Allyn & Fortuna LLP
Diana Uhimov, October 3, 2014.
After close to a year of public hearings and other inquiries, on July 21, 2014, the New York Department of Financial Services (DFS) proposed a novel comprehensive virtual currency regulatory framework, making New York the first state to take steps to regulate virtual currency businesses. Virtual currencies are digital representations of value that are utilized as money and can be transferred, stored and traded electronically. They are not government-backed or pegged to any fiat currency, which is currency that a government has declared to be legal tender, but is not backed by any physical commodity. Virtual currency is obtained by accepting it as a payment for goods and services or by buying it from someone you know. It can also be purchased directly from an exchange with funds from your bank account. Once it is in your possession, it can be used to purchase goods and services from many merchants who accept virtual currency worldwide.
Bitcoin, which launched in 2009, is the most popular virtual currency, but it is not the sole virtual currency firm. As with many virtual currencies, Bitcoin transactions are anonymous, but there are public ledgers with records of the transactions. Despite recent setbacks in the virtual currency market, there are many indications that it is gaining momentum and will eventually stabilize and become more established. For example, in May 2014, a prominent Bitcoin investor disclosed plans to list a Bitcoin exchange-traded fund on the Nasdaq stock exchange, and in June 2014, the State of California repealed a state law prohibiting commerce using anything but U.S. currency, permitting California businesses to accept virtual currencies as a form of payment. There have also been announcements from a few major retailers stating that they will accept payment in the form of Bitcoin, and reports of significant real estate deals which have been closed using solely virtual currency.
Commonly referred to as the “BitLicense” due to the licensing requirement for virtual currency firms operating in New York, the goals of the DFS regulations are customer protection, minimizing criminal activity, and creating a hospitable environment for start-ups. The initially scheduled 45-day public comment period on the proposed legislation has been extended to October 21, 2014, in response to requests from industry members for more time to review and reply. The regulations have been positively received on the one hand, for their ability to prevent the use of virtual currency for illicit activity and provide consumer protection, while on the other hand criticized as overreaching, potentially reducing competition by placing too heavy a burden on small businesses, and disincentivizing innovation.
According to the proposed regulations, a BitLicense will be compulsory for entities conducting virtual currency activities involving New York or a New York Resident. However, BitLicenses will not be required for: (i) entities that are chartered under the New York Banking Law to conduct exchange services and which are approved by the DFS to engage in virtual currency business activities; and (ii) businesses or consumers that use virtual currencies only for the purchase or sale of goods or services.
DFS Superintendent Benjamin M. Lawsky has described the proposed regulatory framework as a “collision of banking regulations with new technology.” The detailed scope of the legislation subjects virtual currency firms to rules regarding consumer protections, capital requirements, anti-money laundering, and cyber security. The legislation is also far-reaching, adopting a widely-inclusive definition of what entities are considered “virtual currency businesses.”
Members of the virtual currency industry are concerned over the expansiveness of the DFS regulations. Several Bitcoin exchanges have submitted comments to the DFS that the scope of the proposed framework should be limited to cover only virtual currency businesses with a meaningful connection to New York, and other virtual currency businesses, including Bitcoin wallet and Xapo, intend to circumvent the BitLicense requirement by excluding New York customers.
If DFS decides to make significant revisions to the proposed framework, it will issue an updated framework for additional review. It is not yet clear how the proposed regulations will affect the use of virtual currencies either in New York or beyond. Further, if other states or the federal government release similar rules, the interaction of the rules will require examination. It is also important to note foreign regulations, since virtual currencies are utilized globally.
Nicholas Fortuna, October 1, 2014.
Google is making it a high priority to uncover unintended bias at the workplace and in hiring. Unconscious bias in hiring may lead to liability under federal and state employment law. Prevention policies, when properly implemented and followed, will avoid such biases from creeping into the decision making process. If the employer’s hiring policies include listing the qualities sought in a candidate in advance and follow a structured process, it is less likely that the employer will discriminate in hiring, and it is less likely the evaluator’s biases will seep in and infect the process. The more free-wheeling the hiring process is, the more likely decisions are going to be made based on unconscious bias rather than a candidate’s qualifications.
The New York Times reported in its September 24, 2012 edition about a Yale University study that science professors at American universities regard female undergraduates as less competent than male students with the same accomplishments and skills. As a result, the report found that professors were less likely to offer women mentoring or a job. When they did offer a job, the salary was lower. As part of the study, professors were given the same one page summary, which portrayed the applicant as “promising.” In half of the summaries the applicant’s name was John and the other half Jennifer. On average, John was rated higher than Jennifer on a scale of 1 to 7 and John was offered a higher salary.
High technology companies have become a focus since there are so few women and minorities in leadership or management level positions. Recently the New York Times reported that 70% of the employees at Apple are male; as are 69% of the employees at Facebook; 70% at Google; 70% at Twitter; and 62% at Yahoo. Research has shown diversity in the workplace leads to better decisions. The lack of diversity, on the other hand, could lead to charges of discrimination, costly litigation, and liability. Companies are starting to address this kind of bias in the workplace.
Google has reportedly been aggressive in trying to expose hidden bias to improve diversity and creativity. It has identified four steps to tackling unconscious bias:
- Gather facts. Collect data on things like gender representation in action, communication, doodles, conferences, etc. Measure improvements over time.
- Create structure for making decisions. Define clear criteria to evaluate the merits of each option (candidate), and use them consistently. Using the same standards to evaluate all options can reduce bias. Use of structured interviews in hiring, applying the same selection evaluation methods for all.
- Be mindful of subtle cues. Who’s included (gender, race, etc.) and who’s excluded.
- Foster awareness. Hold yourself and your colleagues accountable.
Prevention policies are more than just calling out bias. Prevention also includes having rules in place that implement the criteria for making decisions and ensures compliance with anti-discrimination laws. Each employer is unique and is exposed to different risks. Preventative counseling ensures that employers are aware of the laws applicable to their particular business, know and understand prohibited employment practices, and establish policies that are in compliance with the law. Obtaining counseling on proper employment practices and policies is an effective way for employers to shield themselves from employment-related claims.
Paula Lopez, September 18, 2014.
New Jersey has become the sixth state to enact “ban the box” legislation, restricting private employers within its state from inquiring into an applicant’s criminal record during the initial application process. It is called the “Opportunity to Compete Act” and was signed into law by Governor Christie on August 11, 2014, but does not go into effect until March 1, 2015. The version of the law that was passed is a compromise between the employers’ interests in making fully-informed hiring decisions and the goals of the law’s proponents in preventing otherwise qualified individuals with a criminal record from being considered for employment, thereby reducing the criminal justice system’s cost and the rate of recidivism.
New Jersey’s law applies to private employers with 15 or more employees, including employment agencies. The prospective employment must be “in whole, or substantial part” within New Jersey. Generally, the law restricts employers from advertising for a position that solicits only applicants without criminal records and prohibits, during the “initial application process”, an employer from requiring an applicant to complete an employment application containing questions about an applicant’s criminal record and/or from inquiring, either in writing or verbally, about an applicant’s criminal record. The ”initial application process” is defined as “the period beginning when an applicant for employment first makes an inquiry… about a prospective employment position or job vacancy or when an employer first makes any inquiry to an applicant for employment about a prospective employment position or job vacancy, and ending when an employer has conducted a first interview.” The interview can be in person, telephonically, or through some other means.
Exceptions to the restrictions on an employer’s right to inquire about an applicant’s criminal record include: (i) when an applicant voluntarily discloses, in writing or verbally, that he or she has a criminal record; or (ii) the employer is hiring for (a) a position in law enforcement, corrections, judiciary, homeland security or emergency management, (b) a position where a criminal history background check is required by law, rule or regulation, (c) a position where an arrest or conviction may preclude the applicant from being hired, and/or (d) an employer’s ability to engage in business activities is restricted based on the criminal records of its employees.
New Jersey’s law does not create a private cause of action. The Commissioner of Labor and Workforce Enforcement is charged with enforcing the law. An employer who violates any provision of the law is subject to a $1,000 civil penalty on a first violation, $5,000 civil penalty on a second violation, and a $10,000 civil penalty for a third or subsequent violation. After the “initial interview process” is complete, an employer is free to inquire about an applicant’s criminal record and can refuse to hire an applicant based on his or her criminal record. The caveat of course is that an employer cannot refuse employment based on a past criminal record that has been expunged or erased through executive pardon, and is still required to comply with other applicable laws and rules regarding the consideration of arrests and convictions in the hiring process. The law preempts any conflicting laws previously passed by any county or municipality in New Jersey.
In New York, Article 23-A of the State Corrections Law prohibits any public agency or private employer (with 10 or more employees) from taking adverse employment actions based on a prior criminal conviction unless there is a direct relationship between the prior offense and the position, or there is a threat to the property, safety or welfare of individuals or the public at large. Rochester and Buffalo have passed their own “ban the box” legislation that goes further than Article 23-A and New Jersey’s law. Buffalo’s law went into effect on January 1, 2014 and Rochester’s law goes into effect on November 18, 2014. Both laws apply to private and public employers, except Buffalo’s also extends to vendors servicing the City. Buffalo’s law applies to entities having 15 or employees, while Rochester’s law extends to employers with 4 or more employees, including contract and temporary workers. Both laws prohibit questions about criminal history on employment applications or prior to the first interview, while Rochester also prohibits such questions during the first interview. There are also certain exceptions where the position is with law enforcement or inquiries into criminal histories are required by licensing authorities, state or federal law. Buffalo includes an additional exception where the position is with a school or for employers providing services to children, elderly, young adults, and mentally and physically disabled individuals.
Unlike New Jersey’s law, both Rochester’s and Buffalo’s law afford aggrieved individuals with a private cause of action for injunctive relief, damages or “other appropriate relief”, and the prevailing party can recover attorneys’ fees and costs. New York City has had a law in effect since October 2011 applicable to city agencies limiting their review and consideration of an applicant’s criminal background and incorporating the requirements of Article 23-A. However, a more extensive “ban the box” law is pending before the New York City Council called the “Fair Chance Act.” It would be an amendment to the New York City Human Rights Law and would apply to entities with 4 or more employees.
While there is no federal law expressly prohibiting discrimination on the basis of arrests or criminal convictions, it is recognized that adverse employment actions based on criminal records could constitute illegal discrimination under Title VII based on race, color or national origin. The EEOC has issued enforcement guidance on the consideration of arrests and convictions in the hiring process to avoid discrimination. This includes consideration of the nature of the offense, the time that has elapsed since the offense occurred, the nature of the position, and encourages the employer to give the applicant an opportunity to show why he or she should not be excluded because of past criminal conduct.
The passing of “ban the box” legislation is rapidly increasing throughout cities and states in the U.S. and so is its expansion to cover private employers. As a result, all employers should monitor pending legislation in their state, city and/or municipality to ensure that their hiring process is in line with the law. And, between now and March 15, 2104, New Jersey employers should revise their employment applications to omit any questions related to an applicant’s criminal history, implement proper hiring policies, and train their human resources department and/or hiring individuals on the law’s requirements.
Megan J. Muoio, September 11, 2014
In 2000, the State of Colorado legalized medical marijuana use by individuals with debilitating medical conditions. Then in January 2013, it attracted attention by legalizing recreational marijuana use, but it is the use of medical marijuana that has sparked an important employment law-related debate. For employers in New Jersey, where medical marijuana is already legal, and New York, where it is expected that medical marijuana will be legalized soon, Colorado is the first test for regulating employees’ medical use of marijuana outside of the workplace and employers’ zero-tolerance drug policies.
In 2010, Brandon Coats, a Colorado resident, was fired from his customer service job at Dish Network as a result of a drug test that was positive for THC, the active ingredient in marijuana. Coats, who suffered a spinal cord injury as a teenager and is a quadriplegic, was prescribed medical marijuana in 2009 to treat chronic, involuntary muscle spasms and seizures. Although Coats never used marijuana while on the job at Dish Network, THC remains in one’s system for weeks after use and can trigger a positive drug test. Dish Network has a zero-tolerance policy regarding drug use that read as follows: “No employee shall report to work or be at work with alcohol or with any detectable amount of prohibited drugs in the employee’s system. Any violation of this statement of policy will result in disciplinary action up to and including termination.”
After he was terminated, Coats sued Dish Network for wrongful termination under Colorado’s Lawful Activities statute, which prevents employers from terminating employees for legal activity outside of the workplace. Coats’ lawsuit was dismissed by the trial court on the basis that marijuana use, although legal for medical use under Colorado State law, is still illegal under federal drug laws and could not be considered “legal” under the statute. Federal law does not contain an exception for medical use of marijuana, although the federal government has not been prosecuting individuals who are possessing and using marijuana under state medical marijuana statutes. The Colorado Appellate Court confirmed the ruling of the trial court and the case was argued before the Colorado Supreme Court this summer. Dish Network’s position was bolstered by briefs from the Denver and Colorado chapters of the Chambers of Commerce and other business groups that supported Dish Network’s employment zero-tolerance drug policy and compliance with federal law.
Colorado’s medical marijuana law does not provide any guidance for employees looking for employment protection concomitant with their medical use of marijuana. In contrast, in Arizona, employers are prohibited from having zero-tolerance policies because the Arizona medical marijuana statute discrimination against employees for their out-of-work medical marijuana usage as long as the employee is not in a “safety sensitive” job. In Colorado, however, it is expected that federal law prohibiting the use of marijuana for any reason, even medical use sanctioned by the state, will trump Colorado’s medical marijuana law and that Dish Network’s decision to fire Coats will be upheld.
Absent a change in federal law regarding the medical use of marijuana, employers are within their rights to prohibit the use of marijuana for any reason by their employees and take action against those employees for violating company policy. Employers in states where marijuana is legal for medical purposes or in states where such laws may soon be enacted should review their employment policies regarding the use of drugs in and out of the workplace and ensure that their policies expressly address the company’s stance on drug use, even use for medicinal purposes. Specifically, employment policies should clearly state that the employer has the right to discipline and terminate employees as a result of drug tests and that drug use – in and out of the workplace – if detected, may be grounds for an adverse employment action. The policy should further clarify that it is not a defense for the use to be legal under state law and specifically address the issue of state-legalized medical marijuana.
The Supreme Court of Colorado is expected to rule on appeal in Coats v. Dish Network later this year.
Diana Uhimov, September 3, 2014.
Class-action lawsuits can be a powerful tool for employees and consumers against major corporations, as proven by the massive $7.25 billion Visa and MasterCard antitrust settlement of 2012. A consumer class action is a case where plaintiffs who purchased a product or service from a defendant claim that they suffered damages as a result of fraud, product defect, or other information failure. The class of plaintiffs in the Visa/MasterCard suit consisted of retailers and individuals alleging the credit-card companies engaged in anticompetitive activity by fixing debit and credit card fees. Over the past four years, consumer class action settlements have been on the rise, despite the U.S. Supreme Court decision in Wal-Mart v. Dukes in 2011, which dealt a huge blow to plaintiffs seeking to certify employment discrimination class actions, as well as consumer, antitrust and other class actions.
A report by NERA Economic Consulting analyzed 321 of the 479 consumer class action settlements reached between 2010 and 2013. In 2010, 66 settlements were identified, with the number increasing to 161 by 2013. The settlements were linked to a variety of allegations, from consumer fraud and antitrust-related claims such as price fixing, to false advertising, as well as product liability claims. These allegations were made in connection with causes of action against a wide range of industries including, banking and finance, cosmetics, pharmaceuticals, business services, and food products.
Violation of privacy is one of the fastest growing consumer claims. All industries risk facing these types of suits since everyone has electronic data that could be breached, not just technology companies. Privacy cases are based on two categories of allegations: spam or unwanted phone calls or text messages, and improper handling of personal information. It is likely that the privacy class action category will continue its trending expansion.
Notwithstanding the rise in consumer class action settlements, the future of mass-consumer class actions was called into question by the landmark decision in Dukes, which involved a class of 1.5 million female plaintiffs. The plaintiffs in Dukes claimed that gender discrimination steered Wal-Mart’s pay and promotion policies and practices. In a 5-4 decision, the court found that the allegations did not satisfy the commonality requirement of Rule 23(a)(2) “[b]ecause respondents provide no convincing proof of a companywide discriminatory pay and promotion policy”.
In order to be certified as a class, four requirements must be satisfied: (1) numerosity, (2) commonality, (3) typicality, and (4) adequacy of representation. Courts historically interpreted the threshold for commonality quite broadly under Rule 23(a)(2), which only requires that “there are questions of law or fact common to the class.” However, the Dukes court established a new precedent that “[c]ommonality requires the plaintiff to demonstrate that the class members ‘have suffered the same injury’.” The central holding further requires that the determination of the truth or falsity of the common question resolve an issue that is central to the validity of each of the plaintiffs’ claims. The Court also found that plaintiffs have the burden of satisfying the class certification requirements based on “significant proof .” Under this standard, the plaintiffs would have to demonstrate that the entire company “operate[s] under a general policy of discrimination,” to certify the class.
Last year, employers settled fewer employment discrimination class actions than at any time over the past decade, contrary to the rise in consumer class action settlements. Although the aftermath of Dukes has facilitated a defensive barrier for employers in class-action cases, such as protection for retailers and other businesses that delegate authority to the local level, plaintiffs are responding with new theories and approaches. Reframing class actions to comprise a narrower group and focusing on defendants’ actions in particular locations precludes an employer’s ability to escape these allegations. These smaller class actions may be brought under state laws in state courts to avoid some of Dukes’ impact. Plaintiffs’ lawyers will also likely pursue more claims based on objective personnel policies, such as employment tests, as well as Equal Pay Act claims. Furthermore, plaintiffs have distinguished Dukes on the basis of the enormous class size.
Despite the recent hostility toward certification of large classes, for many types of consumer cases, the class action is the only mechanism for relief, which may elicit sympathy from courts. Businesses in California, Florida, Illinois, New Jersey, and New York should be especially vigilant of their practices as three-quarters of consumer class actions were settled in those five states.