By Julia Gorham

Seyfarth Synopsis: The global market for wearable devices continues to grow and has been embraced not only by consumers but organizations as well. Wearables use in the workplace is here to stay, but employers should consider the risks at the outset.

Wearables — where to start? With the smartwatch languishing in my junk drawer, the step tracker, heart rate monitor, security pass, two smartphones (private and business), smart clothing or the Santa list with a virtual reality headset?

It is hardly surprising that ABI Research predicts 500 million wearable devices will have been sold by 2021. Not counting the apps. If our personal time is tracked by wearables, what happens on the job? Organizations are embracing wearable technology to engage with their employees, monitor movements and productivity, to assess wellbeing, and even to market/cross-sell new products.

Using technology in this way is not without risk, but it is here to stay. Data privacy risks, ethical considerations (such as the right to a private life), and continued liability for employers all need to be considered at the outset of implementing programs using wearables for work. One of the biggest considerations is what is the data used for? One obvious use of such data is how long staff spend working are their designated site, but do they know and understand the extent to which that data is monitored, what type of analytics are applied to it and even what other decisions are being made using that data that the employees do not see? In operating wearables for work (and collecting, using and storing data from them), organizations need to comply with relevant legislation/guidelines, including being mindful of the duty of care to their staff, be transparent with their employees, and consider wider ethical issues.

In the health and wellbeing space: Workplace schemes encouraging staff movement and activity, via apps or subsidized sports bands for example, are not new and are an established part of corporate culture for big businesses. Good for health, wellbeing and engagement in the employee population, insurance companies also recognize these benefits and adjust premiums accordingly. But do employees know what the data is used for? Some of this data may be used to look at employee attendance by employers and could form the basis of disciplinary action for example — is that made clear at the outset? If an individual were to suffer an accident or over-exert themselves during a fitness drive it is not a stretch to assume that, even if waivers have been signed by staff, liability (including vicarious liability) will still be placed firmly at the employer’s door.

For senior executives, often an organization’s biggest asset, wearable technology can monitor sleep patterns, stress levels and other more invasive biometrics that will help an organization manage its people risks. Even with consent to such a program, would that remove liability where a senior employee suffers a heart attack or stress-related illness as a result of their role? Unlikely, the normal legal tests would still apply. For staff in ‘high risk’ roles, for example pilots, wouldn’t a heart rate monitor or other device that can track and monitor extreme or abnormal changes in biometrics be important — could it help predict or stop human-error disasters?

In terms of movement and productivity assessment — wearable technology can be a huge asset to organizations with thousands of staff — keeping track of where people are. For example, you can monitor ‘hot spots’ for office infrastructure and plan effective working spaces. However, many countries have significant privacy laws and a legal right to a private life. If these technologies continue monitoring and tracking out of hours (including breaks) can the benefits of safety justify the impact to privacy/private life? In terms of productivity, the world’s biggest e-commerce companies now track their employees’ productivity and efficiency via wrist bands embedded with microchips against metrics which are often determined relative to the speed at which robots can operate. To what extent do employers have a responsibility to maintain human oversight of their staff even when such wearables are being used and to what extent are they reviewing potentially high rates of fatigue or burnout?

Much has already been made about potential inherent discrimination that may be written into algorithms. To what extent will employees in the future have the ability to challenge material decision making made by or data collected by devices, programs, technology on the basis of underlying discrimination. For example, selection for poor performance discussions, selection for redundancy or other serious impact to an employee’s career. If the underlying data or collection methodology is allegedly compromised, then it potentially follows that an organization could be held to account for relying upon it. Human oversight should always be included as part of any decision making process.

In terms of identifying fraud, the ability to track staff movements is extremely useful. Local laws usually provide that employers can process and use data to identify crimes or serious misconduct/dishonesty offences — but it is always going to be important to have made staff aware of this type of monitoring before implementation and ensure compliance with local law/codes of practice.

Finally, let’s look at France and the decision to give employees the right to time off from technology — to discourage emails out of hours, over the weekend or on annual — leave unless business critical. In a connected world where staff often have smartphones issued by their employer or ‘bring your own device’ programmes pushing native work emails onto their personal phones and now smart watches sending instant messages — what obligation do companies have not to overburden their staff? Many employees do not want colleagues whatsapping them on a Saturday when it could wait until Monday.

For many multi-national employers and particularly those working across time zones, the French approach goes too far; it also depends on sectors, cultural norms in jurisdiction and expectations on workers in terms of productivity. For most of us, the view is that legislation is not needed in this area but good corporate culture and management leadership is. Unions and collective labour organizations are taking up this mantle in some jurisdictions and negotiating with companies for workers’ rights in this area.

However your organization chooses to adapt and adopt new technologies, be clear about the drivers for change, the expectations on your staff and be balanced about business needs. It is increasingly important to carry out risk assessments on a rolling basis to check if your technology programs continue to meet the aims they were introduced to address and remain fit for purpose or need to be adapted to reflect changing laws or social and cultural norms.

Julia Gorham is a partner in our Hong Kong office and works closely with leading employers assisting them with their cross border matters, particularly in the Asia Pacific region.

By Esther Slater McDonald, Seth J. Fortin, Wan LiRhea Yu, and Craig B. Simonsen

Seyfarth Synopsis:  The People’s Republic of China is making progress in implementing its mandatory “social credit system.”  Multinational businesses in China should be watchful of this system, and ready for it when it rolls out – if it hasn’t already.

In June 2014 China’s State Council issued a notice regarding the establishment of a “social credit system”–essentially, a national credit score for each citizen and business, but one reflecting more than just creditworthiness: the notice states that the goal of the system is to “[c]omprehensively move forward the construction of social sincerity” in order to “create harmonious and amicable interpersonal relationships” and “stimulate the progress of society and civilization.”  “State Council Notice concerning Issuance of the Planning Outline for the Construction of a Social Credit System (2014-2020),” GF No. (2014)21 (Jun. 14, 2014).

While the system is voluntary during an initial pilot stage, and run by nominally private entities like Alibaba, the Chinese government has indicated that by 2020 it will have “established fundamental laws, regulations and standard systems for social credit” and will “giv[e] complete rein to mechanisms to encourage keeping trust and punish breaking trust.”  Media sources have indicated that the government will at that point officially control the system, which will then be mandatory.  Local governments are also presently working to set up their own social credit systems.  Information collected in the systems of local governments, government agencies, and private entities will eventually be funneled into a national database.

According to a recent article in Wired, the score will ultimately be based on a multitude of factors, including the following:

  • Credit history — Does an individual or business pay its debts?
  • Personal habits — Does an individual engage in productive activity? Buying baby products reflects a sense of personal responsibility while playing video games reflects an idle nature.
  • Treatment of others — Does an individual respect others?
  • Civic obedience — Does an individual or business adhere to local and national laws?
  • Loyalty to party and country — Does an individual or business support the Communist Party and Chinese government? Does an individual or business purchase Chinese brands or partner with Chinese companies?
  • Network — With whom does an individual or business associate? Who are their partners, friends, and acquaintances, and what are their ratings?

Rachel Botsman, “Big Data Meets Big Brother as China Moves to Rate its Citizens,” Wired (Oct. 21, 2017).

A government official with the National Development and Reform Commission, which is charged with implementing the national system, noted that a “nation-wide information sharing platform” has been set up “to connect 37 government departments[,] and it has collected more than 640 million pieces of information on credit.”  Zhao Yusha, “4.9m People with Poor Credit Record Barred from Taking Planes,” Global Times (Nov. 2, 2016).  According to the Chinese government, the goal of this program is for “the whole society to pursue the common value[s] and code of conduct, and actively create a ‘trustworthy glor[ious], dishonesty shameful’ good social atmosphere.” “State Council General Office on Strengthening Guiding Opinions on Building a System of Personal Integrity” (Guidance Opinion), No. 98 (Dec. 30, 2016). Our translation.  Other observers have a different view, believing the system is more about social control than credit in the ordinary sense.  Asan Institute for Policy Studies, “Orwell’s Nightmare: China’s Social Credit System” (Feb. 28, 2017).

At the moment, pilot-stage credit systems like Alibaba’s Sesame Credit do not “directly penalise people for being ‘untrustworthy.’”  Botsman, supra.  But the system provides incentives to fall in line with the values the government seeks to inculcate:  A “good” score makes it easier to find a job, rent a car, check in at the airport, or obtain a travel visa; the corollary is that it is harder to do such things with a “bad” score.  Once the system is mandatory, though, those with low ratings may have “slower internet speeds; restricted access to restaurants, nightclubs or golf courses; and the removal of the right to travel freely abroad.”  Id.

At present, however, the social credit system cannot by itself inflict such penalties; rather, the judiciary can place companies or individuals who fail to meet their obligations on the official  “List of Dishonest Persons Subject to Enforcement”, published by the Supreme People’s Court.  “Several Provisions of the Supreme People’s Court on Announcement of the List of Dishonest Persons subject to Enforcement,” Interpretation No. 17 (2013).  Those on the list are subject to various restrictions, including limitations on travel, employment, financing and credit, market access, and government support.  Chinese news sources report that, by late 2016, nearly 5 million citizens were barred from air travel, and over a million were barred from train travel based on the information already in the system.  Zhao, supra.

And because the system looks at more than just debt payment history, one’s score can go down if one associates with the wrong people or, potentially, even just ends up in the wrong physical place.  As the country turns more toward app-based commerce, there will be a significant amount of data available on nearly every aspect of a citizen’s life. One locality included “not visiting your parents often” as a negative factor in computing credit scores.  Asan Institute, supra.  Even expressing the wrong thoughts could bring your score down; as a Chinese professor working with the government to develop the system explains: “The behaviour of the majority is determined by their world of thoughts. A person who believes in socialist core values is behaving more decently.”  Botsman, supra.

For businesses, the same system of rewards and punishments applies.  A corporation may be rewarded with a higher credit score for having reduced energy consumption, promoting local or national government projects, or partnering with Chinese businesses.  In contrast, a company that lacks a robust safety program, refuses to support a local government’s pet project, or balks at disclosing big data to the Chinese government may be downgraded.

The Mercator Institute for China Studies writes that, as to businesses, the system is designed “to constantly monitor and evaluate companies’ economic as well as non-economic behavior” and to create incentives for companies to comply “not just with laws and regulations but also with the industrial and technological policy targets laid down by the Chinese government.”  “MERICS China Monitor: China’s Social Credit System” (May 24, 2017).  Although the system will purportedly treat Chinese and foreign companies the same, there is a concern that foreign companies will be disadvantaged.

If all that sounds Orwellian, the flip side is that the new credit system might also make credit easier to obtain and business less costly in China.  Unlike the U.S., with its well-established credit bureau system, China has never had a comprehensive, national credit reporting scheme.  Moreover, the system goes beyond mere borrowing and lending and, according to the Chinese government, aims to promote a global concept of “trustworthiness.”  So, for example, one of the goals is to punish and isolate not only individuals and businesses who don’t pay their bills but also those who sell counterfeit or shoddy goods, breach contracts, or who otherwise fail to make good on their consumer or business obligations.

Making Chinese business trustworthy and attractive to foreign investment is an explicit goal of the credit system plan: as the State Council recognized in its “Planning Outline,” “[p]erfecting the social credit system is a necessary condition to deepen[ing] international cooperation and exchange, establishing international brands and reputations, reducing foreign-related transaction costs, and improving the country’s soft power and international influence . . . .”   Supra. However, investment freedom will be linked to businesses’ social credit scores; only companies with high credit scores will benefit from reduced regulation and greater investment opportunities.

What are the takeaways for multinationals in China?  At a minimum, companies will likely want to consider some of the following:

  • The BBC reports that “each citizen and Chinese organisation will be rated.” “China ‘Social Credit’: Beijing Sets Up Huge System” (Oct. 26, 2016).  This raises the question of whether the credit scoring system will also apply to foreign businesses operating in China.  To the extent that it does, will there be required disclosures or reporting that a business will need to make to the system?  Compliance may raise unique legal issues for foreign companies, and the cost of compliance may be prohibitive for some.
  • Will foreign companies or their affiliates operating in China have to disclose information about employees in China? If yes, will that include non-citizens working in China or only Chinese nationals?  What about non-citizens working temporarily in China (e.g., an foreign executive who regularly travels to China for extended business trips)?
  • If foreign employers have to disclose information about individuals working in China, does such conduct violate other law, such as federal or state privacy laws in the United States? Does furnishing information to or obtaining information from the Chinese social credit system expose foreign companies to liability in other jurisdictions?  For example, can companies participating in the social credit system be sued in the United States for violations of the Fair Credit Reporting Act?
  • Will foreign employers operating in China be required to obtain social credit scores on job applicants or current employees? Even if not required to do so, will it be to a company’s advantage to avoid hiring employees with low scores, not only because of whatever the scores actually reveal about the recruits’ trustworthiness and diligence, but also because an employee with a low score could bring the company’s own score down?
  • To the extent that the social credit system scrapes social media for data about people and companies, will that include social media worldwide? If so, do multinational companies have to worry about their political or other media positions in other countries affecting their social credit score in China?

Finally, companies should pay attention to the social credit system as a source of useful business information.  It remains to be seen whether the system will be reliable enough to provide useful information about potential employees or business partners (separate from the question of how any potential associations affect the company’s own score).  Will this system actually be helpful in sorting the wheat from the chaff–the diligent employees from the layabouts, the solid businesses from the scam artists?  That remains to be seen, but if American and other multinational companies can actually benefit from the transparency that the social credit system promises, it might remove some of the sting from the added level of regulatory hassle that it otherwise seems to portend.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the International Employment Law Team or the Background Screening Compliance & Litigation Team.

By Andrew S. Boutros, John R. Schleppenbach, and Craig B. Simonsen

Seyfarth Synopsis:  U.S. Customs & Border Protection recently issued a Final Determination that the coffee roasting process “substantially transforms” raw coffee for purposes of country-of-origin determinations and U.S. Government “Buy American” regulations. This clear new guidance should help corporations and their executives avoid civil, administrative, and criminal legal exposure as President Trump fulfills a campaign promise to crack down on illegal trade.

In a significant ruling that sent a jolt of caffeine through the coffee industry, U.S. Customs and Border Protection (CBP), Department of Homeland Security, issued a Notice of Final Determination (HQ H291135), on November 15, 2017, holding that the country where raw green coffee beans are roasted is the country of origin of the roasted coffee for purposes of U.S. Government procurement regulations.  82 Fed. Reg. 55388 (November 21, 2017).

Specifically, CBP’s determination addressed the important question of whether raw green coffee beans are “substantially transformed” by the roasting process for purposes of United States Government procurement.  CBP issues country of origin advisory rulings and final determinations as to whether an article is or would be a product of a designated country or instrumentality for the purpose of granting waivers of certain “Buy American” requirements under U.S. law for products offered for sale to the United States Government.

In issuing its Determination, CBP relied on the rule of origin, at 19 U.S.C. § 2518(4)(B)(ii), which provides that in “the case of an article which consists in whole or in part of materials from another country or instrumentality, it has been substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was so transformed.”  In addition, CBP also referred to 48 CFR § 25.003 of the Federal Acquisition Regulations, which defines “U.S.-made end product” as:

An article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed.

In addition, the Notice further observed that “for more than 30 years, CBP has recognized that roasting green coffee beans substantially transforms the beans into a new and different article of commerce.  See Headquarters Ruling Letter (HQ) 733563, dated June 24, 1991, citing HQ 070395, dated June 6, 1983; HQ 722980, dated October 17, 1983; HQ 722360, dated June 6, 1984; and, HQ 725641, dated July 25, 1984.”

The Notice resolved that “based upon the facts presented, CBP has concluded . . . that Canada or the United States, i.e., the country where the raw green coffee beans are roasted, is the country of origin of the roasted coffee for purposes of U.S. Government procurement.” (Emphasis added).

According to the Notice, any party-at-interest, as defined in 19 CFR § 177.22(d), may seek judicial review of the Final Determination before the Court of International Trade, by December 21, 2017.

As we have written earlier this year in both Bloomberg BNA’s White Collar Crime Report, 12 WCR 410 (May 2017) as well as a Firm Management Alert (April 2017), the current Administration has vowed to combat unfair trade practices.  Indeed, fulfilling early campaign promises, President Donald J. Trump issued two Executive Orders on March 31, 2017 on the subject, with one such Executive Order directing the Attorney General to “ensure that Federal prosecutors accord a high priority to prosecuting significant offenses related to violations of trade laws.” The same Executive Order also directs the Secretary of Homeland Security, through the Commissioner of CBP, to “develop and implement a strategy and plan for combating violations of United States trade and customs laws.”

With new clear guidance from CBP as to how coffee (and by implication, potentially other) country-of-origin determinations should be made both at the border and after entry into the United States, Notice of  Final Determination (HQ H291135) makes it less likely that employers and companies in the coffee or other related industries will violate federal law that makes it a crime for any person or company to receive, conceal, buy, sell, or in any manner facilitate the transportation, concealment, or sale of imported merchandise knowing the merchandise to have been imported into the United States contrary to law.

Indeed, although we have been predicting that criminal and other enforcement actions involving trade, customs, antidumping duties, and countervailing duties practices will likely be on the rise over the next several years, Notice of Final Determination (HQ H291135) draws a bright line that should help companies and employers to steer clear of false or fraudulent actions that could give rise to liability, whether civil, administrative, or even criminal.

Those with questions about any of these issues or topics are encouraged to reach out to the authors, your Seyfarth attorney, or any member of the Seyfarth Shaw’s White Collar, Internal Investigations, and False Claims Team or International Employment Law Team.

By Ming Henderson and Clothilde Verdier

Seyfarth Synopsis: French Employers should brace themselves for changes in the employment and labour law arena. However at this stage nothing is set in stone, and any reforms may be slow in coming.  As France does not have the equivalent of a US “Presidential Decree,” Macron’s government will need to get the Parliament’s buy in.

On 14 May 2017, French President-elect Emmanuel Macron with a strong 66% majority will officially start his five year mandate. His first duty was to appoint a Prime Minister to form a new government. Following the Parliamentary elections of 11 and 18 June 2017 where Macron’s newly created party obtained a strong majority , the government was reshuffled, and the work can now begin.

Employment and Labour is one of the three key focus areas for President Macron – he has pledged to simplify French laws, reform the labour market and show France is open to business. Macron widely communicated his ambitious programme during his campaign, so as he prepares to move into the Presidential Palace what are the potential reforms multinationals employing staff in France or companies considering opening for business in France should expect? The overview that follows is based on Macron’s official programme, to which we added our comments for background purposes.

Employment Reforms – Mixed Messages to Employers and Employees

Macron has vowed to make French employment laws more business friendly, and this is clearly apparent from the following proposals:

  • Capping damages granted to employees for unfair dismissal claims. By introducing an upper and a lower limit for such damages, the cost of redundancies will be more predictable. Currently damages are uncapped, and the published guidelines can go up to 24 months’ salary on top of notice period and statutory indemnity.
  • Cutting payroll taxes on overtime. A similar measure on voluntary overtime was put in place by Conservative President Sarkozy in 2007 under the slogan “Work More to Earn More”, but removed by François Hollande as soon as he came into power. In practice given the cost of payroll taxes, employees’ net salary was not proportional to the number of hours worked – the reform would hopefully aim to correct this flaw and encourage productivity; and
  • Enabling employers to depart from the mandatory minimum protection under the applicable national collective agreement, by signing a collective agreement at company or workplace level, in areas such as working time, minimum wage, and overtime This was already introduced by the 2016 Macron Law, however employers still need to negotiate with employee representatives or unions, not just introduce new policies.
  • Introduce a two-strike rule so employers who on a single occasion slip up on tax filings or payments are just reminded, not penalised.
  • There are however a number of reforms which will be less pleasing to employers, and are less obvious as to how they will make the French labour market more competitive, such as:
  • Capping the duration of inbound international assignments to France to one year – thereafter, employees will need to be on a local French contract. Macron also intends to renegotiate the EU Posted Workers Directive for France to reduce the number of employees working in France but remaining on their home payroll, and not being fully subject to French labour laws;
  • Taxing employers who frequently use temporary contracts instead of permanent employment contracts through an additional levy at company level ;
  • Publishing on a “shame list” the name of companies who do not comply with equal pay – this will force companies to focus more actively on their data, and may in the short term increase salary costs, red tape and lead to a negative public image, but if properly managed could be positive long term;
  • Encourage a better representation of employees on the Board of companies by creating encouraging measures for such representation at Board level;
  • Reducing payroll taxes for employees on minimum wage (currently 1480 Euros per month), and providing for the payment of a 13th month bonus;
  • Increasing employees’ net salary by lowering the amount of employees’ contributions e.g. an employee currently earning a monthly salary of 2,200 Euros will earn an additional 500 Euros net a year – this measure will not reduce employment costs in France for employers. Typically total payroll taxes in France amount to around 70% of gross salary before income tax (compared with around 16% in the UK for a similar level of pay);
  • Removing the tax credit for research programmes in France, which have in the past proved popular in the Pharmaceutical and Tech industries – this reform is to balance the books with the reduced taxes on low salaries; and
  • Extending unemployment benefits to all ‘workers’ such as independent contractors, entrepreneurs or employees who resign from their job – such measures, which are likely to be very popular, may impact employee retention and ultimately push up the cost of employment for employers, though Macron also announced his intention to restrict both the duration and the conditions under which unemployment benefits are paid out.

What to Expect Next?

Employers and employees alike should brace themselves for changes in the employment and labour law arena. However at this stage nothing is set in stone, and the reforms may be slow and more modest than as described above. France does not have the equivalent of a US “Presidential Decree” so Macron and his government will need to get the Parliament’s buy in. Though the strong majority achieved in Parliament may not require this, there are broadly two significant tools Macron and his Government may use to push the reforms through in Parliament. Firstly, getting a law voted by Parliament allowing the government to implement employment and labour law reforms by way of Ordinances. Secondly, using the famous “Article 49.3” process which enables a government to agree to step down if the Law does not obtain a majority vote in Parliament, thus avoiding lengthy debates and limiting the amount of amendments made to a bill.

Last but not least, two additional considerations are of significant importance in France: “the power of the street”, i.e. strikes and demonstrations coordinated by unions that can bring France to a halt for weeks or months; and the Constitutional Council, that can annul any law deemed unconstitutional.

By Wan Li

Seyfarth Synopsis: A new Work Permit Policy (Policy) is being implemented in China.  The Policy had been initially implemented, from October 2016 to March 2017, through a pilot program in a number of regions including Shanghai, Beijing, Tianjin, and Shenzhen.  Nationwide implementation of the Policy commenced on April 1, 2017.

Policy Features 

The Policy consists of two main features: (1) expats working in China will now be issued a single multipurpose “Work Permit”, and (2) expats will be categorized into three different groups that will now affect how easy it is for them to get a Work Permit.

Multipurpose Work Permit

Expat workers in China were classified previously as either (i) foreign employees eligible for an “Employment Permit,” or (ii) foreign employees eligible for an “Expert Permit.” These two permits are now combined into one “Work Permit” that will be assigned to foreign applicants through the issuance of identification (ID) cards with unique ID numbers. Each ID card will belong to one foreign individual for life. Foreign employees with existing work permits may elect to maintain their existing permits until their expiration dates or may convert them to new Work Permits.

Shanghai, assuming a leading role in the Policy, issued its first Work Permit to a faculty member of the SJTU-ParisTech Elite Institute of Technology at Shanghai Jiaotong University in November 2016.

Since the full implementation of the unified application across the country on April 1, the new multipurpose Work Permit Policy has been well received and instituted in more than ten provinces of China.

3-Tier Classification System

Under the Policy, foreign applicants will be divided into three categories based on a scoring system. Credits will be assigned to applicants for Work Permits based on their education, background, salary level, age, time spent working in China, and Chinese language fluency. Many cities now operating under the Policy have issued local standards for the scoring system.

Category A applies to foreign high-end talent, such as expats selected by China’s talent-import plan, expats with internationally recognized awards, leading figures in the science and technology industry, and successful entrepreneurs.  There is no limit to the number of expats in this category who may receive Work Permits.

Category B applies to foreign professionals. Examples include workers who hold a bachelor’s (or higher) degree and have two years of full time experience related to the work to be performed. The number of expats in this category who may receive Work Permits will vary depending on market demand.

Category C applies to the remaining types of foreign workers, who are typically non-technical or service workers hired on a temporary or seasonal basis. The number of expats in this category who may receive Work Permits is significantly restricted and subject to a quota.

Implications for Multinational Employers

The Policy aims to both streamline current administrative procedures and attract high-end foreign talent to China. Expats whose skills are urgently needed in Chinese labor markets are being encouraged to work in China through the now less restrictive permitting process and easier application protocols.

Multinational employers should note that the Policy is early in the implementation process.  Employers should pay close attention to the changing application rules and procedures, and be mindful that when hiring foreign workers in different parts of China the rules will be different.

If you would like further information, please contact Wan Li at LWan@seyfarth.com, or any member of our International Employment Law Team.

By Jason E. Burritt, Michelle Gergerian, and Dawn M. Lurie

Seyfarth Synopsis: If Congress fails to pass a funding bill by midnight on Friday, April 28, resulting in a federal government shutdown, it would trigger numerous immigration-related ripple effects on employers, both large and small. The federal government, through its various agencies, plays a key role in authorizing and regulating the employment of foreign citizens in the United States. Employers should be aware of how the federal government shutdown could affect their ability to hire, verify and maintain the status of foreign national employees.

Background

A federal government shutdown could begin at midnight on Friday, April 28 if Congress fails to pass a funding bill. This means that, effective Monday, May 1, only “essential” government workers would report to work until Congress passes a spending bill.

U.S. Citizenship and Immigration Services (USCIS)

USCIS would be minimally impacted because it is largely a user-fee funded service. The vast majority of USCIS workers would continue to report to work during a shutdown. This means USCIS would continue to process applications and petitions for immigration benefits, with some processing delays possible. As explained below, however, petitions for which a Department of Labor (DOL) certification is required — such as the H-1B that requires a Labor Condition Application (LCA) -­may be adversely affected. USCIS has not yet announced whether it would temporarily accept extensions without DOL-certified LCAs, although historically USCIS has not.

E-Verify, USCIS’ free, internet-based system that allows businesses to determine the eligibility of their employees to work in the United States, would be inaccessible during the shutdown. However employers are reminded that they must continue to complete I-9 forms in compliance with the law and when E-Verify becomes available, create cases in the E-Verify system. During a prior shutdown, USCIS issued guidance suspending the “three day rule” for any case affected by the shutdown.  Historically employees caught in the Tentative Non-Confirmations (TNCs) process were provided an extended time period to resolve the issue.

Again, employees would still be required to complete Section 1 of the Form I-9 on or before the first day of employment and employers would still need to complete Section 2 of the Form I-9 no later than the third business day after an employee begins working for pay.

Other components of the Department of Homeland Security (DHS), such as Customs and Border Protection (CBP) and Immigration Customs Enforcement (ICE) are expected to retain most of their essential staff. CBP has not yet indicated whether it would process immigration applications at the border, such as initial TN and Blanket L applications for Canadian nationals, but it is expected that these adjudications would continue.

Department of Labor

Office of Foreign Labor Certification (OFLC) employees, who fall under the umbrella of DOL, are considered non-essential and would be placed in furlough status during the government shutdown. OFLC would neither accept nor process any applications or related materials, including LCAs, applications for a prevailing wage determination, applications for temporary employment certification, PERM audit responses or applications for permanent employment certification (.e.g PERM applications). OFLC’s web site, including the iCERT Visa Portal System, would become static and unable to process any requests or allow authorized users to access their online accounts. Employers with concerns about these deadline-specific functions should consult an immigration attorney with questions about proper maintenance of status during these uncertain times.

Department of State (DOS)

Visa issuance should continue, at least temporarily. Domestic and overseas Consular operations should remain fully operational as long as sufficient fees exist to support operations. However, if a passport agency is located in a government building affected by a lapse in appropriations, that facility may become unsupported. The continuance of consular operations in such instances would be treated on a case-by-case basis by the Under Secretary for Management.

Department of Justice (DOJ)

DOJ trial attorneys and immigration judges should conduct removal (deportation proceedings) only for individuals in federal custody at least for a short period of time. All other cases would likely be suspended during the shutdown. Similarly, furloughed would be attorneys and staff within the Immigrant and Employee Rights section of DOJ charged with accepting and investigating charges of workplace discrimination arising under the immigration laws.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the Business Immigration Group.

To stay up-to-date on immigration developments, sign up for Seyfarth’s new BIG Immigration Law Blog.

 

By Wan Li and Darren G. Gardner

Seyfarth Synopsis: With these new measures applied to employers, it’s recommended that enterprises conduct self-evaluations of their employment law compliance, and remediate any problems as soon as possible.

The Chinese Ministry of Human Resources and Social Security (MHRSS) has launched a new nationwide grading system to evaluate employers’ employment law compliance. This system has been put in place via the Measures for the Grading of Enterprises’ Employment Law Compliance (the “Grading Measures”) and is effective January 1, 2017.

Prior to 2017, 24 Chinese provinces and cities each had individual schemes to evaluate employment law compliance. These schemes varied widely and were not compatible with counterpart government schemes, e.g., those administered by the State Tax Bureau (taxpayer credit evaluation system ), the Administration of Industry and Commerce (business credit evaluation system ) and the People’s Bank of China (enterprise credit evaluation system).

The Grading Measures will standardize the disparate evaluation systems and may become a key determinant of an employer’s compliance status.

Grading Scope and Criteria

Employers will now receive an annual grade (A, B or C) for employment law compliance in any given year based on (i) the local authority’s routine and random inspection, (ii) review of employment records and (iii) investigations of filed complaints.

The criteria for assessing compliance include reviews of:

  • the availability of internal employment policies and regulations within the employer;
  • proper enrollment and participation in statutory social security insurance programs;
  • compliance with key employment laws and regulations, especially regarding salary payment;
  • female employee protection; and
  • working hours.

Employers with perfect compliance during the year will receive an “A”. Employers that have been disciplined for “non-serious” violations (as enumerated in the Grading Measures) by the local labor authority will receive a “B”.  Employers with “serious” violations will receive a “C”.

Impact on Employers

Grade A employers will be subject to fewer routine checks by the local authority in the following calendar year, while Grade C employers will be monitored more closely, meaning more frequent routine and random inspections.

A different regulation provides that a labor authority may publish on its website the serious violations leading to a designation of Grade C. This could of course adversely impact the reputation and good standing of the employer.

Recommendations for Employers

It is recommended that all enterprises conduct a self-evaluation of their employment law compliance, especially the key issues highlighted by the Grading Measures, and remediate any problems as soon as possible.

Detailed implementation rules and launch schedules for the Grading Measures are not yet available. We will keep an eye on further developments.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the International Employment Law Team,

By Andrew S. Boutros and Craig B. Simonsen

Seyfarth Synopsis: Federal whistleblower laws collide with the in-house attorney-client privilege. The trial round goes to the whistleblower.  The expected appellate round still has not been fought.

In a February 7, 2017 jury verdict, the plaintiff, Sanford S. Wadler, the former General Counsel of Bio-Rad Laboratories, Inc., was awarded $7.29 million for compensatory and punitive damages in a case alleging Sarbanes-Oxley and Dodd-Frank Acts whistleblower retaliation – Foreign Corrupt Practices Act (FCPA) claims, in the United States District Court for the Northern District of California.  It is exceedingly rare for a general counsel of a public company to be a whistleblower, much less file a lawsuit, take it to trial, and be awarded anti-retaliation whistleblower fees.

Whether unique in its own facts or a watershed case that will serve as a precursor for more to come, the case will surely be studied for both its impact and implications. And, given the high stakes, it is expected that the legal saga will continue on appeal.  If it does, until the Ninth Circuit Court of Appeals rules on whether federal whistleblower laws preempt state ethics and privilege rules, it is unclear whether Wadler’s victory will stand the test of time.

With that: Law360 notes that “the case’s turning point came in late December, when U.S. Magistrate Judge Joseph C. Spero ruled that the Sarbanes-Oxley Act’s whistleblower protections preempt attorney-client privilege, thus allowing Wadler to use otherwise privileged information as evidence in the case. ” (Emphasis in the original.)  The ruling bucked a Second Circuit decision from 2013 that found that the former General Counsel of Unilab, which was later acquired by Quest Diagnostics, could not bring a qui tam whistleblower suit against Quest under the False Claims Act because “the allegations relied on privileged information,” amounting to a finding that “privilege took precedent over whistleblower protections,” as noted by Law360. See United States ex rel. Fair Lab. Practices Assoc. v. Quest Diagnostics Inc., 734 F.3d 154 (2d Cir. 2013).

Wadler, who had worked at Bio-Rad for some 25 years, specifically alleged that “after learning of his employer Bio-Rad Laboratories, Inc.’s involvement in extensive bribery occurring in Russia, Thailand, and Vietnam, [he] investigated evidence of similar violations of the FCPA in China, where corruption is notoriously endemic.” According to Wadler’s Complaint, key Bio-Rad officers and directors wanted him to “turn a blind eye to this misconduct or sweep it under the rug, but he refused. Instead, and following his mandatory duties under federal securities laws as the Company’s chief legal officer, Wadler investigated this potential criminal activity and reported it up the ladder.” Wadler v. Bio-Rad Laboratories, Inc., et al., No. 15-cv-02356-JCS, Complaint, p. 1.

Wadler’s above-the-fold Complaint allegations went even further: “When Wadler began to believe that the conspiracy to violate the FCPA went all the way to the top of the corporate hierarchy, he reported his concerns to the Company’s audit committee. Then, just shortly before Bio-Rad was scheduled to present to the SEC and DOJ regarding the Company’s investigation into potential FCPA violations, the Company fired Wadler precisely because he refused to be complicit in its wrongdoing.” Complaint, p. 1.

Law360 observed that the unique role of the general counsel came up prominently during the nearly three-week trial, as Bio-Rad defended its termination of Wadler. “The company argued that his incompetence had led him to misconstrue normal business practices as FCPA violations. One board member testified that when Wadler had raised FCPA concerns with the board, his initial reaction that Wadler had made a courageous move gave way to a belief that Wadler’s suspicions actually stemmed from a misunderstanding of the FCPA. Others testified that Wadler wasn’t a team player.” Even Bio-Rad’s outside counsel testified as a defense witness against Wadler.  But that strand of argument was met by another, this one raised by Wadler, as noted by Law360:  That the role of the general counsel is “that of a generalist who is trained to spot issues and call in specialized experts when necessary” and that an attorney’s duty is to “bring attention to legal risks even when management doesn’t want to hear about them.”

Although a plaintiff’s victory at trial is a critical statement to legal observers and practitioners on both sides of the “v” in a whistleblower claim, the legal battle over Wadler’s allegations and treatment is far from over. With competing precedent out of the Second Circuit, Bio-Rad is surely expected to appeal the jury’s verdict and ask the Ninth Circuit to toss out the verdict and either dismiss the case entirely or return the case to the district court for a retrial.  How the Ninth Circuit will rule remains to be seen, but the legal saga is sure to continue until then and the state of the law on whistleblower preemption can hardly be viewed as settled.

Those with questions about any of these issues or topics are encouraged to reach out to the authors, your Seyfarth attorney, or any member of the Seyfarth Shaw’s White Collar, Internal Investigations, and False Claims Team, Securities Litigation Team, or Whistleblower Team.

By Jason E. Burritt

Seyfarth Synopsis: In light of recent events related to the most recent Executive Order banning travel to the United States for nationals from certain countries, please continue reading for more detailed information regarding this Executive Order and what employers may wish to consider in response. 

On Friday, January 27, President Trump signed an Executive Order that suspended travel into the United States for nationals from certain designated countries, specifically Iran, Iraq, Libya, Somalia, Sudan, Syria, and Yemen. This suspension in travel is already in place.  If nationals from these countries, including those who are lawful permanent residents (i.e. green card holders), are currently present in the United States, they can remain here lawfully but should not travel outside the U.S. at this time.

This suspension will remain in place for at least 90 days — until April 27, 2017 — during which time the Department of Homeland Security (“DHS”) must assess and identify any countries that do not currently provide adequate information to enable proper screening of nationals from those countries; the affected countries would thereafter have 60 days within which to begin providing the necessary information. Presumably, if a country failed to adequately provide the requested information, the travel ban would then become indefinite.

The Executive Order does not clearly define the circumstances under which an individual is considered to be “from a designated” country. However, the language and subsequent actions by Customs and Border Protection (“CBP”) at the border suggests that the travel ban will apply to nationals from the seven countries, and may include lawful permanent residents.

Following actions by CBP, several lawsuits have been filed and subsequent rulings have been made, starting with an emergency ruling issued in Brooklyn, New York on January 28, 2017. As of this writing, at least four temporary restraining orders (“TROs”) are in place, each with varying specificity and reach.  We have highlighted the key points of the three most prominent orders below:

  • Massachusetts – On Sunday, January 29, 2017, U.S. District Judge Allison Burroughs and Magistrate Judge Judith G. Dein of the U.S. District Court of Massachusetts issued a seven-day stay on removal, detainment and additional screening. Perhaps the most far reaching order to date, the TRO is in effect for seven days and applies to lawful permanent residents, citizens, visa holders, approved refugees, and other individuals from the identified countries subject to the Executive Order. The ruling also (1) limits secondary inspection screening; (2) bars DHS from detaining or removing foreign nationals who would otherwise be legally authorized to enter the U.S. in the absence of the Executive Order with approved refugees applications, immigrant and nonimmigrant visas; (3) requires CBP to notify airlines that individuals on flights to Logan Airport will not be detained or returned based solely on the basis of the Executive Order.
  • New York- On Saturday, January 28, 2017, Judge Ann M. Donnelly of the U.S. District Court in Brooklyn enjoined and restrained DHS from “removing individuals with refugee applications . . . , holders of valid immigrant and non-immigrant visas, and other individuals . . . legally authorized to enter the United States.” The Court orders the U.S. Marshal for the Eastern District of New York to enforce the ruling. While the ruling blocks removal of the individuals, it does not order the release of any segment of the affected population.
  • Virginia – On Saturday, January 28, 2017, U.S. District Court Judge Leinie Brinkeman for the Eastern District of Virginia issued an order blocking removal of lawful permanent residents detained at Dulles International Airport. The order remains in effect for seven days and does not require release of lawful permanent residents, but does require that all lawful permanent residents detained at Dulles International Airport be given access to lawyers.

The President’s Executive Order is not the first time in the post-9/11 era that the U.S. has focused on citizens of particular nations to try and identify and eliminate potential threats to homeland security. In 2002, the George W. Bush administration created a program of special vetting of foreign citizens, known as the National Security Entry-Exit Registration System (“NSEERS”), to record and monitor the arrival, stay, and departure of certain foreign citizens from the very same seven countries named in the most recent Executive Order.

NSEERS, however, was far broader. It also applied to categories of foreign citizens from several other countries, namely, Afghanistan, Algeria, Bahrain, Bangladesh, Egypt, Eritrea, Indonesia, Jordan, Kuwait, Lebanon, Morocco, North Korea, Oman, Pakistan, Qatar, Saudi Arabia, Tunisia, and United Arab Emirates. DHS suspended NSEERS in 2011, however, and President Obama formally terminated it on December 22, 2016.

Given this history, as a precautionary measure, U.S. lawful permanent residents and foreign nationals from countries not included in President Trump’s Executive Order but included in the NSEERS list of countries should consider postponing all non-emergency travel from, and accelerating their return travel to the United States.  In addition, employers of U.S. lawful permanent residents and foreign nationals who are from Afghanistan, Algeria, Bahrain, Bangladesh, Egypt, Eritrea, Indonesia, Jordan, Kuwait, Lebanon, Morocco, North Korea, Oman, Pakistan, Qatar, Saudi Arabia, Tunisia, and United Arab Emirates, should consider (a) canceling all trips abroad for these employees, and (b) instructing them to return as soon as possible to the United States.

In light of these developments, and in response to the rapidly changing immigration climate, employers should strongly consider the following actions:

  • Advise any foreign national employees from the seven designated countries listed above — this includes U.S. lawful permanent residents who are nationals from these countries — to avoid travel outside of the United States. If a U.S. lawful permanent resident from these countries is currently outside of the U.S., s/he should seek to return as soon as possible.
  • Advise any affected individuals from the seven designated countries, other than lawful permanent residents, who are currently outside of the United States that they should not return to the U.S. at this time. Seyfarth Shaw attorneys have first-hand knowledge of individuals being detained upon arrival to the United States.
  • Consider advising U.S. lawful permanent residents and foreign national employees from countries not included in the Executive Order but included in NSEERS to postpone non-emergency international travel.
  • Identify all employees currently holding any nonimmigrant visa status (this includes L-2s, H-4s, and TNs) and consider sponsoring these employees for H-1B status under the April 1 H-1B lottery.
  • Advise caution to all foreign national employees who may be traveling internationally to renew a visa at a United States consular post. Individuals who are employed, or who hold academic degrees, in a field that appears on the government’s Technology Alert List, should delay their visa appointments at U.S. consular posts in order to avoid potentially lengthy administrative processing or related screening delays.  Click here for more information on the Department of State’s Technology Alert List.
  • For any affected employees who have current green card priority dates and are able to file Adjustment of Status applications, file the applications as soon as possible.

Please bear in mind, however, that each employer’s and affected employee’s situation may present special circumstances that may warrant consideration of an alternative approach in lieu of the recommended strategy above.

We will continue to monitor the situation and will reach out with additional details as they become available.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the Workplace Counseling & Solutions Team.

 

By Andrew S. Boutros and Craig B. Simonsen

Graduation cap and books. The concept education. Stack of books,Seyfarth Synopsis: No differently than companies doing business overseasespecially in high-risk marketsAmerican colleges and universities who do business overseas face real risks of violating the Foreign Corrupt Practices Act and must be mindful of the enforcement landscape that applies to these criminal violations. Robust and effective compliance programs remain the antidote to the corruption scourge.

As reported in its recent SEC filing, Laureate Education, Inc., is under scrutiny for potential Foreign Corrupt Practices Act (FCPA) violations after it disclosed FCPA related conduct to the statute’s twin enforcers, the U.S. Department of Justice and the Securities and Exchange Commission. Seyfarth Shaw’s White Collar, Internal Investigations, and False Claims Team blogged previously about “FCPA Compliance-Recent Department of Justice Initiatives,” and how the DOJ had initiated a one-year pilot program to encourage entities to self-report violations of the FCPA and cooperate fully with federal prosecutors.

Set to expire in April 2017, any entity—whether public or private, for-profit or not-for-profit, a company or some other business organization, such as a higher education institution—contemplating self-reporting an FCPA violation to the DOJ needs to carefully consider participating in the pilot program. As part of that analysis, an organization naturally will need to weigh the pros and cons of voluntary self-disclosure, as well as the government’s expectation of full institutional cooperation, including complying with Department policies regarding the decision to prosecute business organizations (as reflected in  United States Attorneys’ Manual) as well as the still fairly recent and high-profile Yates Memorandum, which addresses individual accountability for corporate wrongdoing.

Here, we note an FCPA Professor blog about a Wall Street Journal article titled “American Colleges Pay Agents to Woo Foreigners Despite Fraud Risk.”  These pieces discuss the applicability of the FCPA to higher education institutions.   Specifically, the blog notes that in recent years, several U.S. higher education institutions have opened foreign campuses (either directly or through affiliates) in places such as China, India, and the Middle East—all regarded as high-risk regions for public and commercial corruption.  To open up campuses and do business in these parts of the world, the entities required relevant government approvals, licenses, permits, and certifications—no differently than a company needing government approvals to establish a manufacturing presence in a foreign country.  These government approvals require colleges and universities to interface with foreign government officials, which in turn increases the risk that higher education institutions will fold to pressures of commission or kickback requests, or hidden payments for expediency.

Opening foreign campuses is not the only area of FCPA risk that colleges and universities face. According to the WSJ article, American colleges and universities also face corruption risks when they interface with overseas third-party agents, again, no differently than any other traditional business organization.  Specifically, according to the WSJ:

Like many U.S. colleges, Wichita State University wants more foreign students but isn’t a brand name abroad.  So the school . . . , in late 2013[,] started paying agents to recruit in places like China and India. The independent agents assemble candidates’ documents and urge them to apply to the Kansas school, which pays the agents $1,000 to $1,600 per enrolled student.  Overseas applications “shot up precipitously,” says Vince Altum, Wichita State’s executive director for international education.  But there is a down side:  Wichita State rejected several Chinese applications this year from an agency it suspected of falsifying transcripts, Mr. Altum says, adding that it terminates ties with agencies found to violate its code of conduct by faking documents.  Paying agents a per-student commission is illegal under U.S. law when recruiting students eligible for federal aid—that is, most domestic applicants.  But paying commissioned agents isn’t illegal when recruiting foreigners who can’t get federal aid.  So more schools like Wichita State are relying on such agents, saying the intermediaries are the most practical way to woo overseas youths without the cost of sending staff around the world.  No one officially counts how many U.S. campuses pay such agents, most of whom operate abroad, but experts estimate at least a quarter do so.

Although few higher education institutions are for-profit companies, Laureate Education, Inc., is, and earlier this month the company made an eye-catching disclosure in an SEC Form S-1 filing about an $18 million (US) “charitable donation” in Turkey.

The disclosure states:

We are conducting an internal investigation of one of our network institutions for violations of the Company’s policies, and possible violations of the U.S. Foreign Corrupt Practices Act and other applicable laws….

As previously disclosed, during the fourth quarter of 2014, we recorded an operating expense of $18.0 million (the value of 40.0 million Turkish Liras at the date of donation) for a donation by our network institution in Turkey to a charitable foundation. We believed the donation was encouraged by the Turkish government to further a public project supported by the government and expected that it would enhance the position and ongoing operations of our institution in Turkey.  The Company has learned that the charitable foundation which received the donation disbursed the funds at the direction of a former senior executive at our network institution in Turkey and other external individuals to a third party without our knowledge or approval.

In June 2016, the Audit Committee of the Board of Directors initiated an internal investigation into this matter with the assistance of external counsel. The investigation concerns the facts surrounding the donation, violations of the Company’s policies, and possible violations of the FCPA and other applicable laws in what appears to be a fraud perpetrated by the former senior executive at our network institution in Turkey and other external individuals.  This includes an investigation to determine if the diversion was part of a scheme to misappropriate the funds and whether any portion of the funds was paid to government officials.  As of the date of this prospectus, we have not identified that any other officers or employees outside of Turkey were involved in the diversion of the intended donation….

We have been advised by Turkish counsel that, under Turkish law, a Foundation University may not make payments that cause a decrease in the university’s wealth or do not otherwise benefit the university. Given the uncertainty of recovery of the diverted donation and to mitigate any potential regulatory issues in Turkey relating to the donation, certain Laureate-owned entities that are members of the foundation that controls our network institution in Turkey have contributed an amount of approximately $13.0 million (the value of 40.0 million Turkish Liras on November 4, 2016, the date of contribution) to our network institution in Turkey to reimburse it for the donation.

As a result of the investigation, which is ongoing, we took steps to remove the former senior executive at our network institution in Turkey. Because of the complex organizational structure in Turkey, this took approximately one month and during that period our access to certain aspects of the business including the financial and other records of the university was interrupted.  The former senior executive is now no longer affiliated with our network institution and we again have access to the financial and other records of the university.

In September 2016, we voluntarily disclosed the investigation to the [DOJ] and the SEC. The Company intends to fully cooperate with these agencies and any other applicable authorities in any investigation that may be conducted in this matter by them.  The Company has internal controls and compliance policies and procedures that are designed to prevent misconduct of this nature and support compliance with laws and best practices throughout its global operations….  If we are found to have violated the FCPA or other laws governing the conduct of our operations, we may be subject to criminal and civil penalties and other remedial measures, which could materially adversely affect our business, financial condition, results of operations and liquidity.

Long gone are the days where the FCPA was viewed as practically applying only to large multinational companies with significant overseas business activity.  As the FCPA matures—and the FCPA bar and government enforcers continues to evolve alongside with it—a growing number of entities can expect to see the FCPA applied more widely to “non-traditional” organizations otherwise subject to the FCPA’s reach.  In the FCPA world, proactive compliance, monitoring, and risk-appreciation applies with equal vigor to educators, administrators, and trustees as it does to C-suite executives and corporate boards.  The old adage that “an ounce of prevention is worth a pound of cure,” should guide American colleges and educators in the same way it guides American businesses.  As higher education institutions teach and train our next generation of leaders, they, themselves, must lead by example in this ever-expanding fight against public and commercial corruption.

Seyfarth Shaw is a full-service firm with leading FCPA, white collar, and higher education practitioners. Those with questions about any of these issues or topics are encouraged to reach out to the authors, your Seyfarth attorney, or any member of the Seyfarth Shaw’s White Collar, Internal Investigations, and False Claims Team.