Month: September 2020

GKG Law Principal Katie Meyer authored an article published by the American Society of Association Executives (ASAE) on September 24. See complete article here and below.

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Association HR staff should review policies and practices around hiring and termination to reduce the likelihood that implicit bias is influencing their process and leaving their staff less diverse.

The recent Black Lives Matter protests have made many people look more closely at racism in the United States. While, presumably, every employer is aware that it is illegal to discriminate against employees based on race or color, many are now educating themselves as to how implicit bias and structural racism can play a part in employment decisions. Associations should review current policies to identify unconscious biases in standing employment procedures. By conducting this analysis, associations can take steps to create a more diverse workforce and safeguard against future possible discrimination claims. Below are recommended practices that can help limit discrimination in hiring and termination decisions.

Hiring Procedures

Many employers and HR managers are unaware of how implicit bias can affect every part of the hiring process. To limit the impact of such biases, associations may want to consider the following when revising their hiring policies:

Job postings. Carefully review each job posting to determine the actual qualifications needed to perform a job. For instance, before requiring a certain level of education, make sure that type of education is needed to perform the job. There may be qualified applicants who have a great deal of experience but have not taken the traditional route to get to the position they are in now.

Associations also may want to re-evaluate and broaden where they list job postings. There may be other educational institutions, listing sites, and publications that cater to a more diverse group of qualified applicants. Additionally, in the association world, it is common for employers to learn about possible job applicants through word of mouth or referrals. While this may be an easier and less expensive way to hire, it greatly limits the ability of individuals outside the association’s network to learn about job opportunities.

Resume review. Resumes contain information about applicants that can be used to deduce their racial or ethnic background. Several studies show that individuals who have more ethnic-sounding names are less likely to make it to the interview stage of the hiring process. To help ensure that every candidate has an equal shot at the position, associations can create a “blind” resume review process. Before giving resumes to the person or committee reviewing them, remove the applicant’s name, address, education, and other information that could help identify a person’s race or ethnicity. By reviewing blind resumes, employers will be more likely to evaluate applicants based on their experience and accomplishments.

Interviews. The hiring process can go very wrong at the interview stage. Inexperienced interviewers sometimes make inappropriate comments or ask off-the-cuff questions that could be viewed as offensive or discriminatory. Additionally, conversational, unstructured interviews tend to focus less on the abilities of the applicant and more on the rapport between the interviewer and applicant.

A job interview should be about determining whether a person has the proper qualifications for the position, not whether the applicant will fit into the interviewer’s social circle. While fitting in to the “corporate culture” can be important, in order to keep the interview focused on the job, it is prudent to use the same list of preapproved questions for each interview. Structured interviews help employers base their decision on the skills and abilities of each applicant, as opposed to whether they have a lot in common with the interviewee.

Termination Procedures

Reductions in force. Unfortunately, over the past six months we have seen an overwhelming number of layoffs and firings due to the COVID-19 pandemic. While these terminations may be unavoidable, associations need to be careful to ensure that people of color are not disproportionately affected by them. The Equal Employment Opportunity Commission recommends that, prior to implementing a layoff or reduction in force, an organization conduct an adverse impact analysis to determine if it will result in a disproportionate dismissal of a protected group.

Terminations. It is crucial to carefully examine the reasons for terminating an employee of a protected class. While a person might be an “at will” employee, he or she still cannot be terminated because of discriminatory reasons. To help protect against an improper-termination claim, associations should have clear evidence that a termination was due to nondiscriminatory reasons. Therefore, it is important that the association document all performance issues or disciplinary actions of an employee at the time they occur.

Additionally, the reasons for termination must be uniformly applied. If a person is being terminated due to a violation of employment policy, such as tardiness, absenteeism, or conduct, the action must be consistent with past termination decisions. For instance, if a company terminates an African-American woman for chronic lateness but takes no action against a Caucasian woman who is frequently late, the termination may be viewed as discriminatory.

Any employer who has concerns or questions about hiring or terminating employees should consult legal counsel before taking action in order to assess potential risks.

 

This article originally appeared on ASAEcenter.org. Reprinted with permission. Copyright ASAE: The Center for Association Leadership (September 2020), Washington, DC.

The new normal developed in response to the coronavirus pandemic has radically changed the way that professional services are provided to consumers.

For many professions, working remotely rather than in an office setting has become pervasive. Virtual physical exams have become commonplace in health care. Virtual education is the norm for students from preschool through graduate school.

In-person testing for professional licensure has largely been replaced by online testing programs. The court systems have moved to utilize Zoom-type depositions and hearings and, in some situations, actual Zoom trials.

How are professional service providers held accountable to meeting the requirements of professional practice amid these drastic changes? In our system of government, state boards often have the responsibility of developing regulations that establish what constitutes minimum requirements for professional practice.

Historically, a majority of the members of such state boards are active, practicing members of the profession that they are regulating. In a wide range of antitrust cases involving highly regulated professions such as — but certainly not limited to — lawyers, doctors and dentists, courts have found that members of state boards are subject to the antitrust laws. In the seminal 2014 decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission, the U.S. Supreme Court held:

When a State empowers a group of active market participants to decide who can participate in its market and on what terms, the need for supervision is manifest. The Court holds today that a state board on which a controlling number of decision makers are active market participants in the occupation the board regulates must satisfy Midcal's [California Retail Liquor Dealer's Association v. Midcal Aluminum, Inc.] active supervision requirement in order to invoke state-action antitrust immunity.

Every state and city has advisory boards and commissions. For example, the city of New York lists more than 300 advisory boards and commissions. Since the time of the North Carolina Dental Examiners decision, the makeup of these boards has been evolving and inclusion considerations have expanded the areas of expertise and interests on state boards.

Many state boards include several consumer representatives to provide user input. State government experts also may be included. And some are dominated by active practitioners, though they may not be aware of the fact that they possibly face personal antitrust liability.

The U.S. Court of Appeals for the Eleventh Circuit's recent decision in SmileDirectClub LLC v. Tanja Battle demonstrates this exposure and the growing, imperative need for attorneys who represent state boards or state board members to review and monitor their clients' activities. This case gives us a fascinating preview or, in the words of dissenting U.S. Circuit Judge Gerald Tjoflat, an advisory opinion of how state board members may be subject to antitrust liability unless state governments carefully supervise their activities.

Summary

SmileDirectClub offers orthodontic treatments at a steep discount compared to typical orthodontists, because unlike the typical orthodontist, it does not provide in-person treatment. SmileDirectClub SmileShops are staffed by dental technicians, not a dentist or orthodontist.

Patient scans are sent to state-licensed dentists who review and identify any periodontal disease, cavities or other oral conditions that would require further investigation or prevent the patient from being a candidate for SmileDirectClub's treatment. If no such problems are present, the dentist writes a patient-specific plan and ultimately a prescription for SmileDirectClub's clear aligners, which are sent to the patient by mail.

The Georgia Board of Dentistry was organized pursuant to Georgia Title 43, Chapter 11 of the Code of Georgia. At the time of this litigation, the board had 11 members, nine of whom were practicing dentists licensed in Georgia. One board member was a dental hygienist and one was a nondental professional. The board had the power to regulate the acts and practices performed by dental hygienists, dental assistants or other persons at the direction of and under the supervision of a licensed dentist.

On Jan. 24, the board voted to amend Rule 150-9-.02, which related to expanded duties of dental assistants. The proposed amendment added conducting digital scans for fabrication of orthodontic appliances and models to the duties of dental assistants that required direct supervision of a dentist.

"Direct supervision" was defined to require a Georgia-licensed dentist to be in the dental office or treatment facility, personally diagnose the condition to be treated, personally authorize the procedures to be done by the dental assistant, remain in the facility while the procedures are being performed, and before dismissal of the patient, evaluate the performance of the dental assistant.

The board sent the proposed amendment to the Georgia governor, who by statute was required to approve, modify or veto the proposed rule amendment.[1] On April 30, 2018, the governor issued a certificate of active supervision to the board approving the proposed amendment "for the purposes of active certification review required by Sec 43-1C-3."

Consequently, SmileDirectClub sued the board and the board members in their individual capacity, alleging antitrust, equal protection and due process violations. The board members filed a Rule 12(b)(6) motion to dismiss the antitrust violations.

The district court denied the motion to dismiss finding that, based on the complaint, there was insufficient evidence to conclude that the Midcal active supervision test had been met. The members of the board appealed to the Eleventh Circuit arguing that, on its face, the certificate of active supervision met the test.

The three judge panel of the Eleventh Circuit issued a 2-1 decision to send the case back to the district court.

Takeaways

The majority opinion by U.S. Circuit Judge R. Lanier Anderson III is of great value to professional associations, state boards and legal practitioners. It begins by discussing the antitrust state-action immunity doctrine of Parker v. Brown, explaining that the Sherman Act applies to individuals but not to action by state governments.

However, the state action immunity doctrine does not allow states to "give immunity to those who violate the Sherman Act by authorizing them to violate it or by declaring that their action is lawful."[2]

Therefore, under the rationale of North Carolina State Board of Dental Examiners v. FTC, ibid, where a state board is composed of active market participants, the State Board members do not automatically get antitrust immunity. Actions of state boards must meet the Midcal active supervision test.

The Eleventh Circuit court found that, although the governor clearly had the authority to exercise active supervision, there is no evidence that he actually did so. Judge Anderson stated:

There is no indication that the Governor engaged in a substantive review of the amended rule to ensure that it accords with state policy. His comments regarding the proposed amendment in the Certificate of Active Supervision suggest that he only examined the procedural question of whether the amended rule was within the Board of Dentistry's statutory power to propose a rule change. The Governor did not comment—even in passing—on the merits or the contents of the rule change. Quite the contrary. The reasonable inferences from his Certification is that he ascertained that the amendment was within the authority delegated to the Board by the Georgia statute … This is exactly the sort of potential for active supervision—without active supervision—that the Supreme Court has repeatedly held is insufficient to satisfy the active supervision requirement.

This decision should serve as a reminder that, when a new seller enters the marketplace offering a new and cheaper alternative for services or products, the seller may be faced with a situation where a state board or government regulator, based on input from current sellers, decides to curtail the new seller's market access.

In such situations the actions of the members of the state board or advisors to the government regulator may violate the antitrust laws. Many industry and professional groups have tried to hide behind the skirts of government and conspire to keep innovative, lower-priced products and services from the market.

In defending their turf, they may be violating the antitrust laws. Per se antitrust violations such as price-fixing, bid-rigging, customer allocations and some concerted refusal to deal are felonies. Individuals convicted of such felonies are subject to a minimum jail sentence of one year.

If you have a client serving on a state board or if you advise a state board, you should take necessary steps to ensure that actions of the state board and its members are subject to the type of active supervision described in the SmileDirectClub decision.

This case also highlights the need for state boards to recognize that, where a state board composed of active practitioners is engaging in activities that have a possible anticompetitive affect, even if the state board is created by the legislature and its members are appointed by the governor, antitrust counsel must review the proposed course of conduct to insure that it meets antitrust requirements.

The antitrust review must be by someone who has the specific authority to approve, modify or veto the proposed rule. If this is not done, the individual state board members who established the rule face personal liability, even if their actions have been submitted for approval to another state agency that has supervisory authority.

The SmileDirectClub decision emphasizes that the test is not what the supervisor is authorized to do or even what the supervisor says was done. The test is whether the supervisor made an independent antitrust analysis of the underlying facts and concluded that the proposed action does not violate the antitrust laws.

All states have a person or group in the attorney general's office with specific antitrust responsibilities. It would be prudent to have such a person be given the responsibility of reviewing actions of state boards comprised of active market participants and the authority to approve, modify or veto such actions.

[1] O.C.G.A. Sec 43-1C-3.

[2] 317 U.S. 351.

GKG Law Principal Tom Wilcox authored an article that published in the National Coal Transportation Association's September 10 On Track newsletter. Tom's article, "Changes Coming to the U.S. Surface Transportation Board" can be seen here and below.

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The United States Surface Transportation Board (STB) has had a very interesting tenure over the past two years, and it is about to enter newer and potentially more interesting territory. On January 1, 2019, the Board was composed of a single member, Chairman Ann Begeman, after the term of Vice Chairman Deb Miller expired on December 31, 2018. The reduction of membership was ironic given that in 2015 Congress amended the law to expand the size of the Board from three members to five. However, gridlock and partisanship in Congress prevented the full complement from being nominated and confirmed.

After her brief solo stint, Chairman Begeman was joined by two new members, Republican Patrick Fuchs and Democrat Martin Oberman, who were sworn in on January 17 and January 22, 2019 respectively. Fuchs, 31, was an already experienced Washington hand, having been employed by the Office of Management and Budget and by the Senate Commerce Committee under the tutelage of Chairman John Thune. Oberman, 75, is a career trial attorney from Chicago, who has also served as an alderman for the city’s 43rd Ward and as chairman of METRA, Chicago’s commuter train entity. The addition of Fuchs and Oberman, combined with the directness and energy of Begeman, transformed the agency in many respects. The trio has developed a very proactive and interactive relationship that encourages stakeholder interaction with them individually and with staff. Begeman has also introduced discipline and accountability in the Board’s processing of cases and regulatory proceedings. Perhaps the most notorious outcome of the current Board lineup has been the extraordinarily long and comprehensive public hearings and oral arguments, in which all three Board members have actively and aggressively questioned railroad and shipper witnesses for extended periods.

Under Begeman, the Board has initiated several proceedings to address key issues identified by rail shippers, such as the need to fix the Board’s rate reasonableness review standards and procedures, and the practices of railroads concerning the assessment of demurrage and accessorial charges. Some of the key proceedings are pending and on the verge of final decision. However, the Board’s current dynamic and ways in which it operates overall is about to change, as two new members – Michele Schultz and Robert Primus – are expected to finally be sworn in to bring the Board to its full complement of five members. Schultz, a Republican, was nominated to the Board in March 2018 and vetted, but has been waiting in the wings. Because there was not yet a Democrat nominee, the full Senate never voted on her nomination, per current practice on Capitol Hill. Schultz has served as deputy general counsel for the Southeastern Pennsylvania Transportation Authority, a large public transportation agency popularly known as SEPTA. Primus, a Democrat, is a career Congressional staffer. While it is not readily apparent that he has experience or knowledge of the freight rail industry, he has served on the congressional staff of two lawmakers well-known in the railroad community: Sen. Frank R. Lautenberg (D-N.J.) and Rep. Michael Capuano (D-Mass.). Primus currently serves as chief of staff to second-term Rep. Nanette Diaz Barragan (D-Calif.). On August 6, 2020, the Senate Commerce, Science and Transportation Committee held a confirmation hearing to consider Primus’s nomination, and it’s expected that he and Schultz will be confirmed and officially take their seats on the Board soon. However, no specific date has been set and the status quo will continue.

The expansion of the Board at this time raises a number of interesting issues. First, Chairman Begeman’s second term at the Board expires at the end of 2020, and there is no indication that she intends to exercise her right to remain for a “holdover” year while her replacement is found. Thus, the addition of two new members at a time when the Board has several major proceedings before it that the Chairman would like to complete before her departure might be slowed or stalled while the new members are brought up to speed. It is also unknown how the policy views of the two new members will mesh with the current members, or not. Chairman Begeman’s departure could also mean that the tenure of the full five-member Board will be short-lived, since it has already been demonstrated that finding and confirming new Board members can take a very long time. Among other things, this would mean that the Board would be composed of two Democrats and two Republicans.

Second, the outcome of the upcoming presidential election will greatly affect the STB’s operations because the chairman selection comes from the party of the president. As currently configured, one would expect that Fuchs would be named chairman if President Trump is reelected and that Oberman would be named chairman if Joe Biden is elected. Each would bring a very different approach and mindset to the role. This important element of the Board remains uncertain.

Finally, the internal dynamic and interaction of the Board members should change significantly once more than three members are in place. Under the so-called sunshine laws, a majority of the Board may now hold a meeting on official agency business that is “not open to public observation” only if the meeting attendees are disclosed and a summary of the meeting is posted on the STB’s website. Since with a three-member Board any one-on-one meeting to discuss agency matters would constitute a majority, such meetings may not take place without being subject to the disclosure requirements. This rule has substantially chilled and even prevented Board members from directly communicating with each other, leaving such communication to be through staff. Consequently, for many years agency staff have played a significant role in setting policy and decisions in formal proceedings. Once the full complement of five members is reached, members will be freer to communicate directly about official agency business and pending matters.

The Small Business Administration’s management of the Economic Injury Disaster Loan (EIDL) Program under the CARES Act has had several issues. Katharine Meyer, a principal at GKG Law, examines the pros and cons of obtaining an EIDL, including the potential burdens of the collateral requirements and maintaining hazard insurance on that collateral.
 

The Payroll Protection Program (PPP) was the most popular program included in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). However, the CARES Act also allocated funding for the Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL) Program. The EIDL Program offered loans of up to $2 million to small businesses, and immediate advances of up to $10,000 that did not need to be repaid.

The rollout of the EIDL Program has been somewhat disappointing. In May, the SBA, without informing the public, lowered its loan limit from $2 million to $150,000, angering many applicants who were expecting larger loans. Then, on July 11, it announced that the advances of up to $10,000 were no longer available. Additionally, long delays in loan processing, a lack of communication to loan applicants and the general public, and challenging loan terms have frustrated loan applicants. While EIDLs are still available with good interest rates, applicants should think carefully about whether an EIDL is right for their business before signing the loan documents.

History of EIDL Program

Many people do not realize that the EIDL Program is actually a longstanding initiative. The SBA established this loan program to alleviate economic injury to small businesses and nonprofits after a natural disaster. The CARES Act formally declared the Covid-19 pandemic to be a “disaster” under the Small Business Act, which gave small businesses the ability to access the EIDL Program. Unlike the PPP, loans are made directly by the SBA, without involving a third-party lender.

One of the most attractive elements of the EIDL Program was the ability to obtain an immediate advance of cash. Organizations in need of funds could request up to $10,000 ($1,000 per employee) as an emergency cash advance. Such funds were to be provided to businesses within three days of applying for an EIDL. If the application for the EIDL was denied, the $10,000 cash advance would not need to be repaid. This advance could be used for expenses such as paid sick leave for employees with Covid-19, maintaining payroll during business disruption or government shutdowns, rent or mortgage payments, or increased operational costs.

However, implementation of the EIDL Program was rocky at best. While the intent of the EIDL Program was to swiftly provide struggling businesses with money, the SBA was overwhelmed with applications. This led to significant delays in processing loans and advances. Many businesses that applied for loans in March did not learn they had been approved until mid-May. Most businesses did not receive cash advances within three days of applying. When these advances were sent, many borrowers stated they received no prior notice from the SBA—the funds just appeared in their account.

In early May, because of the overwhelming number of applications, the SBA blocked nearly all new EIDL applications. Around this time, top-tier publications, such as the New York Times and the Washington Post, reported that the SBA had lowered the loan limit from $2 million to $150,000 without publicly announcing this change.

Although the SBA resumed accepting EIDL applications on June 15, the loan limit has remained at $150,000.

Finally, on July 11, the SBA formally announced the termination of the $10,000 advance program.

Loan Terms

Many loan applicants have also been concerned about the terms of the loan. While EIDL loan terms are not extremely onerous, many applicants are unaware of the requirements and obligations involved with such a loan until they receive the loan documents. All applicants should be aware of the following potential pitfalls.

Collateral Requirements. The SBA requires that all loans exceeding $25,000 be backed by collateral. The SBA defines collateral as “all tangible and intangible property” of the borrower. Such collateral can include inventory, equipment, computers, furniture, and vehicles. Except for normal inventory turnover, the SBA requires a borrower to obtain the SBA’s prior written consent before it sells or transfers collateral. Therefore, borrowers may not be able to sell outdated equipment and old vehicles without the SBA’s approval. It is unclear how long it would take to obtain such consent from the SBA. 

Additionally, because many of these loans are for 30 years, a company could be forced to obtain such consent for decades.

Hazard Insurance. The SBA also requires borrowers to maintain hazard insurance of up to 80% of the insurable value of the collateral for the term of the loan. Because loan documents define collateral so broadly, borrowers may want to check with their insurance broker to determine the cost of such insurance prior to signing these documents.

Risk of Compromising Past or Future Loans. Before signing the EIDL loan documents, a company should review all of its existing loan agreements and lines of credit. Entering into an EIDL could trigger a default under those agreements. Companies should also be aware that if it obtains another loan in the future, it may be required to use those funds to pay off the EIDL.
 

Ultimately, the EIDL Program may be a good option for many businesses. However, all businesses should understand the long-term obligations and requirements of an EIDL before proceeding with this loan.