By A. Edward Hardin, Jr.

Most private employers with 100 or more employees are required to submit an annual EEO-1 report to the Equal Employment Opportunity Commission regarding the number of workers employed in different categories, broken down by race, sex, and ethnicity.  The Obama administration proposed adding pay data to the required report, as a means of quantifying pay disparities.  The collection of pay data was initially approved by the Office of Management and Budget in September 2016, and the new requirement was set to take effect in 2018.  Businesses argued that the new requirements were too burdensome.  Following the election of President Trump, the OMB stayed implementation of the new requirement based on the Paperwork Reduction Act and alleged formatting issues.  However, earlier this month, a Federal District Judge in Washington D.C. rejected the OMB’s argument and ordered the OMB to lift its stay on the collection of the pay data.  Should the rule go into effect, employers who are required to submit the annual EEO-1 report will also have to submit pay data broken down by race, sex, and ethnicity.  The EEOC’s portal for the submission of EEO-1 reports is now open, but the EEOC is apparently not asking for pay data at this time.  What happens next is still to be determined, but additional legal challenges are possible.  Stay tuned.

By Blake Crohan

In In the Matter of 4-K Marine, No. 18-30348 (5th Cir. Jan. 30, 2019) the U.S. Fifth Circuit held that the owner of a stationary, “innocent” vessel is not entitled to reimbursement of the medical expenses of an employee who fraudulently claimed his preexisting injuries resulted from an allision. In June 2015, the M/V TOMMY, owned and operated by Enterprise Marine, was pushing a flotilla of barges on the Mississippi River when it allided with the MISS ELIZABETH, a stationary tug with barges owned and operated by CBR. Individuals aboard the MISS ELIZABETH, including Prince McKinley, alleged they were injured in the allision. CBR promptly commenced maintenance and cure payments to McKinley.

After suit was filed, CBR filed a counter-claim against Enterprise Marine for reimbursement of the amounts it paid to McKinley for medical expenses, because generally, an at-fault third party must reimburse a Jones Act employer for maintenance and cure paid to its Jones Act employee. CBR paid, and Enterprise Marine reimbursed, $23,000 in maintenance and $5,000 in cure to McKinley. CBR also agreed to pay for McKinley’s back surgery, but Enterprise Marine reviewed McKinley’s medical history and refused to reimburse those expenses, arguing the condition was not a result of the allision.

After a bench trial, the district court determined that McKinley injured his knee in the allision, but his back problems predated the accident and were unaffected by the allision. Further, the court held that McKinley fraudulently withheld material issues about his pre-existing medical conditions and medications before and after the incident. The district court held that CBR had no obligation to pay for McKinley’s back surgery, and Enterprise Marine had no obligation to reimburse CBR for the back surgery.

CBR appealed to the U.S. Fifth Circuit arguing that maritime principles compelled Enterprise Marine to reimburse CBR for McKinley’s back surgery regardless of McKinley’s fraud. The U.S. Fifth Circuit explained that a third-party must reimburse maintenance and cure payments only where its negligence caused or contributed to the need for maintenance and cure. Because McKinley’s back condition did not result from the allision, Enterprise Marine did cause or contribute to the need for maintenance and cure for that particular medical problem. Accordingly, Enterprise Marine did not owe reimbursement to CBR for McKinley’s back surgery.

The Fifth Circuit recognized the practical problems faced by CBR. It noted that the decision to cover McKinley’s back surgery had to be made early, and CBR was presented with what initially appeared to be a plausible claim for cure. Further, the denial of such claim could have exposed CBR to punitive damages. But the Court noted that CBR had options. An employer need not immediately commence maintenance and cure payments upon request. Further, an employer is only liable for compensatory damages if it “unreasonably rejects the claim” after an investigation, and punitive damages “only for behavior that is egregious”. Finally, CBR had the right to deny payment if, which was ultimately determined, McKinley intentionally misrepresented or concealed material facts, the disclosure of which was desired by CBR.

The U.S. Fifth Circuit’s opinion in In the Matter of 4-K Marine details the harsh realities facing Jones Act employers. Employers must quickly investigate maintenance and cure claims to determine their legal rights. Act too slowly, and the employer may face compensatory or punitive damages. Act too quickly, and an employer may pay for unnecessary medical expenses and not be able to recoup them.

By Brian R. Carnie

The Trump Administration has released the new proposed rule changes to the salary requirements to be exempt from the overtime pay requirement under the Fair Labor Standards Act (FLSA).

Under the new proposed rule, the U.S. Department of Labor wants to increase the minimum salary threshold that must be paid in order for most executive, administrative or professional employees to qualify for exemption from $455 per week ($23,660 annually) to approximately $679 per week ($35,308 annually).  This salary level is expected to change before the rule becomes final (which most likely will happen sometime in 2020), and the final threshold will be based on the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region (the South) and in the retail sector once data for 2018 is released and adjusted for inflation. The new salary threshold would not apply to teachers, doctors, lawyers, or certain other exempt professionals who are not currently subject to the salary basis or salary level tests.  While the proposed new salary threshold is more than $12,000 less per year than what was sought by the Obama Administration in 2016, it still represents a 50% increase from the current minimum salary threshold and will present headaches for many employers who have exempt employees who are paid well below this new salary level.  Contrary to what many expected, the proposed rule also does not seek to phase in the increase over time.

The proposed rule also raises the minimum required salary paid to an employee to qualify for the highly-compensated employee exemption, which under the proposal would go from $100,000/year to $147,414/year.  This is significantly higher than the increase sought by the Obama DOL in 2016 (which was $134,000/year).

The proposed rule does not establish mechanisms for automatic increases to the salary requirements on a yearly basis, but the DOL said it will review the minimum salary threshold every four years and will seek public comment before changes are made.  The proposed rule makes no changes to the duties requirements that these administrative, executive or professional employees must meet in order to qualify for exemption.

The DOL will accept public comment on the proposed rule for a period of 60 days, and a final rule can be expected over the next 12 months.  Of course, this rule is likely to be subject to court challenge.

Stay tuned for further updates.

By Katherine King, Randy Young, Carrie Tournillon, and Mallory McKnight Fuller

This report was last updated on February 22, 2019

The following is prepared by the Kean Miller LLP Utilities Regulation team on important topics affecting consumers of electrical power in Louisiana.  For more information, please contact us at client_services@keanmiller.com

(LPSC Rulemaking) New Generation Deactivation Transparency Rule:  In March 2017, the Louisiana Public Service Commission (“LPSC”) initiated a proceeding to consider (1) whether the LPSC should exercise its authority over future utility generation deactivation and retirement decisions and (2) the rules and procedures that could apply to the LPSC’s exercise of such authority.  In October 2018, the LPSC issued its final rule, which requires electric utilities to report generation unit deactivations and retirements 120 days prior to implementation, including support for the decisions and continuing reports on units that are placed in deactivation status for possible return in the future.  The final rule creates more transparency and accountability on the part of utilities.

Entergy Formula Rate Plan Extension:  In August 2017, Entergy Louisiana, LLC (“Entergy”) filed a request for an extension and modification of its Formula Rate Plan (“FRP”) for test years 2018, 2019, and 2020.  In May 2018, the LPSC approved an extension and modification of Entergy’s FRP subject to the settlement terms reached by Entergy, LPSC Staff, and intervenors.  The settlement terms included, among other things, the flow back to customers of all tax benefits created by the Tax Cuts and Jobs Act of 2017 (“TCJA”).

Entergy Integrated Resource Plan:  In October 2017, Entergy initiated proceedings at the LPSC to begin work on its Integrated Resource Plan (“IRP”) for the years 2018 through 2038.  The objective of the IRP process is generally to evaluate a set of potential resource options that offer the most economical and reliable approach to satisfy future load requirements of the utility.  Entergy’s draft IRP was filed at the LPSC in October 2018.  The final IRP is due in May 2019.  The IRP process does not result in the LPSC’s approval of a proposed resource plan or approval of construction or acquisition of any particular resources.

Louisiana Electric Rates, Industrial Customer Market Access / New Tariff Options:  In April 2017, the LPSC initiated a technical conference series entitled “Status of Electric Rates in Louisiana: Where Are We and Where Are We Going?”  Through this series, the LPSC hoped to achieve its goal of ensuring reliable electric service at the lowest reasonable cost.  The technical conference series invited stakeholders to provide input on the status of electric rates in Louisiana and recommendations of policies or other options the LPSC should consider for the future.  The technical conferences were held in 2017.  In December 2018, LPSC Staff issued a report and request for comments.  A final report from LPSC Staff is expected in early 2019, which will be presented to the Commissioners for a determination regarding steps forward.

(LPSC Rulemaking) MISO Demand Response/ Aggregators of Retail Customers:  In July 2018, the LPSC opened a rulemaking to study the implications of participation of Aggregators of Retail Customers (“ARC”) in the wholesale markets and to determine whether, and under what conditions, such activity should be allowed in the LPSC’s jurisdiction.  ARCs enter into agreements with, and combine the abilities of, multiple retail electric customers to participate in wholesale markets as a Demand Response or Load Modifying Resource.  In September 2018, Commissioner Skrmetta issued a directive that third-party ARCs are not allowed to register LPSC-jurisdictional customers or participate in wholesale markets with their loads pending the outcome of the rulemaking.  In November 2018, LPSC Staff issued a proposed rule and request for comments from stakeholders, the deadline for which was December 2018.  No final rule has been issued as yet.

Entergy Proposed Solar PPA and Experimental Renewal Option (“ERO”) Tariff:  In May 2018, Entergy filed an application with the LPSC seeking approval to enter into a Purchase Power Agreement (“PPA”) for 50 megawatts (“MW”) of unit-contingent, as-available capacity and energy from a solar facility to be constructed in Port Allen, Louisiana.  The PPA arises out of Entergy’s 2016 Request for Proposals (“RFP”) for 200 MW of renewable resources.  A settlement has been reached by participants in the proceeding and will be presented to the LPSC for approval.  In October 2018, in connection with the PPA, Entergy filed a related application with the LPSC seeking authorization to make available a new Experimental Renewable Option and Rate Schedule ERO (“Schedule ERO”).  Schedule ERO would allow Industrial and Commercial customers the opportunity to schedule a portion of the Solar PPA.  Entergy’s Schedule ERO application is currently pending at the LPSC.

Entergy Generation Construction Projects:  In the past two years, the LPSC has approved Entergy proposals for large generation construction projects worth a combined estimated total greater than $2 billion.

Entergy 980 MW Power Plant in St. Charles Parish:  In November 2016, the LPSC approved Entergy’s proposal to construct a 980 MW CCGT unit located in Montz, Louisiana (near New Orleans), at a site adjacent to the existing Little Gypsy generation units.  The project was selected from among bidders in Entergy’s 2014 Request for Proposal (“RFP”) for resources in Amite South (southeast Louisiana area).  The project is estimated to cost $869 million and has a projected in-service date of June 2019.

Entergy 994 MW Power Station in Lake Charles, Louisiana:  In June 2017, the LPSC approved Entergy’s proposal to construct a 994 MW CCGT unit located in Westlake, Louisiana.  The project was selected from among bidders in Entergy’s 2015 RFP for Long-Term Development and Existing Capacity and Energy Resources.  The project is estimated to cost $872 million and has a projected substantial completion date of May 2020.

Entergy 361 MW Combustion Turbine in Washington Parish:  In May 2018, the LPSC approved Entergy’s acquisition of the Washington Parish Energy Center, a new 361 MW simple cycle combustion turbine (“CT”) to be constructed in Bogalusa, Louisiana by a subsidiary of Calpine Corporation (“Calpine”) for a purchase price of approximately $222 million.  Calpine had submitted an unsolicited offer to Entergy to construct the CT and sell it to Entergy for a turn-key price.  The acquisition and related assets is estimated to cost $261 million and has an estimated “turnover” date of April 2021 for delivery of a fully-permitted, fully operational facility.

Entergy Transmission Construction Projects:  The LPSC has also approved Entergy transmission construction projects worth an estimated combined total of more than $192 million, and Entergy recently submitted a new application for certification of an estimated $92 million transmission project.

Entergy Economic Transmission Project in Southeast Louisiana:  In December 2015, the LPSC approved Entergy’s proposal to build a portfolio of transmission projects in southeast Louisiana termed the Louisiana Economic Transmission Project (“LTEP”), which was identified in the MISO Transmission Expansion Plan (“MTEP”) 2015 as addressing congestion in southeast Louisiana at a cost below its estimated benefits.  Pursuant to Entergy’s January 2019 bi-annual report, the revised estimate for the total project cost is approximately $75 million.  The project is 100% complete and in-service.

Entergy Reliability Transmission Project in Lake Charles, Louisiana:  In December 2015, the LPSC approved Entergy’s proposal to build a portfolio of transmission projects termed the Lake Charles Transmission Project (“LCTP”) to meet reliability needs in the Lake Charles, Louisiana area.  The LCTP was submitted as an “out-of-cycle” project for the MTEP 2015 process and was approved by the MISO Board of Directors as a Baseline Reliability Project.  Pursuant to Entergy’s January 2019 bi-annual report, the revised estimate for the total project cost is greater than $187 million, and the estimated in-service date for the entire project is February 2019.

Entergy Economic Transmission Project in Downstream of Gypsy Area:  In November 2018, Entergy submitted an application to the LPSC for certification of a new transmission construction project located in the Downstream of Gypsy (“DSG”) area of southeast Louisiana.  As part of MTEP 2015, MISO identified the project as addressing congestion in southeast Louisiana at a cost below its estimated benefits.  The project is estimated to cost $92.3 million and has a projected in-service date of second quarter 2022.  The proceeding is in its early stages.

Cleco Power Application for Implementation of TCJA:  At the end of January 2019, in an ongoing proceeding, Cleco Power LLC (“Cleco Power”) filed an application with the LPSC seeking authorization to (1) implement rate reductions resulting from the TCJA, (2) modify certain tariffs in connection with the rate reductions, and (3) implement residential base revenue decoupling.  Cleco Power also requested expedited treatment so that its rate reductions can be implemented effective July 1, 2019.  The application is currently pending at the LPSC.

Cleco Cajun Acquisition of NRG South Central:  In April 2018, Cleco Power and its parent company, Cleco Corporate Holdings, LLC (“Cleco Corp”), filed an application at the LPSC requesting approval for Cleco Cajun, a wholesale subsidiary of Cleco Corp, to acquire NRG South Central Generating LLC, along with related generating units and wholesale sale contracts.  In January 2019, the LPSC approved the acquisition with the adoption of 59 Regulatory Commitments.

Cleco Natural Gas Hedging Proposals:  In August 2017, Cleco Power filed applications for natural gas hedging programs with the LPSC (a Long Term Derivative Hedging Program and a Physical Bilateral Hedging Program) pursuant to the LPSC’s General Order requiring each investor owned utility to bring forth three natural gas hedging programs for LPSC consideration.  In January 2019, Cleco Power filed a supplemental filing requesting that a hybrid of its two natural gas hedging programs be recognized as its third program under the LPSC General Order and that certain larger customers be allowed to opt-in to the long term hedging programs.  The supplemental filing is currently pending at the LPSC.

by G. Trippe Hawthorne

The Louisiana State Licensing Board for Contractors has updated and revised its rules, found in Title 46, Part XXIX of the Louisiana Administrative Code. The Board characterizes these revise rules as intended to simplify and streamline the application and examination process for licensed contractors and those seeking to become licensed contractors. A brief summary of the changes can be found in the Licensing Board’s Bulletin 19-01 here.

For commercial contractors, the new rules that may prove most helpful will be: (i) the rule dispensing with the need to submit pay stubs and other payroll documents to prove the full time employment status of a qualifying party; (ii) the change from an business and law exam to the taking of an online class, and (iii) the simplification of the required financial statement.

The new rules were promulgated in the December 2018 publication of the Louisiana Register, which is available here (pages 2143-2154).

By: R. Chauvin Kean

Generally, a contract is the law between parties, which has long been the position of the U.S. Supreme Court. However, as most well know, this principle is not without limitation. On January 15, 2019, in New Prime v. Oliveira, the Court unanimously held that disputes concerning contracts of employment involving transportation workers engaged in foreign or interstate commerce cannot be compelled to arbitrate. 586 U.S. —, 4, 2019 WL 189342, at * — (2019). Also, despite strong, express language in an agreement ordering the parties to arbitrate any of their disputes, a court – not the arbitrator – is the appropriate forum to review and decide the applicability of the Arbitration Act to any contract.

The Federal Arbitration Act declares that an express arbitration clause in a maritime transaction involving commerce shall be valid and enforceable provided the Act does not further limit its application. 9 U.S.C. §§ 1 – 2 (West 2019). However, §1 declares that “nothing contained [in this Act] shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1 (West 2019). Specifically, the Court in New Prime resolved a longstanding issue of whether a “contract of employment” concerned any type of contract for work (such as one involving independent contractors) or only those contracts between an employee – employer. The Supreme Court affirmed the First Circuit’s ruling that in 1925, at the time of the Act’s inception, “contract of employment” was not a term of art; it was a phrase used to describe “agreements to perform work” and was not limited to agreements only between employees and employers as a modern jurist might first think.

New Prime provides two important lessons: first, no contract provision – however ironclad – is immune from court oversight and interpretation. Parties to a contract may attempt to limit their litigation exposure, but cannot be immune from all possibilities, especially when they try to contract around statutes. New Prime is a great example of limited application of a broad federal statute, which, even though is favored by the courts, is limited by Congress. Second, New Prime provides greater clarity in the realm of contracts for work relating to transportation workers. Any “contract for employment” concerning workers engaged in foreign or interstate commerce cannot be contractually compelled into arbitrations regardless of contractual provisions that state otherwise. New Prime, 586 U.S. at 15. It’s also worth noting that the type of workers engaged in foreign or interstate commerce has vastly expanded over time as our society grows further connected. Thus, companies should be mindful that even though contracts of employment might attempt to limit litigation through arbitration provisions, a court may not be inclined to order the parties into arbitration based on New Prime and the employee’s/independent contractor’s scope of work.

By the Data Security & Privacy Team

Introduced by Senator Brian Schatz (D-HI), the ranking member of the Communications Technology Innovation and Internet Subcommittee of the United States Senate, the Data Care Act of 2018 (the “Act”) seeks to enact Federal privacy legislation that will incentivize “online service providers” to protect certain types of personal data or risk civil penalties brought by both Federal and State agencies.[1]

Introduced to the Senate on December 12, 2018, the Bill was succinctly designed to “establish duties for online service providers with respect to end user data that such providers collect and use.”  The bill defines “online service provider” as any entity that is both “engaged in interstate commerce over the internet…” and “in the course of its business, collects individual identifying data about end users…”  The term “end users” is further defined as any “individual who engages with the online service provider or logs into or uses services provided by the online service provider over the internet or any other digital network.” In other words, anyone that logs into any online network, is now an “end user.” And, almost any entity that affords the opportunity to log into a network becomes an “online service provider” who is now tasked, under threat of concurrent state and federal criminal penalties, with protecting certain types of data. [2]

The following types of information are protected from disclosure under the Act and referred to as “sensitive data:”

  • Social security numbers;
  • First and last names or first initial and last name accompanied by the following:
    • The individual’s year of birth;
    • Mother’s maiden name; or
    • Individual’s geolocation.
  • Biometric data (example: thumb print);
  • User name and password or email address and password;
  • Financial account numbers (example: credit or debit card number);
  • Personal information of minor children (as defined in section 1302 of the Children’s Online Privacy Protection Act of 1998);
  • Driver’s license number, military identification number, passport number or any number issued on a similar item of government identification;
  • Information relating to an individual’s mental or physical health; and
  • Nonpublic communications or user-created content by an individual. [3]

The Act imposes not only a duty of care to “reasonably secure individual identifying information from unauthorized access,” but also a duty of “loyalty,” that “will prevent the reasonably foreseeable material from physical or financial harm to the end user.” The duty of confidentiality further prohibits the “online service provider” from selling or disclosing any information that it keeps on its “end users” and imposes the duty to take reasonable steps to ensure a “duty of care” by entities to which the online service provider discloses or sells information.[4] In the event of the breach, the online service provider must inform the Federal Trade Commission in accordance with 5 U.S.C. § 553. Thus, the Act looks to “online service providers” to police each other.

Consistent with the growing pressure on businesses to institute cybersecurity measures, the Act codifies the ability of multiple states and multiple state agencies to bring civil actions against offenders.  Specifically, the Act permits both state Attorney General’s offices, as well as any other state consumer protection agency, to bring civil actions against any offender without much limiting language.  Accordingly, an online retail distributor qualifying as “online service provider” could face civil and criminal penalties from all 50 states, as well as simultaneous penalties from the Federal Government for the same offense.

If passed, this Act will go into effect within 180 days of its enactment.  With a Federal Government shutdown currently in place without an anticipated opening date, it is unknown when the Act will be signed into law.  However, the political blogs are not anticipating substantial opposition to the act if addressed this year.[5]  Therefore, the Act (along with six similar privacy-specific proposals) is essentially giving a 6 month warning to businesses with an online presence that their failure to stringently protect and adhere to a “duty of loyalty” to their customers could very well result in federal charges and penalties, as well as lawsuits in multiple (if not all 50) states.

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[1] https://www.congress.gov/bill/115th-congress/senate-bill/3744.

[2] https://www.congress.gov/bill/115th-congress/senate-bill/3744.

[3] https://www.congress.gov/bill/115th-congress/senate-bill/3744.

[4] https://www.congress.gov/bill/115th-congress/senate-bill/3744.

[5]https://www.fastcompany.com/90288030/inside-the-upcoming-fight-over-a-new-federal-privacy-law

By Jessica C. Engler, CIPP/US

Whether you keep up with the Kardashians or you are just a casual Instagram user, you have probably been exposed to social media influencer posts. Due to social media’s increased marketing importance, companies will offer free products, money or other compensation to social media “influencers”, i.e. users that boast at least 2,000 or more genuine followers. “Macroinfluencers” with millions of followers can often command $10,000 or more for a single product endorsement on Instagram. Influencers have been used by industries including hotels and travel services, fitness, cosmetics, clothing and accessories, food and beverage, restaurants, dietary supplements, and a litany of other consumer products and services. Similar to celebrity brand ambassadors, these influencers provide “peer” recommendations to their followers with the intent of directing the followers to purchase the endorsed products and services. These posts are often successful and have led to increased profits for many brands.

In addition to or in lieu of traditional social media influencers, companies are also looking to their own employees to serve as online brand ambassadors, participate in ad campaigns, and to share content on social media about the company. Since the advertising budget for “employee influencers” is relatively low, many companies are implementing employee advocacy programs and incentivizing employees to be spokesmen for the company in their own circles. Certain commentators have listed employee advocacy as one of the social media strategies to watch in 2019.[1]

This young, alternative form of advertising and endorsement has caught the attention of federal agencies. Starting in March 2017, the Federal Trade Commission began notifying companies using compensated influencers that the relationship between the company and the influencer needed to be made clear in a disclosure. The FTC’s Endorsement Guidelines state that if there is a “material connection” between an endorser and an advertiser (i.e., a connection that might affect the weight or credibility that a customer would give the endorsement), then that connection must be clearly and conspicuously disclosed.[2]  The FTC has stated that these guidelines apply to social media, and both marketers and endorsers are required to comply.[3] In April 2017, the FTC sent letters to almost 100 celebrities, athletes and other influencers, as well as the marketers of the brands endorsed, regarding the disclosure obligations.[4] Since that time, the FTC also settled its first formal complaint against social media influencers—gaming influencers Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell.  These men were charged with failing to properly disclose that: (1) they owned the online gambling company that they were promoting; and (2) they paid other well-known online gaming influencers to promote the platform without disclosing the financial relationship.[5] Despite the additional FTC “educational notifications” to influencers[6] and complaints to the FTC by watchdog groups,[7] some marketing commentators claim that the majority of influencer posts are still not compliant.[8]

Most recently, the Securities and Exchange Commission entered the influencer realm when it charged boxer Floyd Mayweather Jr. and music producer DJ Khaled.  Mayweather and Khaled were promoting investing in Centra Tech, Inc.’s initial cryptocurrency offerings (ICO) on social media without disclosing that they had been paid for the promotions.[9] The SEC had previously warned that cryptocurrency sold in ICOs may be securities and that those who offer and sell securities in the U.S. must comply with federal securities laws— including disclosure of payment for promotional statements.[10] The SEC has since settled with Khaled and Mayweather, requiring them to return the $350,000 they collectively received from Centra Tech (who is currently under SEC investigation for fraud).[11] Mayweather also agreed to pay a $300,000 fine to the SEC, abstain from promoting other investments for three years, and to cooperate with the SEC’s investigation. Khaled also agreed to a $100,000 fine to the SEC and to abstain from similar promotions for two years.

The FTC’s continued letters and notifications shed light on the agencies’ interest in helping influencers and brands to be more transparent about their relationships. These educational letters are often the first step in an FTC crackdown, so influencers and brands would be well advised to ensure their posts are compliant. As businesses set their marketing plans for 2019, now would be the time to ensure that any arrangements with influencers or employee advocates are appropriately detailed. While the FTC regulations (or SEC for financial products) provide more specific guidance, the below items offer some general tips and considerations.

  1. Confirm whether social media posts need to include FTC disclosures. The FTC requires a clear and conspicuous disclosure if there is a “material connection” between an influencer and brand that might materially affect the credibility of the endorsement (meaning, where the connection is not reasonably expected by the audience).[12] Material connections can include, but are not limited to, a business or family relationship, employment relationship, monetary payments, or free products.

Disclosure is not required when the material connection between the endorser and the marketer is expected. For example, if a doctor was featured in a television advertisement claiming that an anti-snoring product is, in his opinion, the best he has ever seen, a viewer would reasonably expect the doctor to be compensated for appearing in the ad and a disclosure would not need to be made. However, a viewer may be unlikely to expect that the doctor is an owner in the company or that the doctor received a percentage of the product sales, so the advertisement should clearly and conspicuously disclose such a connection.[13]

The time when the incentive is promised is also a factor. If a restaurant asks its patrons to post pictures and honest reviews of its food on Instagram, and the patrons have no reason to expect compensation or benefit from the restaurant before making the post, then the restaurant’s later decision to send the posters a free dessert coupon will likely not require a disclosure. However, if patrons were specifically informed that a social media post would result in being given the coupon or that their pictures and reviews may be used in the restaurant’s advertising, then those opportunities may be seen as having value and may need to be disclosed.

  1. The disclosure must be clear. Disclosures must be clear enough that an ordinary reader understands the relationship between the poster and the brand. The FTC has cautioned against vague references like “Thank you [Brand Name]”, “#ambassador”, “#[Product]_Rocks”, and similar language that shows just an appreciation of the product/company. Instead, the FTC encourages clear statements like “[Brand] gave me this product to try”, “Thanks [Company] for the free product”, “Sponsored”, “Promotion” or “Paid ad”. For platforms like Twitter that limit the number of characters you can use, the FTC recommends starting the tweet with “Ad:” or “#ad.”
  1. The disclosure must be conspicuous. The FTC advises that the disclosure should be: (1) close to the claims to which they relate; (2) in a font that is easy to read; (3) in a font shade that stands out against the background; (4) for video ads, on the screen long enough to be noticed, read, and understood; and (5) for audio disclosures, read at a cadence that is easy for consumers to follow and in words the listener will understand.

Certain platforms like Instagram limit the amount of text on photostreams when viewed on a smartphone, so longer descriptions are truncated with only the first few lines viewed unless the user clicks “more”. The FTC requires that the disclosure be presented without having to click “more”. It is not sufficient for an influencer to make a general disclosure on the influencer’s profile page or through links to a separate disclosure page; rather, a disclosure must appear on each endorsement post. Similarly, the FTC cautions that the disclosure should not be buried in a long string of hashtags.

In response to the FTC’s enforcement, platforms like YouTube and Instagram have added a feature where posts can be tagged as “paid”. While these can be helpful tools, they are not foolproof.  For example, the paid tag could be sufficient when only one product is pictured in an Instagram post. But if the sponsored product appears with other products—some compensated and others not compensated—then additional disclosures may need to be made. The brand and influencer need to carefully evaluate whether the tags are sufficient or if additional statements need to be made, as it is the brand or influencer that will be responsible for the failure to properly disclose—not the platform.

  1. The endorsement must be true. This requirement is true of all advertising. An influencer cannot provide a review of a service or product that the influencer has not personally used. The influencer also cannot post that the sampled product or service is amazing and #newfavorite when the influencer hated it and would never use it again. A brand looking to use influencers should not require the influencer to make a positive post if the influencer did not have a positive experience.
  1. Monitor the influencer. Even if the influencer claims they follow legal requirements, the brand or company is still responsible for ensuring that the influencer is true to their word. Brands should regularly monitor or review the influencer’s post(s) to ensure that the posting is compliant, as the brand can still be responsible for the failure to disclose.

These above tips provide some initial considerations to brands that are using influencers and the influencers make the posts. Any written agreement between the brand and influencers should include obligations to comply with FTC guidelines. Companies that are considering an employee advocacy program would be well advised to ensure that their employee social media policies carefully detail the requirements for employee endorsements online. Consultation with an attorney to prepare these agreements or social media policies or to review proposed influencer posts are a good step towards avoiding unwanted regulatory attention.

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[1] See Lilach Bullock, “5 Social Media Strategies That Will Grow Your Business in 2019”, Forbes (Dec. 20, 2018) (available at https://www.forbes.com/sites/lilachbullock/2018/12/20/5-social-media-strategies-that-will-grow-your-business-in-2019/). See also Ryan Erskine, “The Key to Increasing Your Brand’s Reach by 561%? Your Employees.”, Forbes (Jun. 30, 2018) (available at https://www.forbes.com/sites/ryanerskine/2018/06/30/the-key-to-increasing-your-brands-reach-by-561-your-employees/#3331b89429bb); Steve Cocheo, “Employee Advocacy in Banking: Aligning Culture & Content in Social Media Channels”, The Financial Brand (Nov. 15, 2018) (available at https://thefinancialbrand.com/76838/social-media-employee-trust-consumer-banking-postbeyond/).

[2] 16 C.F.R. § 255; “The FTC’s Endorsement Guides: What People Are Asking”, Federal Trade Commission (Sept. 2017) (available at https://www.ftc.gov/tips-advice/business-center/guidance/ftcs-endorsement-guides-what-people-are-asking).

[3] “FTC Staff Reminds Influencers and Brands to Clearly Disclose Relationship”, Federal Trade Commission (Apr. 19, 2017) (available at https://www.ftc.gov/news-events/press-releases/2017/04/ftc-staff-reminds-influencers-brands-clearly-disclose). One survey done in May 2017 showed that at least 90% of celebrity influencer posts were not compliant with the FTC guidelines. “93% of Top Celebrity Social Media Endorsements Violate FTC Guidelines”, Mediakix (May 31, 2017) (available at http://mediakix.com/2017/05/celebrity-social-media-endorsements-violate-ftc-instagram/#gs.SHytKyU).

[4] Lesley Fair, “Influencers, are you #materialconnection #disclosures #clearandconspicuous?”, Federal Trade Commission (Apr. 19, 2017) (available at https://www.ftc.gov/news-events/blogs/business-blog/2017/04/influencers-are-your-materialconnection-disclosures).

[5] “CSGO Lotto Owners Settle FTC’s First-Ever Complaint Against Individual Social Media Influencers”, Federal Trade Commission (Sept. 7, 2017) (available at https://www.ftc.gov/news-events/press-releases/2017/09/csgo-lotto-owners-settle-ftcs-first-ever-complaint-against).

[6] Id.; see also Sam Sabin, “DeGeneres, Minaj Among Celebrities Whose Social Posts Drew FTC Interest in Past Year”, Morning Consult (Oct. 5, 2018) (available at https://morningconsult.com/2018/10/05/degeneres-minaj-among-celebrities-whose-social-posts-drew-ftc-interest-in-past-year/).

[7] See, e.g., “TINA.org Files FTC Complaint Against Diageo for Deceptive Influencer Marketing of Ciroc”, Truth in Advertising, Inc. (Dec. 11, 2018) (available at https://www.truthinadvertising.org/ciroc-press-release/).

[8] See Sam Sabin, “A Year After Major Actions, FTC’s Influencer Marketing Guidelines Still Overlooked”, Morning Consult (Oct. 4, 2018) (available at https://morningconsult.com/2018/10/04/a-year-later-ftcs-influencer-marketing-guidelines-still-largely-ignored/).

[9] Ahiza Garcia, “DJ Khaled, Floyd Mayweather Jr. charged with promoting cryptocurrency without disclosing they were paid”, CNN Business (Nov. 30, 2018) (available at https://www.cnn.com/2018/11/29/tech/dj-khaled-floyd-mayweather-coin-crypto-sec/index.html). Part of the increased scrutiny by the SEC is likely due to the SEC’s criminal charges of fraud against Centra Tech, which allege that Centra Tech “sold investors on false promises of new technologies and partnerships with legitimate businesses.” Frances Coppola, “SEC Fines Floyd Mayweather and DJ Khaled for Illegally Promoting a Fraudulent ICO”, Forbes (Nov. 29, 2018) (available at https://www.forbes.com/sites/francescoppola/2018/11/29/floyd-mayweather-and-dj-khaled-were-paid-to-promote-a-fraudulent-ico/#9c4b6c14665e).

[10] “Two Celebrities Charged with Unlawfully Touting Coin Offerings”, U.S. Securities and Exchange Commission (Nov. 29, 2018) (available at https://www.sec.gov/news/press-release/2018-268).

[11] Nathaniel Popper, “Floyd Mayweather and DJ Khaled Are Fined in I.C.O. Crackdown”, The New York Times (Nov. 29, 2018) (available at https://www.nytimes.com/2018/11/29/technology/floyd-mayweather-dj-khaled-sec-fine-initial-coin-offering.html).

[12] 16 C.F.R. § 255.5.

[13] 16 C.F.R. § 255.5.

By: Tod J. Everage

Last week, the U.S. Supreme Court granted the Writ of Certiorari in the Dutra v. Batterton case, setting the stage for a resolution of the Circuit Split between the US Fifth and Ninth Circuits on whether punitive damages are available to a seaman on an unseaworthiness claim. A more thorough review of the Dutra case and the anticipated fight can be found in our previous blog post here.

 

By Lauren J. Rucinski

On Tuesday, December 11, 2018, the Environmental Protection Agency (“EPA”) and U.S. Army Corp. of Engineers (“ACE”) proposed a rule revising the definition of “waters of the United States.” The so-called WOTUS rule defines the scope of Clean Water Act (“CWA”) jurisdiction and the permitting requirements thereunder, and has been in the hot seat for the past two years under both the Trump Administration and a bevy of litigation.

The Obama Administration promulgated the WOTUS rule in 2015, which defined the term “waters of the United States” broadly to cover any lake, stream, wetland, etc. with a “significant nexus” to a navigable water.[1] The regulation was challenged in a number of federal district courts and courts of appeal.[2] Following his election, President Trump issued a February 2017 Presidential Executive Order entitled “Restoring the Rule of Law, Federalism, and Economic Growth by Reviewing the ‘Waters of the United States’ Rule,” requesting that the EPA and ACE repeal and replace the 2015 rule. In response, the agencies repealed the 2015 WOTUS Rule, which is the first step in the process.[3] This rule proposal is the “second step” in the process.

The proposed definition of WOTUS set forth in the proposed rule would replace the 2015 WOTUS rule.[4] Under the proposed rule, the following six “clear” categories of waters would be considered “waters of the United States”:

  1. Traditional navigable waters;
  2. Tributaries;
  3. Certain ditches;
  4. Certain lakes and ponds;
  5. Impoundments; and
  6. Adjacent wetlands.[5]

Each category is supplemented by examples and definitions. Of particular note to Louisiana industry is the sixth category: adjacent wetlands. According to the proposed rule, wetlands would need to “physically touch” or be connected by inundation or perennial flow (including over a levee or berm if applicable) to navigable waters in order to bring the area under CWA rules.

Although the question still remains whether these definitions provide any more clarity than the previous “significant nexus test” under the 2015 WOTUS rule, both the EPA and ACE are optimistic. EPA Acting Administrator Andrew Wheeler stated: “For the first time, we are clearly defining the difference between federally protected waterways and state protected waterways. Our simpler and clearer definition would help landowners understand whether a project on their property will require a federal permit or not, without spending thousands of dollars on engineering and legal professionals.”[6]

It is important to note that the State of Louisiana through the Louisiana Department of Environmental Quality (“LDEQ”) defines its own rule for “waters of the state.” The LDEQ rule is much broader and includes “both the surface and underground waters within the state of Louisiana including all rivers, streams, lakes, groundwaters, and all other water courses and waters within the confines of the state, and all bordering waters and the Gulf of Mexico.”[7]

The proposed rule can be found here and the public comment period will be open for the sixty days following the proposed rule’s publication in the Federal Register.

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[1] 80 Fed. Reg. 32054, June 29, 2015.

[2] See “A Plethora of Cases Could Affect WOTUS Rulemaking” (June 1, 2017) available at https://www.louisianalawblog.com/environmental-litigation-and-regulation/plethora-cases-affect-wotus-rulemaking/#_ftn1 (citing and discussing e.g., United States v. Robertson, No. CR 15-07-H-DWM, 2015 WL 7720480 (D. Mont. Nov. 30, 2015); Duarte Nursery Inc. v. Army Corps of Engineers, et al., 17 F. Supp. 3d 1013 (E.D.Cal. 2014); Nat’l Ass’n of Mfrs. v. Dep’t of Def., 138 S. Ct. 617, 199 L. Ed. 2d 501 (2018))  

[3] 83 Fed. Reg. 32227, July 12, 2018.

[4] https://www.epa.gov/wotus-rule/step-two-revise.

[5]https://www.epa.gov/sites/production/files/2018-12/documents/factsheet_-_wotus_revision_overview_12.10_1.pdf;

[6] https://www.epa.gov/newsreleases/epa-and-army-propose-new-waters-united-states-definition.

[7] LAC 33:IX.107.