News Type: Blogs

Michelman & Robinson, LLP is a proud member of “Lawyers for a Sustainable Economy,” a law firm-led initiative that provides pro bono legal services to sustainability-focused entrepreneurs and non-profit organizations. LSE was organized and is supported by Stanford University’s Precourt Institute for Energy and Stanford Law School.

Over the past year, M&R has handled, on a pro bono basis, nine separate matters for entrepreneurs and environmental non-profits working on sustainability projects-a testament to the firm’s commitment to LSE. The services we have furnished range from entity formation to the preparation of licensing, confidentiality and non-disclosure, founder and advisor compensation, stock option, profit sharing, fund-raising, joint venture, soft-IP, and other forms of agreements.

The sustainability-focused work being done by M&R’s pro bono clients is exciting, ground-breaking, and critical to climate-related concerns on a global scale. By way of example, we have assisted all of the following:

  • an agricultural technology company working on a cattle feedstock supplement made from a red seaweed that reduces methane emissions by 90%
  • a clean-tech entity pioneering climate-positive bamboo engineered lumber, which is stronger, more fire-resistant, extremely regenerative, and otherwise more sustainable than other types of wood
  • a clean-tech startup aimed at accelerating the decarbonization of heavy-duty transport through the development of advanced hydrogen storage systems for use aboard trucks, ships, and planes
  • a start-up incorporated to commercialize technology that was developed at the National Renewable Energy Laboratory which can replace toxic and non-biodegradable and non-recyclable petroleum-based polyurethanes with sustainable bio-based polyurethanes
  • a start-up seeking to make desalination a more sustainable way to provide fresh water to communities and to use the brine waste toward power generation, renewable energy storage and supply chains, and more environmentally friendly concrete aggregates and road de-icing agents
  • a clean-tech startup that has developed and seeks to commercialize a carbon sequestration method that does not rely on carbon credits and can create consumer products, such as ethanol, that are carbon negative and more sustainable than their traditionally formulated counterparts
  • a start-up committed to developing and producing more energy efficient computer processing methods, including a reversible adiabatic system which dramatically reduces power consumption and greenhouse gas emission, resulting in a more energy efficient and sustainable computing process
  • a start-up seeking to decarbonize the indoor heating and cooling process through a data-driven consumer platform for buying, installing, and financing energy efficient heat pumps
  • a start-up that created a platform that connects job seekers with interests in sustainability, green energy, or climate change work to opportunities with non-profit and for-profit entities, as well as related government positions

We could not be any prouder of these clients’ efforts to advance sustainability, combat climate change, and make our world a better place. The same can be said of Warren Koshofer, John Giardino, Michael Poster, Ryan Hong, Harpreet Walia, Megan Penick, Sam Licker, Michelle Le, Bianka Valbrun and Hayley Hodson, the M&R attorneys and one summer associate (Hayley) who’s expertise and generosity are positioning these clients to do just that.

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 an effort to better protect homeowners, insurance coverage has been expanded and limits increased under the California FAIR Plan – the state’s insurer of “last resort.” Such was the mandate as set forth in California Insurance Commissioner Ricardo Lara’s 2019 Order No. 2019-2, which has just been upheld by the Superior Court of California for the County of Los Angeles.

A Bit of Background

The Commissioner’s 2019 Order broadened coverage provided by the FAIR Plan to offer a comprehensive homeowners policy, in addition to the FAIR Plan’s initial dwelling-fire only coverage. Traditional homeowner coverage features-for example, coverage for water damage and personal liability-were added both to assist insureds throughout California unable to find adequate fire and homeowners’ insurance, and to save consumers from having to purchase second companion policies to cover other hazards not covered by their primary homeowners’ policies.

More specifically, Commissioner Lara’s 2019 Order:

  1. Increased the combined dwelling coverage limit under the FAIR plan from $1.5 million to $3 million;
  2. Ordered the FAIR Plan to offer consumers a monthly payment plan and the flexibility to pay by credit card or electronic funds transfer, without fees; and
  3. Required the FAIR Plan to offer a comprehensive homeowners’ policy (e., HO-3 coverage).

Litigation Ensued

These modifications were to become effective April 1, 2020, but litigation was filed in the interim. The California FAIR Plan Association disputed the 2019 Order, arguing the Commissioner did not have the statutory authority to issue it. This resulted in the filing of a petition for a writ of ordinary mandate in the L.A. Superior Court directing Commissioner Lara to vacate the 2019 Order on the basis that it was arbitrary, capricious, or lacking in evidentiary support.

Last week, the Commissioner’s office reported that Judge Mary Strobel substantially upheld the Commissioner’s authority to order broader coverage to consumers under the FAIR Plan. That being said, the ruling was not a total win for the California Department of Insurance. The court directed Commissioner Lara to remove certain liability coverages “that have no relationship, nexus, or connection to the insured property” and resubmit the 2019 Order.

Further, Judge Strobel found that the Commissioner could not require the FAIR Plan to offer payment plans “with no additional fees,” but otherwise held that he could order the FAIR Plan to provide certain payment plans or options, such as electronic funds transfer.

The Takeaway

While Commissioner Lara’s 2019 Order requiring the FAIR Plan to offer comprehensive HO-3 coverage was not outside his statutory authority, the expanding coverage must be connected-or in some way related-to the insured property. This was not the case for the HO-3 policy alluded to in the original 2019 Order, which contained certain coverages that went beyond this limitation.

More information on the California FAIR Plan can be found on its website. Of course, should you have any questions about the 2019 Order or any other insurance-related queries, do not hesitate to contact the insurance and regulatory specialists at Michelman & Robinson, LLP.

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.

Last week, the California Supreme Court issued a decision of great importance to employers statewide. In Ferra v. Loews Hollywood Hotel, LLC, the court ruled employees must receive premium payments at their “regular rate of pay” for missed meal, rest, and recovery breaks.

This will be news to many employers that, until now, have been compensating employees at their “base hourly rate” alone for meal, rest, and recovery breaks that have been missed. But in the wake of Ferra, employers are now on the hook for what may be a higher amount, as the regular rate of pay includes all non-discretionary payments like bonuses and commissions.

For employers, the ruling is particularly troublesome because it will be applied retroactively. As such, even employers that have acted in good faith by paying premium pay for missed meal, rest, and recovery breaks, albeit at the base hourly rate, will now be exposed to liability.

A Bit of Background

In Ferra, the plaintiff alleged that her employer, Loews Hollywood Hotel, improperly calculated meal and rest period premium payments when it excluded her non-discretionary quarterly incentive bonuses from premium pay calculations. For its part, Loews successfully argued at trial and before the Court of Appeal that Ferra’s regular rate of compensation for meal, rest, and recovery period premium pay was her base hourly rate of pay, which was distinguishable from her overtime regular rate of pay. The California Supreme Court flatly disagreed and concluded that if it were to adopt the interpretation offered by Loews, employers would be incentivized to minimize employees’ base hourly rates and shift pay elsewhere, which would harm employees who are paid in some form other than a base hourly rate.

Employer Takeaways:
The widespread impact of this landmark decision is clear: employers can no longer base meal and rest period premiums on an employee’s base hourly rate alone. Consequently, employers must prepare themselves for an onslaught of class action and Private Attorney General Act (PAGA) claims based on Ferra. They are also encouraged to do all of the following:

  1. Review and update all payroll policies and procedures pertaining to meal, rest, and recovery period premiums. Timekeeping and payroll systems may also need to be updated to ensure that the regular rate of pay is properly calculated, as the meal, rest, and recovery period premiums owed to employees may now vary from pay-period to pay-period depending on the forms of payment made to any given employee.
  2. Given the retroactive application of Ferra, it would be wise to audit prior meal, rest, and recovery period premium payments made to employees who receive non-discretionary payments that are included in their regular rate of pay calculations-this in order to ensure those premiums have been paid accurately.
  3. Employers should note that referring to a payment, such as a bonus, as “discretionary” may not necessarily exempt it from the calculation of an employee’s meal, rest, and recovery period premiums and/or overtime wages.

Of course, if you need any guidance in the aftermath of Ferra or have any other employment- or wage and hour-related questions, do not hesitate to contact the employment law specialists at Michelman & Robinson, LLP.

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.

Late last month, the U.S. Supreme Court made news that echoed through the halls of athletic departments of colleges and universities nationwide. While perhaps not as attention-grabbing as a trip to the Final Four or Bowl Championship Series, the high court’s ruling in NCAA v. Alston is sure to have lasting repercussions, especially to the extent it means that the National Collegiate Athletic Association (NCAA) can no longer impose strict limits on education-related benefits (read: scholarships and laptops) given to student-athletes.

In a unanimous decision, not only did the justices determine that the NCAA could not place a cap on the amount schools can pay student-athletes for these benefits, but it also held more broadly that the NCAA is not immune from federal antitrust law. That finding is particularly interesting given the commentary of Justice Brett Kavanaugh, who noted in his concurring opinion that the NCAA’s “current compensation regime raises serious questions under the antitrust laws.”

For those without a law degree, the takeaway is simply this: college athletes-at least some of them-may be in line for a payday. Given the activity of state legislatures and, more recently, the NCAA, this is particularly true when it comes to the ability of these students to earn compensation for their names, images, and likeness (NIL). And with that, amateur sports as we know them here in the U.S. is sure to be upended.

Show Me the Money

College athletics generate billions of dollars in annual revenue, yet players on the field, court, diamond, and pitch-the ones fans are lining up and tuning in to see-have been unable to share in the wealth. That is now changing, as laws have been passed (or are being passed) that allow student-athletes to make money from endorsements, work as brand ambassadors, social media promotion, appearances, sponsorships, autographs, private training, camps, and the like.

It all started in California. In September 2019, that state became the first to legislate the right of college athletes to be compensated for their NIL when Governor Gavin Newsom signed SB 206 into law. SB206 specifically prohibits California public colleges, athletic associations, conferences, or any other intercollegiate athletic organization like the NCAA from affecting student-athletes’ scholarships or athletic eligibility just because they have been paid for their NIL.

On the heels of that law, several other states jumped on the NIL bandwagon. Indeed, July 1 was a big day, with Alabama, Florida, Georgia, Mississippi, New Mexico, and Texas all having had NIL legislation go into effect that day. Similar laws are also pending in Illinois, Iowa, Ohio, Nebraska, and Oregon.

The problem is that with separate states enacting their unique versions of NIL laws, there is no uniform legislative scheme, which can cause unfair disparity between athletic programs depending upon their location. Consequently, the NCAA has turned to Congress seeking enactment of a federal law-one that it has some control over. Yet even though a proposed bill is in the works, passage of a federal legislation appears unlikely by virtue of the current ideological divide and competing agendas in the U.S. Senate. And that leaves college athletes and coaches, school administrators, salivating agents and managers, and eager corporations in something of a free-for-all, each hoping to be first movers in position to take advantage of a burgeoning marketplace.

The NCAA’s Response

For their part, all three divisions of the NCAA have adopted rules suspending guidelines prohibiting NIL benefits-all with an eye toward avoiding further litigation in the shadow of the outcome of the Alston case. The net effect of this move by the NCAA is that student-athletes (at least those in states with NIL regulations) are now shielded from any penalties associated with the exercise of their NIL rights. Translation: college standouts can look forward to endorsement deals and other money-making opportunities. What remains a question, however, is how and when a uniform NIL system can be set in place.

It is the absence of uniformity that has the NCAA in a panic. The worry is that well-heeled boosters at big conference schools will go hog wild to entice athletes to come to their programs, thus upsetting the recruitment efforts of coaches and athletic directors from coast-to-coast. Suffice to say, while the door may be opening for athletes to profit through NIL deals, the future of college sports may be hanging in the balance.

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 legal use of cannabis-be it for medical or recreational purposes-is the rule, as opposed to the exception, throughout the U.S. And with cannabis in all its forms, including CBD, taking the country by storm, the sky’s the limit for companies entering or already operating within the legal marketplace.

Recent estimates suggest that the size of the global legal cannabis market will climb to $84 billion by 2028. This is a staggering number that spells opportunity for budding cannabusiness entrepreneurs in the U.S.

No doubt about it, with more and more states like New Mexico, New Jersey, New York and Virginia recently hopping on the legal cannabis bandwagon-and it looks to be just a matter of time before Connecticut turns green and fully legalizes weed-there’s certainly room for additional players in the legitimate cannabis space. But before any would-be cannabis operators open their doors for business, a broad range of legal issues must be considered.

Licensing

For those ready to jump into the legalized cannabis business, step one is obtaining the proper license. That may be easier said than done. With a patchwork of licensing laws that are ever-changing and dependent upon jurisdiction, the licensing application process can be complex, time intensive and expensive to say the least. To pave the way for a streamlined licensing journey and achieve the best results possible, it can be very helpful to align with experienced consultants and professional service providers.

It bears repeating, cannabis licensing requirements vary from state-to-state. In any event and no matter the location, those wanting to launch a cannabusiness can expect to be asked for at least some, if not all, of the following in conjunction with a license application:

  • a non-refundable application fee;
  • a business entity operating agreement, by-laws, or articles of incorporation;
  • an agent training and education certificate;
  • a business plan;
  • a security plan;
  • a proposed floor plan; and
  • an inventory monitoring and recordkeeping plan, among other things.

A word to the wise: to expedite the cannabis licensing process, these items should be prepared well in advance and as soon applicants become aware of their application mandates.

Corporate, Banking and Tax Concerns

Anyone dipping a toe or jumping head first into the legal cannabis industry will want to create a corporation or limited liability company as an umbrella for operations. Doing so will help limit personal liability and protect personal assets in the event debts or legal judgments are claimed against a cannabusiness.

In terms of entity selection and formation, legal counsel can provide guidance based upon state-specific and financial considerations (including those related to taxation). Whatever type of entity is chosen, a legal cannabis business must abide by all applicable formalities and operate within the parameters of any by-laws or operating agreements to ensure that stakeholders can avoid any potential personal exposure in the event of litigation.

Conflicts between federal and state laws should also be on the radar screen of every cannabis entrepreneur. Despite the legal status of cannabis throughout the country, the possession, cultivation and distribution of medical or recreational cannabis remains illegal under the federal Controlled Substances Act (CSA). Consequently, there are difficult banking and tax issues that every cannabusiness must face.

As of this writing, federal banking laws severely restrict access to financial services for companies selling cannabis-related products. Translation: banks can’t do business with cannabis companies, which is problematic for so many reasons, not least of which is that those in the sector must maintain large amounts of cash on hand for payment of expenses, including inventory and employee salaries. This unfortunate reality makes legal cannabis outfits the targets of crime.

The good news is that relief could be on the horizon. The SAFE Banking Act of 2021, which would provide a safe harbor for banking institutions providing services to cannabis clients, was passed in the U.S. House of Representatives and referred to committee. Whether the legislation passes in its current form is anyone’s guess, though our federal legislature does seem to be inching closer to relaxing existing cannabis restrictions.

Until the federal law changes, taxes will also continue to be an area of concern for cannabis operators. This is because the IRS currently doesn’t allow for the deduction of ordinary business expenses from gross income associated with the sale or distribution of Schedule I or Schedule II substances as defined by the CSA (yes, that includes cannabis). What this means is that without the ability to take advantage of the typical deductions and credits leveraged by other businesses, those in the cannabis biz must pay taxes on gross income.

Real Estate

A lease on commercial space will be in the cards for anyone opening a consumer-facing, retail-oriented cannabusiness, such as a dispensary. Those looking to lease space for their cannabis operations should consider these key lease provisions:

  • Compliance with law: a cannabusiness lease should specifically exclude the requirement that the tenant abide by all federal laws.
  • Landlord acknowledgment: the tenant should demand a lease provision stating that the landlord expressly acknowledges and authorizes the tenant’s cannabis-related use of the subject property.
  • Landlord cooperation: a cannabusiness should demand robust landlord cooperation provisions obligating the landlord to sign any documents and make necessary acknowledgments in furtherance of the tenant’s core cannabis operations.
  • Lease termination: the termination provision in any commercial lease related to cannabis should afford the tenant the right to terminate early in the event of a change in the law or enforcement patterns, nuisance claims or other occurrences that disrupt or hinder the purpose of the lease.
  • Contingency: the tenant should negotiate for a contingency provision allowing for early termination in the event it fails to obtain the necessary license or financing contemplated when the lease was executed.

Insurance

Anyone starting a cannabusiness should engage an insurance agent or broker with specific cannabis industry experience who can obtain all necessary coverages. When procuring insurance policies, applicants must be honest, transparent and forthcoming about their operations. Misrepresenting the nature of a cannabis company to an insurance producer or omitting material facts can set an insured up for rejection of claims and fraudulent procurement issues.

Employment 


Management in the legal cannabis industry is subject to the same employment-related issues facing counterparts in other businesses. These include wage and hour, benefits and compensation, equal pay, employee hiring, and discipline and termination issues, along with privacy, disability, and harassment and discrimination concerns. Regarding the latter, comprehensive anti-harassment and anti-discrimination policies should be drafted and consistently enforced.

Another major employment law issue facing business owners today is marijuana use in the workplace. It’s rather ironic given the nature of a cannabusiness, but cannabis operators must decide whether to allow (or if they’re obligated to allow by way of workplace accommodations) the use of medical or recreational marijuana on the job. Clear policies on this topic are crucial.

With Opportunity Come Potential Pitfalls

Without question, the legal cannabis industry is still in its relative infancy and poised for exponential growth. And while this may translate to real upside for those wading into the legalized cannabis waters, the associated legal issues (this article presents just a sampling of them) are significant and shouldn’t be ignored.

This post has been adapted from a piece written by Bryan Johnson and previously published in Cannabis Business Executive titled, “5 Key Considerations When Starting Your Cannabusiness.”

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 headlines at the beginning of this year touting the ever-expanding list of GameStop paper millionaires-Redditors and its WallStreetBets group and others following in their footsteps, who bought the stock well before its meteoric rise to a record closing price of $483 per share-were soon replaced by cautionary tales of millennials who lost it all. Yes, these market players (many young and less than sophisticated investors leveraging the power of the commission-free Robinhood stock trading app) were riding high, at least temporarily, while sticking it to the hedge funds and big time institutional investors that are the subject of their collective ire.

Seemingly everyone was captivated by the David vs. Goliath battle playing out on Wall Street when GameStop shares climbed over 1700% (from a market value of $2 billion to over $24 billion) from December 2020 through late January 2021, before it came tumbling back down to earth in early February. Since then, share prices have been on the upswing once more. As of this writing, Game Stop stock is trading in the neighborhood of $225.

While the recent climb has much to do with a cult following of individual investors hoping  GameStop’s struggling business turns around, so-called meme-stock investing driven by Reddit and Robinhood represents much more than a goldmine for some and financial fiasco for many others. Beyond the GameStop gains, losses and gains again that’ve been fodder for coverage is the congressional and regulatory (read: SEC) fallout that’ll ultimately define this rags-to-riches (or riches-to-rags) story.

The Truth, the Whole Truth, and Nothing but the Truth

Back in February, with burned GameStop investors-hedge funds and Redditors-finding themselves picking up the pieces, the U.S. Congress came calling. The House Financial Services Committee put the leader of Robinhood on the hot seat, questioning him (and a few others, such as Reddit CEO Steve Huffman) under oath.

How exactly did Robinhood boss Vlad Tenev find himself center stage in front of lawmakers such as Alexandria Ocasio-Cortez? The answer was short selling.

Hedge funds and other institutional investors have long used short selling to profit on equities, particularly microcap stocks. Borrowing shares and then selling them in anticipation of the stock price falling can create an extraordinary opportunity. Sellers look to cover these “shorts” by purchasing shares cheaply in the future, allowing them to close out their positions at a profit. This is a strategy not typically available to the average retail investor, but it was at the root of the GameStop frenzy.

And to an extent, it still is. But what the GameStop drama brought to the surface is a trend among bloggers and online financial platforms populated by small “anti-Wall Street” investors fighting this practice of shorting stocks. By way of Reddit, among other network communities, retail traders united to purchase blocks of GameStop stock to inflate prices and leave short sellers in a squeeze when it came time to cover. Robinhood made that possible and particularly attractive because it’s “free” to use and gamifies the process by offering interactive elements and game-like features.

Maybe too attractive. Robinhood had to temporarily halt trading in the midst of the GameStop fever because they weren’t sufficiently capitalized to support the volume of activity generated by the meme-stock mania. Enter Congress and the SEC.

The Question of Legality

There’s nothing illegal about short selling or touting stocks online. In fact, retail investors and day traders revolting against hedge funds do so at their own peril. Securities laws on the books since 1933 don’t protect the unwary from making potentially rash investment decisions, such as buying GameStop at $483 a share, so long as issuers give full and fair disclosures in their public filings.

In terms of the users of online platforms like Reddit touting particular stocks as “buys,” the practice isn’t unlawful (at least not presently) because they don’t get paid commissions. The same can be said for Robinhood’s method of selling order flow, which is regulated, disclosed and supports free trading, though arguably, the app’s gamification of the trading process may run afoul of FINRA rules.

What’s in Store in the Wake of GameStop?

The SEC may be cracking down. Indeed, the oversight agency is contemplating the imposition of regulations that create certain obligations on the part of low-and-no fee brokerages like Robinhood that have gamified high-stakes investing and stock trading. According to reports, the SEC may attempt to require Robinhood and platforms like it to warn investors about the pitfalls of buying risky stocks (such as GameStop) before a trade is completed. In so doing, the Robinhoods of the world (at least those operating in the U.S.) would be asked to act more like fiduciaries and not just passive processors of trades. However, imposing fiduciary status upon trading apps may be easier said than done, and such an action by the SEC would surely be met with litigation.

Looking forward, there’ll certainly be additional congressional hearings in the aftermath of the market disruption caused by the GameStop hysteria. Even so, the continued coming together of online communities to move markets is a virtual certainty-this by virtue of the incredible work of Redditors, Super Stock Bros. and others who weaponized GameStop (and now AMC Entertainment) against their hedge fund foes.

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.

An appellate court in California has just issued a ruling related to wage and hour law that should be of interest (and a relief) to all employees in the state.

By way of background, Labor Code § 226 sets forth nine categories of information that must be included in wage statements. With that being said, it was broadly held last week in General Atomics v. Superior Court that an employer will not be in violation of section 226 when its wage statements allow employees to readily determine whether their wages were correctly calculated.

In the case, Tracy Green sued her employer, General Atomics, based on its alleged failure to provide accurate, itemized wage statements showing “all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee,” as is required by the Labor Code. More specifically, Green’s two causes of action (a putative class action and a representative action under the Labor Code Private Attorneys General Act) contended that General Atomics violated section 226, by providing wage statements that did not identify the correct rate of pay for overtime wages. Getting into the weeds, Green maintained that the correct rate was 1.5 times (1.5x) the regular rate of pay, and the wage statements provided by General Atomics showed only 0.5 times (0.5x) the regular rate.

The lower court agreed with Green’s position, though that was not the case on appeal. The higher court made clear that showing the 1.5x overtime rate would be impractical or cause confusion when an employee (like Green) earns multiple standard hourly rates during a single pay period. Consequently, it was decided on appeal that General Atomics’ wage statements complied with the Labor Code because they showed the total hours worked, with their standard rate or rates, and the overtime hours worked, with their additional premium rate.

As otherwise stated, the appellate court found that while other formats may also be acceptable, given the complexities of determining overtime compensation in various contexts, the format adopted by General Atomics adequately conveyed the information required by statute. And with that, the takeaway for employers is simply this: courts will not be dogmatic about Labor Code rules and will not find section 226 violations where pay stubs provide the information necessary for employees to check the accuracy of wages paid.

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.

We have all received them, those unsolicited-and unwanted-calls regarding our supposed student loans, credit card debt, troubles with the IRS, even health insurance opportunities. While the subject matter varies, the calls are a constant, as is the nuisance factor. And that, in a nutshell, is what prompted enactment of the Telephone Consumer Protection Act (TCPA) back in 1991.

The very purposes of the TCPA is (and was) to stop unwanted telemarketing phone calls-and now text messages-to consumers. Toward that end, the law prohibits businesses from contacting cellular telephone numbers using automatic telephone dialing systems (ATDS), unless, of course, recipients have already given their express consent to receive such communications. That being said, an interpretive question at the very heart of liability under the TCPA-and one that should be of great interest to GCs and other stakeholders in any consumer-facing business-is as follows: what exactly qualifies as an ATDS for the purpose of triggering statutory penalties under the law?

Last month, the U.S. Supreme Court provided a straightforward answer to this query in a landmark TCPA case captioned Facebook, Inc. v. Duguid. In short, the Court stated that equipment dialing from a list of numbers cannot be characterized as an ATDS (commonly referred to as an “autodialer”). Instead, to qualify as an autodialer, “a device must have the capacity either to store a telephone number using a random or sequential number generator, or to produce a telephone number using a random or sequential number generator.”

The Facebook Litigation

By way of background, Facebook had sent several login-notification text messages to Noah Duguid alerting him of attempts to access his Facebook account from an unknown browser. However, Duguid did not have a Facebook account, and never gave the social media giant his telephone number. Consequently, he brought a putative class action against Facebook, alleging that its text messages violated the TCPA. Significantly, the litigation was premised upon the claim that Facebook used an autodialer to place the texts at issue.

Facebook vehemently opposed the notion that it used an ATDS, and the Supreme Court agreed. Ultimately, it was determined that Duguid failed to allege that Facebook sent text messages to numbers that were randomly or sequentially generated. Stated another way, Facebook’s notification system did not qualify as an ATDS under the TCPA.

Now What?

With its determination, the Supreme Court left countless parties breathing a collective sigh of relief, as it drastically limits (for now) the instances of TCPA violations. Indeed, the Facebook decision is a decisive victory for companies that use automated equipment to make calls or send text messages to their consumers. And that is because in the wake of the ruling in the Facebook case, unless their dialing equipment uses a random or sequential number generator, businesses will not be required to obtain prior written consent from consumers prior to contacting them.

Note, however, that the TCPA’s prior express consent requirements still prohibit calls using an artificial or prerecorded voice to various types of phone lines, including home and mobile numbers, unless an exception applies.

Waiting for the Other Shoe to Drop

Mere hours after the Facebook opinion was released, the legislative fight to overturn it began. Senator Edward J. Markey (D-Mass.), one of the original authors of the TCPA, joined with Congresswoman Anna G. Eshoo (CA-18), to issue a joint statement calling the Supreme Court’s decision “disastrous for everyone who has a mobile phone in the United States.” In their release, Senator Markey and Congresswoman Eshoo went on to state that “the Court is allowing companies the ability to assault the public with a non-stop wave of unwanted calls and texts, around the clock,” and that the decision, rather than enforcing the TCPA, actually ignores its clear legislative history. According to the legislators, “the TCPA makes it clear that Congress was not only concerned with corporate America randomly generating numbers and calling those numbers, but was also concerned with corporate America buying lists to make telemarketing calls.”

Not surprisingly, the lawmakers gave voice to their intention to “introduce legislation to amend the TCPA, fix the Court’s error, and protect consumers.” As such, it may be a bit premature for businesses to celebrate what seems to be such an enormous win for them. To be sure, even a U.S. Supreme Court decision can be overturned by bipartisan legislation in Congress that is signed into law.

The Takeaway

Given the likelihood of congressional action, there is only one way for companies to be absolutely certain and play it safe when it comes to telephonic outreach to their customers: by being informed and obtaining express written consents after appropriate disclosure, they will never have to worry about the ongoing twists and turns of the TCPA.

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.

Federal labor law is in the crosshairs of the U.S. Congress. In recent days, the House of Representatives passed the Protecting the Right to Organize (PRO) Act (H.R. 842), which, among other things, would (1) prohibit employers from retaliating against employee unionization efforts, (2) protect workers’ right to strike, and (3) override state “right to work” laws that allow employees to opt out of paying dues in unionized workplaces.

This overhaul to the National Labor Relations Act is a priority for organized labor, which seeks to bolster the federal law currently in place that guarantees private-sector employees the right to unionize, engage in collective bargaining, and take collective action such as strikes.

The bill made its way through the House essentially along party lines-the vote was 225-206. That being said, labor groups should not celebrate too early, as passage by the Senate appears to be a longshot.

This is the case despite the current realities of workers nationwide: (1) those seeking safer working conditions in the shadow of the COVID-19 pandemic and (2) the victims of economic inequality that is undermining the middle class. For their part, management argues that the legislation would eliminate jobs.

The Finer Points

Should the PRO Act win approval in the Senate and become law, employers would no longer be permitted to hold “captive audience” meetings, during which anti-union messages are conveyed. Likewise, under the PRO Act, the National Labor Relations Board could levy fines against companies that engage in unfair labor practices. The NLRB could also mandate arbitration when unionized workers are unable to reach agreement on their contracts with employers.

There is more. The bill would reverse current practice by authorizing employees to hold offsite union elections by way of mail or electronic ballots. In addition, the PRO Act speaks to employee classification issues by adopting the test to determine workers’ employment status now used in California (AB 5). This would be a fly in the ointment particularly for app-based companies like Uber, Lyft and Doordash to the extent it would make it easier for workers to demonstrate they are employees under federal labor law. And while on the topic of gig workers, the PRO Act would authorize them to organize unions and protest retaliation under the NLRA.

Voices From the Senate

Senate Republicans have gone on record suggesting that the proposed law would be harmful to business to the extent it would serve to make unions bigger and reduce individual freedoms. Consequently, given that 60 votes are required to bring the bill to a vote in that chamber, passage of the PRO Act is unlikely. Still, the Biden administration enthusiastically backs the legislation, and Michelman & Robinson, LLP will continue to monitor its progress.

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 the surface, a case just decided by the U.S. Court of Appeal for the 9th Circuit looks to be one primarily of interest to those in the aviation space. In Bernstein v. Virgin America Inc., a Ninth Circuit panel ruled on February 23 that California wage and hour laws pertaining to meal and rest breaks are not preempted by federal law; namely, the Federal Aviation Act.

But beyond that determination, which was a win for the flight attendants who initiated the litigation, is an additional ruling that represents a huge victory for the defense bar and should be of interest to all employers, not just airlines. Specifically, the court in Bernstein decided that heightened penalties for “subsequent violations” under California’s Private Attorney General Act (PAGA) cannot be imposed until the Labor Commissioner or a court notifies the employer in question of the Labor Code violation(s) at issue.

The net effect of the decision in Bernstein: California employers defending PAGA claims now have clarification regarding “subsequent [Labor Code] violations” and whether they will give rise to increased legal exposure.

Why Does All of This Matter?

Pursuant to PAGA, default civil penalties are $100 “for each aggrieved employee per pay period for the initial violation,” and $200 per aggrieved employer, per pay period, per “each subsequent violation.”

The problem was that before Bernstein, courts had not clearly identified when a “subsequent violation” of wage and hour law occurs. Prior case law (Amaral v. Cintas Corp.) simply held that such a violation did not trigger until an employer learned that its conduct violated the Labor Code.

But this left a fair amount of wiggle room for aggrieved employees, who could point to any given PAGA notice, prior employee complaints and lawsuits, internal or third-party payroll audits, employer retention of third-party human resource agencies, or other evidence to demonstrate that their employers acted willfully or had knowledge of ongoing Labor Code violations that justified the $200 “subsequent” penalty rate. But now, after Bernstein, employers cannot be subject to such heightened exposure until they hear from the Labor Commissioner or a court about the occurrence of a wage and hour violation.

What Employers Need to Know in the Aftermath of Bernstein

First and foremost, Bernstein is very favorable to management because it prevents employees from arguing that heightened civil penalties under PAGA should apply after the first California Labor Code violation within the statute of limitations, and after an employer has received a PAGA notice letter or an employee’s civil complaint.

Next, employers should remember that in the event of an unsuccessful appeal of (1) a trial court decision related to a wage and hour claim or (2) a Labor Commissioner citation, they will be subject to heightened penalties that have accrued during the appeal process.

Finally, it must be understood that Bernstein only addressed civil penalties. It remains unclear whether the ruling will also apply to claims for heightened statutory penalties for wage statement violations and the like.

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.