices-and skeptics remain. The rise of “instant fashion,” characterized by “mobile commerce, AI, live shopping and real time, real-cheap product creation,” as dubbed by Harvard Business Review, poses environmental risks due to increased carbon emissions and water contamination. Exhibit A: Shein, the instant-fashion leader and a company that thrives on an impulsive consumer base and a data driven supply chain model that strives (and succeeds) at meeting the demands of its consumers by offering products at rock bottom prices and nearly instantaneous production. While surveys indicate that consumers seek more environmentally conscious products and fashion companies desire to meet these demands through sustainability and related efforts, there has been little progress toward those ends, as suggested in a recent Harvard Business Review article. So too, there is undeniable profitability in the Shein “fast fashion” model. Case in point, Shein doubled its profit last year to more than $2 billion and awaits approval from U.S. and Chinese regulators as it prepares for what is expected to be the biggest IPO of the year.

Nevertheless, luxury brands are adapting to evolving consumer preferences by exploring avenues like the second-hand market to extend product lifecycles and appeal to environmentally conscious consumers. These companies are discovering how the preowned category can help extend the lifetime of products and increase the relevance of their brands among younger, more environmentally conscious consumers. To be sure, investments in digitalization and innovative business models, such as resale and rental, underscore the industry’s commitment to sustainability and resource efficiency.

These transformations align with broader shifts in the luxury market, including younger generations driving consumption and online platforms emerging as primary channels for high-end purchases. Moreover, efforts to appeal to environmentally conscious consumers are evident in the luxury industry’s focus on developing sustainable biomaterials and refining sustainable practices across the value chain.

Conclusion

The likes of Shein notwithstanding, the shift in the fashion space towards sustainable practices, transparency and circular economy principles represents a straight line to a more responsible future. As luxury brands continue to adapt to regulatory pressures and consumer demands, the integration of sustainability into their core operations will be crucial for their continued success and environmental stewardship.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.